Funds flows and investor interest in Africa have increased in recent years, but Africa remains a frontier market for investors. Given the narrowness and illiquidity of most African securities markets, institutional investors are approaching the market with caution. While investors can obtain partial exposure to African markets through global, emerging market and frontier funds, few of these funds focus specifically or primarily on Africa. Some trends indicate, however, that this may change in the coming years, presenting new opportunities for research firms and data vendors that focus on the region.
Africa-Focused Funds: The Current Landscape
Today, only a handful of mutual funds focus primarily or exclusively on the African markets. One of the largest of the actively managed funds is T. Rowe Price’s Africa & Middle East Fund, which had over $850 million in assets as of 5-31-08 (approximately 30% of which are invested in African countries). Orbis Investment Management’s Africa Equity Fund and Charlemagne Capital Limited’s Magna Africa Fund, while not as large as T. Rowe Price’s Africa & Middle East Fund, both focus exclusively on African equities, and have over $200 million in assets, according to data presented on their websites.
There are growing number of indices tracking African investments, and ETFs will likely follow. At the moment, the ETF options are limited. iShares runs a South Africa Index Fund that had over $450 million in assets as of 7-9-08. SSGA’s SPDR S&P Emerging Middle East & Africa ETF, which had close to $200 million in assets as of 7-9-08, is heavily weighted toward Africa, with 52% exposure to South Africa alone. Aside from these two ETFs, however, few alternatives are available. Some frontier market ETFs, such as that offered by Claymore, provide partial exposure to African markets, but most place greater emphasis on countries in other regions.
More to Come?
While investors lack a broad range of options for gaining direct exposure to African markets, recent trends suggest that new funds may emerge in the coming years. The success of T. Rowe’s Africa and Middle East Fund, which attracted significant investment since its launch in September 2007, will undoubtedly cause other asset managers to consider launching a similar funds. Meanwhile, S&P’s recent launch of three Africa-focused indices provides fund companies with new benchmarks to track (and potentially replicate).
As new Africa-focused funds emerge, demand for Africa-focused research and data services will grow. Integrity already covers dozens of firms that can provide insight and data on the African markets. We expect more firms to enter the space in the coming years.