Is it the moment to invest in Africa?

It's Africa Day and we want to commemorate the day analysing the best funds to invest in Africa.

Investor Relations Specialist

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It’s Africa Day, and at RankiaPro Europe we wanted to learn a bit more about the effects of the covid-19 pandemic in the African markets. For that reason, we have analysed the top 5 funds to invest in Africa from a Long term perspective. And we want to answer the question, is it the moment to invest in Africa?

Like any other 25th of May, we celebrate Africa Day, when we commemorate the creation of the Organisation for the Unity of Africa (OUA) 56 years ago, now the African Union (AU).

The African continent needed an organisation to bring together all the countries in the continent.

Their objectives started as promoting the solidarity between African states, and work as a unified voice for the continent with the idea of ending colonialism.

With this is mind, we wanted to analyse what opportunities for investment lay in the continent and if it is the right moment to invest in Africa.

What are the best funds to invest?

*Data extracted from Morningstar on the 24th May 2021

Investing in Africa with Bellevue Funds (Lux) BB African Opportunities

African markets had a difficult 2020: the pandemic hit domestic economies hard on the balance of payment front but the liquidity injected by the IMF and other international institutions helped stabilise local economic conditions.

Further, the exceptional fiscal and monetary stimulus from the world’s leading economies and Central Banks that boosted global equities did not reach our regional markets, leading to comparatively poor yearly performances.

This trend continued in the first months of 2021 although the performance gap between DM and a few African markets such as South Africa or Kenya reduced somewhat.

In this context, we chose to remain invested in countries we see as well placed to benefit from a strong rebound once market conditions normalize.

As a result, we kept our core positions in Egypt, Morocco and Kenya whilst we tactically increased our exposure to South Africa in the last quarter of 2020 despite the latter’s poor economic prospects.

Indeed, South Africa is the region’s main proxy to the  EM complex and remains in a good position to attract international portfolio flows as the global risk-on environment returns.

We stayed away from Nigeria where foreign investors have not been able to repatriate their capital for more than a year due to a dysfunctional FX system which exposes future equities performance to heavy losses.

The BB African Opportunities fund remains highly liquid and offers the flexibility to rapidly increase our risk and beta exposure to benefit from an overdue rebound of African markets in 2021.

*Data extracted from Morningstar on the 24th May 2021

J.P. Morgan Funds – Africa Equity Fund

J.P. Morgan has been the first international managers to set up a dedicated Africa strategy. As an organisation we have sufficient resources dedicated to this highly specialized area and sufficient financial strength to ensure that we can maintain that commitement, even though during difficult market periods.

It is important for us to undertake our own independent research which means we are not limited by the depth of sell-side coverage, what enables us to exploit the primary sources of inefficiency that exist in Africa.

Outperforming by investing in high-quality businesses is one of our goals that can compound earnings over long periods ensuring we pay an appropriate price.
Emerging Markets are inherently inefficient, with high volatility relative to developed markets.

Our investment approach is based on capitalizing on these fundamental characteristics over 3-5
years (longer time frame than that of the average investor).

The two basic pillars of our investment philosophy are understanding and valuation. Our
investment process enhances our understanding of the companies and countries and determine
the correct valuation of growth prospects.

Team analysts conducts in-depth fundamental research on over 1,200 emerging markets
companies. Company visits are the cornerstone of our research approach at the stock level;
Portfolio Managers and 9 sector analysts who cover African companies conduct on average 250 African company visits per year.

The investment strategy is fundamental, bottom-up, research driven, with nuanced portfolio
construction
, that reflects our long-term conviction in where the opportunities lie in Africa.

Today, the fund is tilted towards stated themes around innovation (through financials,
payments, or communication services), consumption (based on affordable products) and
commodities.

*Data extracted from Morningstar on the 24th May 2021

BPI Global Investment Fund Africa

The BPI Africa fund invests in African companies to capture the extraordinary African growth story. In order to select the companies that offer the best risk-return profile, the portfolio manager uses a thematic long-term approach profiling the companies in accordance to their key long-term drivers.

For the past 12 months the dominant themes have been Financial Inclusion, High Rate of Economic Growth, and High Demand for Raw Materials in the Region.


Our portfolio is a best ideas fund investing in between 45 to 55 companies at all times, focusing on fundamental research, bottom up stock selection. Additionally, the team has the option of defending against the South African rand depreciation when appropriate.

Historically, we have a fairly conservative team, with a strong bias for micro stock picking but not forgetting macro risk management.

The end result is that the strategy we have implemented, and our investment analysis framework has resulted in a lower volatility fund. Also relevant is that we have a very low correlation with most relevant asset classes. The team continues to carefully select companies that can overperform in the current environment.

The portfolio is strategically built considering the global competitiveness of African companies and the capacity to continue to invest and innovate. These strong drivers will continue to underpin the portfolio’s structural earnings power.

*Data extracted from Morningstar on the 24th May 2021

Robeco Afrika Fonds

Robeco Afrika Fonds invests in stocks with exposure to the pan-African region, mainly listed in countries such as South Africa, Egypt, Morocco and Nigeria.

The selection of these stocks is based on fundamental analysis. Robeco Afrika Fonds first selects the most attractive countries to invest in Africa. Economic and political developments are important factors in determining the performance of stocks in emerging and frontier markets.
Once we select the countries, Robeco Afrika Fonds selects companies with the best earnings potential within these countries, benefiting from the growth of the pan-African region.

Among the top 3 positions of the Robeco Afrika Fonds fund are Naspers (ecommerce, 10.27% wwt), Safaricom (telecommunications, 4.52% wwt), Royal Bafokeng Platinum Ltd (3.83% wwt).

We had an outflow during April last year and simultaneously had to reduce Naspers’ weight to comply with UCITS requirements. If, due to share price movements, the weight of a holding exceeds 10%, the weight must be reduced to less than 10% within 30 days. Therefore, we sold some Naspers shares.

Later in the month, Naspers’ share price moved up and by the end of the month, the shares were back to a weight in excess of 10%.

We believe Naspers remains very attractive as it trades at a large discount to its subsidiary Prosus and a very large discount to underlying holdings such as Tencent, Delivery Hero and Mail.ru.

*Data extracted from Morningstar on the 24th May 2021

DWS Invest Africa

The fund DWS Invest Africa combines a bottom up (company specific) and top down (country specific) investment style. Accordingly, it strives to benefit from investments in promising companies which are located in African countries which exhibit encouraging macroeconomic trends and clear government policies.

Due to its flexible investment approach, the fund does not hold positions in companies without any tangible return potential just in order to be exposed to a certain African country or region.

As the fund is not restricted by the size of the companies it invests in, it can benefit from strong trends in often illiquid African shares while at the same time be not hamstrung by an overly extensive exposure to illiquid firms.

With this being firmly tied into the funds ESG framework, the fund tries to leave a positive footprint with its investments and exhibit best practice.

Currently, the largest exposure of the fund it is in Egypt and South Africa. Particularly the Egyptian stock market is home to several underpriced equities, usually explained by the difficulties of regional politics. Nevertheless, even during the Covid19 pandemic, the economy kept growing and the government has been very stringent on executing on its economic policies.

Apart from slow but gradual improvements of South African policy making after years of decline, South Africa also hosts a range of companies active in several African countries south of the Sahara.

The fund holds smaller positions in other countries where companies can benefit from so-called “megatrends¨.

*Data extracted from Morningstar on the 24th May 2021

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Is it the moment to invest in Africa?