Market Vectors Africa ETF: The Dark Continent's Shining Star

Van Eck launched a new ETF in July 2008 named Market Vectors Africa (AFK), which is indexed to the Dow Jones Africa Titan 50 Index. Starkly different than other funds that typically invest in Africa, which usually only concentrate on one region, such as South Africa, this fund invests in the top 50 companies on the continent.

Currently, the fund is down 4.42% YTD and assets under management are at $5.7million, with an average approximate daily trading volume of 5,300 shares.

Unfortunately, political, economic and social ills plague this continent. Combining those ills with the looming events of the US Credit Crisis and Presidential election has many investors sitting on the sidelines hiding in cash. These circumstances have hindered any thoughts of looking at “Exotic” or “Frontier Investments”, which is why this fund has not taken off. Not to mention the bad press that Africa continuously receives due to the political unrest especially in places like Zimbabwe, with the likes of Robert Mugabe and so-called Nigerian corruption scandals.

After examining some fundamentals surrounding this region, you will find vast natural resources, especially oil, natural gas, coal, gold, diamonds and cooper. Secondly, there are a number of investors flush with capital, from India, China and the United States. Thirdly, the air of entrepreneurism is beginning to spread and accelerate throughout the entire area of sub-Saharan Africa.

AFK has the capabilities to take advantage of  all the potential gains available in Africa, and is also exposed to all the downside risk associated with a politically volatile region. Presently, this fund has regional exposure in South Africa, Egypt, Nigeria, Morocco and Kenya, and industry exposure mainly in banking, basic resources, oil and gas, telecommunication, and technology.

Even though this fund sports a hefty management fee of 1.2%, it would be well served as a small percentage of someone's long term investment strategy.

Anytime that you have immense natural resources, an extensive inflow of capital, and organized entrepreneurs, you have the makings for a vibrant economy; and when the sea rises, all boats rise.

Disclosure: none

Comments

[mdmrjsds:]

You said:
...Anytime that you have immense natural resources, an extensive inflow of capital, and organized entrepreneurs, you have the makings for a vibrant economy; and when the sea rises, all boats rise. ...

Well, maybe. Don't forget that Africa also has population growth way beyond sustainable levels, in many cases their population is growing faster than their GDP. They have corruption up the yin-yang. Look at the annual corruption index and don't bother looking in the top half. Their education levels are terrible, finishing primary is an accomplishment, and particularly bad for women. Remember, 'the hand that rocks the cradle, rules the world', meaning that the children that those women raise are the future of their countries. Speaking of which, women are oppressed across the continent; half the team left sitting on the bench. And leaders that don't seem to care about any of the above, only about lining their own pockets.

So, in summary, they have the potential to do great things, but they have to get their act together and change their cultures to allow those great things. Investing in Africa at this point is an act of faith that they will. For me, the evidence is lacking as yet.

2008 Sep 15 12:57 PM

[User 263421:]

The changes that we've seen in the continent are more than cosmetic - the power sharing agreement reached in Zim is an improvement on the Kenyan one - people are listening and learning! Zambia is having a steady transition after the death of its president - elections in a couple of months. Nigeria just posted 6.7% quarterly growth and for first time it's not underpinned by oil. Zuma case thrown out - SA is choosing a businessman over someone who doesn't believe in Aids despite his shortcomings - go figure...

Africa is coming of age, yes it will be penalized with the world events, but it doesn't mean that the returns are not there or available for the taking - you may just not find the leverage you're looking for. This is more than a commodity boom led change, there are internal fundamentals driving the growth of these countries

2008 Sep 16 10:20 AM

[User 268071:]

Except maybe as a play on commodities, Africa doesn't excite me. The Middle East interests me more. But I think Asia is the "no brainer" going forward.

2008 Sep 23 05:05 PM