Portfolio Manager Perspectives

Jeff Benjamin

Remarkable returns, low volatility? You'll be surprised where

Africa Composite Index generated 17% annual return over past decade, with fewer market gyrations than U.S.; the next Asia?

May 16, 2011 @ 11:40 am

By Jeff Benjamin

+ Zoom

As portfolio manager Larry Seruma sees it, Africa is not only the next hot emerging market — but it also has a track record to help illustrate the potential.

Mr. Seruma, manager of the 13-month-old Nile Pan Africa Fund Ticker:(NAFAX), is focused on the entire continent as he taps into three main themes: commodities, consumers and infrastructure.

Across the 53 countries making up the continent, there is a blend of emerging and frontier markets, with no single country yet considered developed.

Only 24 of the African countries have operational stock exchanges, and the total market capitalization of those countries is just $1.4 trillion.

Yet, where the markets are viable, investors are being rewarded.

Over the 10-year period through December, the Africa Composite Index produced an average annual return of 17.3%, with volatility as measured by standard deviation of 11.9%.

By comparison, the MSCI Emerging Markets Index over the same period had an annualized return of 13.2% with a standard deviation 24.7%.

The S&P 500 over the same period had a negative annualized return of 0.5%, with a standard deviation of 16.4%.

“The growth in Africa is only getting stronger because Africa is going to significantly contribute to the global growth going forward,” Mr. Seruma said.

On the commodities side, the continent contains 13% of the world's oil reserves, 50% of proven gold reserves, 50% of iron ore reserves, 60% of cobalt and 90% of platinum group reserves.

The country of Ghana, for example, has just started oil exploration this year, and the country now is expected to see gross domestic product grow by 20% for at least the next two years.

Of the 24 countries with stock exchanges, Mr. Seruma is invested in 11.

The fund's biggest allocation is in Nigeria, followed by South Africa, Egypt and Guinea.

In terms of country allocations, Mr. Seruma limits the investment in South Africa to 25% of the fund, because it is the one country most likely to be included in other emerging-markets funds.

The total market capitalization of South Africa's publicly traded stocks is almost $1 trillion, making it the continent's largest market.

On the consumer and infrastructure side of the strategy, the growth is expected to come from a population across the continent of more than 1 billion people that is on track to double by 2040.

The average age in Africa is 21, compared to 45 in developed countries, and that will help fuel the growing demand for goods and services, relative to developed markets that have to spend more on social security, health care and entitlements, Mr. Seruma said.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Consuelo Mack WealthTrack

Thomas Russo: What it really takes to be a successful investor

Being a successful investor requires the ability to say no and the capacity to suffer, according to Thomas Russo, managing member of Gardner Russo & Gardner.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

HighTower faces pressure to let investors cash out

After an IPO planned for last year didn't happen, the company could opt to satisfy its backers with a sale.

Envestnet to buy FolioDynamix

The deal, which is expected to close in the first quarter of 2018, will bring the total assets Envestnet works with to almost $2 trillion.

Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry

After a decade of litigation, fees are lower and retirement plans are more transparent. But have the lawsuits gone too far?

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

With margins crashing, broker-dealers look to merge: report

Increased regulation is straining profit margins among broker-dealers, sending many of them into the arms of their bigger brethren.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print