A few weeks ago I wrote an article on Africa: The Single Best Equity Region To Buy And Hold which got high readership as well as a few questions and requests for more due diligence on NAFCX, the mutual fund that I believe is best positioned to capture that opportunity. A mutual fund investment into Africa is especially useful for those investors who do not have the resources to tackle that very large continent with its myriad of domestic challenges and international trade relationships.
So, for this article I did some digging around on NAFCX and these are my findings:
In the first quarter of 2012, the Nile Pan Africa Fund (NAFCX) rose 20.52%. During the same time period, the MSCI Emerging Markets Index rose 14.08%, the MSCI Frontier Markets Index rose 5.50%, the Dow Jones Africa 50 Titans Index rose 12.78% and the S&P 500 Total Return Index rose 12.59%.
From the Fund's inception date through March 31, 2012, the Nile Pan Africa Fund (NAFCX) has risen 8.23% annualized. During the same time period, the MSCI Emerging Markets Index increased 4.27%, the MSCI Frontier Markets Index decreased 2.43%, the Dow Jones Africa 50 Titans Index rose 0.07%, and the S&P 500 Total Return Index increased 11.43% annualized.
The Fund continued to show low monthly correlation to the S&P 500 (0.79 since inception) as well as the MSCI Frontier Markets Index (0.59) potentially making it a strong addition to a globally diversified portfolio.
Performance Summary as of March 31, 2012
First Quarter 2012
Nile Pan Africa Fund (NAFAX) Without Load
Nile Pan Africa Fund (NAFAX) With Load
Dow Jones Africa Titans 50 Index
MSCI Emerging Markets Index
MSCI Frontier Markets Index
S&P 500 Total Return
All emerging markets have a high beta component attached to them, where they track the performance of the S&P 500 and Africa is no different. So it is no surprise that as the global markets have started the year favorably, given the quantitative easing in the European Union and stronger than expected economic data from the United States, the rally has had a particularly positive impact on the performance of NAFCX as well.
What Worked, What Did Not for NAFCX
In the first quarter of 2012 the Nile Pan Africa Fund saw positive results broadly across the portfolio, with especially favorable results coming from the oil and gas sector and their holdings in South Africa .
In oil and gas, Cove Energy, a mineral exploration firm with operations in south and eastern Africa had a particularly strong quarter, rising 84.9% as a result of bidding activity. In addition, exploration and production firm Afren PLC had a strong quarter after reporting a successful upgrade to its Nigerian oil resources.
From a country perspective they saw strong performance from their holdings in South Africa. Last year investors had been scared away from South Africa on the back of the European debt crisis, leading them to dump all stocks across the South African stock market. This past quarter saw a reversal of this trend, as investors returned to South Africa in droves, buying up beaten down stellar companies with compellingly low valuations.
On the other hand, the fund's holdings in Mauritius and Ghana underperformed this quarter, after failing to follow the recovery in Emerging markets. In addition, their holdings in the frontier banking sector (primarily in Nigeria) did not see the same rebound, as they continue to trade at compelling valuations relative to other Emerging Market banks. Quite a few of these names are core holdings in the NAFCX portfolio, according to their CIO, which will benefit from further economic growth across the continent.
Going forward, nothing in my view has changed that should take way from a long term growth story for Africa as it is powered by the 3 pillars of natural resources, infrastructure development and growth of the consumer market. My conviction is further bolstered by the recent World Bank report. Here are some key insights from the January 2012 report by the World Bank:
- Over the course of 2011 growth across Sub-Saharan Africa remained strong, rising from 4.8% in 2010 to 4.9% in 2011
- In addition, the World Bank noted that "excluding South Africa, which accounts for over a third of the region's GDP, growth in the rest of the region was even stronger at 5.9 percent in 2011, making it one of the fastest growing developing regions in the world. A third of the countries in the region grew by at least 6 percent, and another 40 percent posted growth rates of 4-6 percent."
Given that the World Bank estimates that growth for Sub-Saharan Africa as a whole will rise to 5.3% in 2012, and 5.6% in 2013, I believe that a long term investor should find it attractive to allocate a portion of his or her portfolio to the region.