May 27, 2022

South Africa ETF: Facts About This Investment Option

If you are looking for ways to expand and diversify your portfolio and you’d like to invest in Africa, a South Africa ETF is one of your options. Let’s take a look at South Africa in general as well as investment options.


Facts About South Africa

More than 60 million people call South Africa home, and this diverse country features 11 official languages, the most common of which are Zulu, Xhosa and Afrikaans, but many South Africans also speak English. South Africa is about twice the size of Texas, and the 24th largest country in the world by area. There are 10 UNESCO World Heritage sites in South Africa and more than 20 national parks.


Frontier & Emerging Markets In Africa

When investing, you can opt for investments in Developed Markets, Emerging Markets and Frontier Markets.


Developed markets are markets with established economies and stock markets, and these nations include the United States, Canada, Japan, Hong Kong, Singapore, Australia, New Zealand and several European nations (United Kingdom, France, Germany, Sweden and others).


Investments in developed nations certainly aren’t without risk, but these economies tend to be less volatile with stable currencies. An emerging market would be a lower tier, with less currency stability and more economic volatility. However, while the risk can be greater with emerging markets, these nations typically are experiencing rapid growth in various sectors and there is a potential for solid returns on investment.


Emerging market and frontier market investments, in theory, are riskier than investments in developed markets, but they can yield solid profits. It’s important to remember that even investments in a developed market are not guaranteed to yield positive results.


When investing, the best option is to ensure that your portfolio is diversified to minimize risk. It is wise to include low-risk investments that produce steady, long-term profits, but it also can be wise to add some riskier investments as these might yield higher profits. There’s never any guarantee with investing, but with careful research and planning you can build a profitable portfolio that will support you during your retirement years.


Why Invest In South Africa?

There are many reasons to consider investing in South Africa. This nation is one of only two that are classified as emerging markets in Africa, the other is Egypt. South Africa is considered to be the strongest economy in Africa, and it’s a heavily diversified and growing economy.


In comparison with other African nations, South Africa has the largest gross domestic product of any other African nation, and it features one of the most highly-developed infrastructures on the continent. While the technology, real estate and consumer discretionary sectors continue to expand, South Africa also is rich in natural resources including gold, diamonds and platinum.


The average age in South Africa is about 27 years, compared with 38 years in the United States, 40 years in the United Kingdom and 48 years in Japan. This younger population fuels greater demand for goods and services than you would find in a country with an older population that tends to be more fixated on health care, social security and entitlements.  


Beyond South Africa

While South Africa has one of the strongest economies in Africa, it is by no means the only investment option available. Investments in Egypt, also an emerging market, are available, and other stronger African economies include frontier markets such as Nigeria, Kenya, Mauritius, Morocco, Tunisia and the nations within the West African Economic and Monetary Union (WAEMU).


Investment Options

If you are searching for a lower-risk, diversified investment in Africa, a mutual fund or an exchange-traded fund (ETF) can be a good option to consider. Because both of these investment options are diversified with multiple holdings, this can minimize risk. It’s also often easier for foreign investors to consider ETFs or mutual funds because these can be acquired more easily than other types of investments.


Exchange-traded funds have a few advantages over mutual funds, although mutual funds also can be a solid investment. However, ETFs tend to have a lower expense ratio because these funds are passively managed. Mutual funds tend to be actively managed, which includes higher management fees.


ETFs also are traded just like stocks, so you can purchase and sell throughout the trading day. Traditional mutual funds have their values set at the end of the trading day, which means you have restricted availability to buy or sell.


There are many ETFs available. Some focus entirely on South Africa, while others focus on investments throughout the African continent, including South Africa. Additionally, some ETFs, such as some Gold ETFs, might include investments in South African companies as well as other nations involved in gold mining and exploration.


How To Choose A South Africa ETF

If you decide to purchase shares in a South Africa ETF, it’s wise to study the historical performance of the fund and to research the top holdings in the fund. Most of the fund investments will be concentrated in the Top 10 holdings, so do a bit of research on each of these holdings to ensure that they align with your investment goals.


Many people choose to invest in Africa not only for the potential profit but also to boost and support the economies of emerging and frontier nations. An investment in Africa can be an option to consider for anyone wanting to create a socially responsible investment portfolio.


Keep in mind, though, that not all of the holdings in a South Africa or Africa ETF may be companies owned by South Africans or other African nations. Sometimes the holdings will include companies based in South Africa but owned by foreign entities. Finding an ETF that truly concentrates its holdings on companies owned by Africans might be a better fit for the socially responsible investor.


In general, we aren’t endorsing any specific South Africa ETF or endorsing any particular investment strategy. While a South Africa ETF can be a good fit for some portfolios, other investors might prefer a different approach. It’s often best to work with an experienced financial planner to discover which investments are the best options for you.


To learn more about how to invest in Africa, including investments such as a South African ETF, be sure to visit Money Watch Africa as we continuously strive to update our website with helpful investment news and tips for the Africa investor

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