5 Tips For The Africa Investor

If you are seeking new financial opportunities in which to invest, Africa can be an interesting option to explore. With more than 50 countries and thousands of investment options, the African continent is rich in natural resources and industry and infrastructure continue to expand.

Who Is The Africa Investor?

The Africa investor is someone who isn’t immune to taking occasional investment risks, and also possibly an individual that seeks to help bolster the economies of this vast continent. Additionally, this may be an individual interesting in boosting their portfolio by investing in natural resources, including exploration and mining. If you are interested in investing in Africa, here are a few facts to consider.

 

1. Emerging Markets In Africa Vs. Frontier Markets

When investing, you have the option of investing in companies in established markets, emerging markets and frontier markets. Established markets, such as the United States, Japan and the United Kingdom have long-established stock markets and stable currencies.

 

Investing in an established market is not without risk, but there tends to be less risk than with an emerging market or frontier market. Emerging markets generally include countries with fairly stable governments and economies. For the Africa investor, Egypt and South Africa are the only African countries listed as emerging markets.

 

Frontier markets are a step below emerging markets, typically nations poised for growth, but with historically low market access. For instance, Iceland, with one of the world’s highest standards of living is a frontier market. Iceland has a stable economy and currency, but investment opportunities have been limited, therefore, it is listed as a frontier market.

 

In Africa, frontier markets include Kenya, Mauritius, Morocco, Nigeria, Tunisia and the West African Economic and Monetary Union (Benin, Senegal, Cote D’Ivoire and Burkina Faso). These are considered somewhat riskier investments than emerging market investments but can be highly profitable, as well. 

 

Additionally, Botswana and Zimbabwe are listed as “standalone” countries, and these are typically nations poised for growth that have not quite reached frontier market status. Any of these options (emerging, frontier or standalone) can be profitable, although, as with any investment, profit is never guaranteed and even companies in established markets can yield poor returns.

 

2. An Africa ETF Can Be An Easy Option

Exchange-traded funds are diversified funds with multiple holdings, which can decrease risk. If one of the companies in the fund experiences trouble, the other holdings can help to keep the price of the ETF stable.

 

Whether you opt for an emerging market ETF or a frontier markets ETF, choosing this type of fund can help to minimize your risk. Because market access to many countries in Africa is limited, an ETF also provides you with an easy way to gain access to companies in Africa.

 

There are many options to consider. For instance, you might opt for a South Africa ETF or an Egypt ETF or perhaps an Africa ETF that includes holdings throughout the continent. These can be bought and sold easily using your broker or even online brokerage firms.

 

3. Consider The TSX Venture Exchange

We’ve all heard of the NASDAQ and the New York Stock Exchange (NYSE) or exchanges such as the Nikkei in Japan or the London Stock Exchange, but there are many others out there and a few are classified as venture exchanges, which include companies that are considered to be emerging.

 

While you will find investments such as Google, Apple and Microsoft on the NASDAQ, a venture exchange will include smaller companies around the world where you can purchase shares. For instance, the Toronto Stock Exchange (TSX) includes the TSX Venture Exchange Market (TSXV) and if you have a brokerage account that supports foreign trading, you can purchase shares in this market.

 

The TSXV offers a wide range of emerging companies from countries around the globe, including countries in Africa. This can be one way to gain access to countries in specific African nations or for a specific company or industry that interests you.

 

4. Research Each Holding Carefully

Whether you opt for an Africa ETF or select a company on the TSXV, research is going to be your strongest ally. It is important to research each company, whether you are purchasing stock from just one company or for many companies listed in an ETF.

 

With an ETF, you can study fact sheets to determine the top 10 holdings in the fund. An ETF might include 20 or more holdings, but typically the percentage of net assets is concentrated more heavily in some companies than others and the top 10 holdings can make up 50% or more of the fund, so these are the companies that you will want to research the most carefully as they have the potential to impact the overall performance of the ETF more than other holdings.

 

For instance, perhaps the top holding makes up 5% of the entire ETF, while the bottom holding makes up just 0.23% of the fund. If the bottom holding earns poor returns, it probably won’t affect the overall performance of the fund severely, whereas a company that holds 5% of the net assets in the fund can make a bigger impact if it earns well or loses money.

 

If you opt to invest in a specific company rather than using an ETF, spend some time getting to know the company and its players. While the company website can be informative, it is smart to see what others say about this particular investment, so search the internet far and wide to find out all that you can about the company. This is particularly important with investments in emerging and frontier markets, as these can be riskier in general.

 

5. Balance Out Your Portfolio

A balanced portfolio includes many investment options that yield slow and steady results, but it also can contain a few short-term investment options to yield quick profits. As the old saying goes, you never want to put all of your eggs in one basket, but that doesn’t mean the occasional riskier investment option is a bad idea.

 

It can be smart to invest in some tried-and-true companies with high stability, but it also can be wise to take a few small risks now and then as this can improve the overall profitability of your portfolio.

 

Of course, for the Africa investor, there may be other reasons why you decide to invest in Africa. Perhaps you are searching for socially responsible investment options in which to invest. Africa can be an excellent option because when you invest in Africa-based companies, you can help to boost the local economy.

 

The trick with socially responsible investing is to ensure that the investments include companies owned by Africans and not foreign companies seeking to invest and make a quick profit in Africa. Additionally, you will want to research other factors such as working conditions, environmental impacts and how the companies give back to their community.

 

At Money Watch Africa, we are here to help the Africa investor learn more about investment opportunities and how to invest in Africa. Keep checking back as we continue to update our website with informative articles about investing in this diverse, dynamic continent. 

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 24^th 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. 

How To Find The Best Emerging Market Funds For You

Finding the right investments can be tricky, and if you’ve been searching for the best emerging market funds for your portfolio, you’ve probably discovered that you have quite a few options. But which option is the best fit for your needs? Here’s some insight into the different emerging market investments available.

What Is An Emerging Market?

There are three types of markets – developed markets, emerging markets and frontier markets. Developed markets include countries or markets such as the United States, Japan, Singapore, Australia and the United Kingdom as these are places with long-established stock markets and generally strong currencies.

Emerging markets are countries that have established markets and relatively stable currencies, but they aren’t quite as strong or as established as developed markets or access to their markets is more limited than with developed markets. These include countries such as Mexico, Brazil, Kuwait, Egypt, South Africa, India, Thailand and China.

Frontier markets are less developed or less accessible markets than emerging markets, but typically these are markets that are working toward or making progress toward becoming an emerging market. These include countries such as Kenya, Morocco, Nigeria, Vietnam, Romania, Jordan and even Iceland. Another frontier market is known as the West African Economic and Monetary Union (WAEMU), which is a group of African countries that includes Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.

Countries are rated as developed, emerging or frontier markets by investment research firms or stock market indexes such as Morgan Stanley Capital International (MSCI), Standard & Poor’s (S&P) and Financial Times Stock Exchange (FTSE). These groups differ slightly in their definitions of each group. For instance, Argentina is classified by MSCI as an emerging market, while FTSE and S&P list it as a frontier market. The classifications also can change as the individual countries’ markets develop or decline.

In general, the less developed the market, the higher the risk. So, an emerging market investment might carry a higher risk than one in a developed nation. However, companies in developed nations can go bankrupt and dissolve and developed markets can face economic issues that devalue their currency. Of course, emerging markets and frontier markets also could potentially provide a higher return on investment than you might find in a developed market.

While an emerging market or frontier market investment might seem riskier on the face of it, you can minimize the risk by looking for the best emerging market funds. With a mutual fund or exchange-traded fund, you lower the risk because the fund is diversified and includes a variety of holdings. If one of the holdings declines in value, there are still other companies in the fund that might improve, which can keep the fund profitable.

When it comes to emerging and frontier markets, such as those in Africa, these markets can have some advantages over developed markets. These less developed countries tend to have younger, more consumer-driven populations which means there is high demand for new goods and services. In developed nations, populations are older and there is more focus on providing social security, health care and entitlements for an aging population.

Another reason to consider investing a portion of your portfolio into emerging market funds or frontier market funds is the social responsibility factor. When you invest in emerging markets, you are helping these countries grow and become stronger and more stable.

Stable, diverse economies are healthier economies and not only does this benefit the people in a specific country, but it also benefits entire regions and even continents. We can use the European Union as an example. When countries such as Greece faced a banking crisis, this affected the stability of the EU’s currency. When the countries are stable, the currency becomes stronger.

Even with countries that are not part of a “union,” stability is crucial. If your country is stable, but your neighbor has a poor economy, this can create problems. When you invest in emerging markets and frontier markets, this can have a domino effect, helping to improve economies in many countries or regions, but even helping the economy in a single country can be impactful and improve the lives of many people.

Of course, in the final analysis, every investor’s goal is to make money and, typically, to build a solid retirement plan. Investing in emerging and frontier markets can be a way to build your portfolio and help others at the same time.

What Are The Best Emerging Market Funds?

Every investor wants to know the answer to this question, but there’s no magic short of time travel that will truly tell us which funds will perform the best. As an investor, learning about the different types of investments and what to look for when investing can help you make the smartest possible decisions.

When searching for funds, you have the option of choosing mutual funds or exchange-traded funds (ETFs). Both types of funds are diversified, but the main difference between the two is that ETFs are traded like stocks, and you can buy and sell shares throughout the trading day. With a mutual fund, you can only sell shares at the close of the trading day.

ETFs provide you with more flexibility than mutual funds, and they tend to be less expensive. There’s also the added advantage of transparency. ETF managers will publish the total expense ratios, and this allows investors to truly see all of the costs they pay associated with that ETF.

Mutual fund managers aren’t as transparent, and this means that an investor might think they are investing in a highly diversified fund only to find out (after the fund declined sharply) that the manager put all of the holdings into one company or one sector. With an ETF, you have more certainty that what you see is what you get, in terms of holdings.

When searching for the best emerging market funds, you have the option of investing in businesses within a single country, such as a South Africa ETF or an Egypt ETF. You also have the option of investing in several countries in a specific region, such as a general Africa ETF or perhaps an emerging market ETF or a frontier markets ETF that invests in several emerging or frontier markets. Additionally, you can focus on a sector or industry in a frontier or emerging market such as energy or healthcare or infrastructure.

The best advice we can give is to research each investment carefully and include a mix of different types of investments in your portfolio. This might include stocks in specific companies, mutual funds, ETFs, etc. Choose from a mix of developed market investments and add a few emerging market and frontier market investments, as well.

When searching for the best emerging market funds or frontier market funds, research each of the holdings carefully as well as researching the sectors involved in the fund, such as energy or real estate. Take a look at the historical performance of the investment and, perhaps, compare it with a historically stable benchmark such as the S&P 500.

At Money Watch Africa, we focus on investing in Africa and there are many exciting opportunities to consider throughout this diverse, resource-rich continent. With a little research, you might discover that the best emerging market funds or frontier market funds can be found in Africa. To learn more about investing in Africa, be sure to sign up for our newsletter. 

A Look at Investment Opportunities in Africa

When building a portfolio, many people don’t think about investment opportunities in Africa, but with more than 50 diverse nations and largely untapped economies, investing in Africa can be an excellent way to expand your portfolio. Let’s take a look at these emerging and frontier markets and what they have to offer investors.

Emerging Markets & Frontier Markets In Africa

While many nations in Africa are experiencing solid economic growth, these nations are still classified as emerging markets or frontier markets. Established or developed markets, include nations such as the United States, Japan, Singapore, Canada, Australia, the United Kingdom and others.

These developed markets nations or city-states with established stock markets and strong currencies, and while they might seem like the safest bet investment-wise, there are many opportunities for investors in emerging and frontier markets, such as South Africa, Nigeria, Kenya, Tunisia, Egypt and Morocco. The West African Economic and Monetary Union (WAEMU) also is considered a frontier market and includes the countries of Benin, Burkina Faso, Cote D’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.

But there are also many countries with growth potential that haven’t quite reached a frontier market status, as measured by indices such as MSCI. For instance, Tanzania is listed as unclassified by MSCI and S&P, although FTSE lists it as a frontier market. Zimbabwe is listed as a frontier market by MSCI, but unclassified by S&P and FTSE, so you see that even the powers that be at these index providers don’t always agree on the status of each country.

Africa is a unique continent and attractive to investors for several reasons. Africa, in general, has a very young population. The average age throughout all African countries is about 20 years old. Compare that with Europe, where the average age is about 43. With an older population, the economy becomes more focused on health care and entitlements, while a younger economy tends to be more consumer-driven, seeking a wide variety of goods and services.

The population growth rates in Africa also are increasing at a faster rate than in developed countries, which means there’s going to continue to be greater demand for goods and services in general as compared to countries with lower population growth rates.

Investment Sectors To Consider

As an investor, you always have the option of investing in specific industries, and when it comes to investment opportunities in Africa, you have many choices, including:

Agribusiness

Agribusiness in Africa is one possible investment option. Our blog founder, Larry Seruma, serves as the executive chairman of Feronia, Inc. This agribusiness includes three palm oil plantations in the Democratic Republic of the Congo (DRC) managed by Plantations et Huileries du Congo (PHC).

These PHC plantations not only supply people of the DRC with palm oil, but they also support the economies around these plantations, employing nearly 4,000 permanent staff and about 4,000 seasonal workers. An investment in Feronia can help strengthen the economy of the DRC as well as expanding your portfolio. While we aren’t recommending Feronia over other agribusiness investment opportunities in Africa, this is simply an example of one type of individual investment that you might consider.

Mining

Africa is a continent rich in natural resources, and there are many investment opportunities in mining. You could invest in a specific mining operation, and there are many options including gold mines, cobalt, iron, etc. There are also a few ETFs out there that include African mining operations as part of their holdings.

Waste Management

Waste is an issue for every country in the world, and this is certainly true among the nations of Africa. Typically, most waste in Africa is burned or ends up in landfills and sometimes, unfortunately, in water sources. However, there are many companies in Africa that are trying to better manage waste. In some cases, waste is transformed into animal feed or fertilizer and in some countries, such as Ethiopia, waste is being recycled and used to provide electricity for its citizens. Investing in waste management can help improve the quality of life for many people in Africa, as well as potentially helping your portfolio.

Energy

With a fast-growing population of more than one billion people, the continent of Africa has huge energy needs. You can invest in traditional forms of energy or consider investments in green energy or clean energy, such as wind energy and solar farms.

Infrastructure

In addition to improving energy access throughout Africa, many other infrastructure improvements are starting to be made. These include building or improving roads, establishing communication networks, improving water quality and accessibility, creating mass transit systems and much more.  This is yet another investment opportunity that not only might yield solid returns but helps improve the quality of life for people throughout Africa. 

Investment Options

When investing in Africa, either in emerging or frontier markets, the best way to minimize risk to study each investment carefully and diversify your Africa investing portfolio to include a variety of industries, companies and countries. An Africa ETF or Africa mutual fund can be one option consider, and these types of investments include multiple holdings which can reduce risk.

You could invest in an Africa ETF or Africa mutual fund that focuses on a specific country or a specific industry. You also could purchase shares of individual countries in different industries. This can be an excellent option for anyone interested in socially responsible investing as you can choose companies or projects that provide goods or services that are meaningful to you.

Whether you decide to invest in farming, energy or some other sector, investment opportunities in Africa are bountiful. To minimize risk, we again recommend researching each investment carefully and diversifying your risk with a variety of investments. If you are interested in learning more about becoming an Africa investor, be sure to sign up for our newsletter.