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African Focused Funds Generate Over 30 Percent Return

By Mani
Updated on

African focused funds clocked an average compound return of 30.2% for the 12-month period ending June 2013, Novare Investments’ recent survey reveals.

Novare Investments’ second survey focused on Africa (including North Africa) and the funds that give investors access to listed instruments on the continent. However, the special emphasis of the survey is on fund managers that invest in the listed African space outside of South Africa.

Larger funds post stronger returns

Novare Investments’ second survey on the Africa-focused fund manager landscape reveals African focused funds posted strong performance when compared to iShares MSCI Emerging Markets Index (ETF) (NYSEARCA:EEM) could deliver only 0.4%.

According to Novare’s survey, portfolios with AUM of less than $10 million delivered an average compound return of 14.5% over the 12 month period that ended June 2013, while funds managing between $10 million and $50 million posted 28.9% return. Similarly, larger funds with AUM between $50 million and $100 million clocked 38.1% return. Further, funds with assets over $100 million recorded 36.2% average returns for the same period.

The following graph highlights the average cumulative return posted by the African focused funds:

Africa as preferred investment destination

Novare’s survey reveals Africa’s appeal as an investment destination continues to grow, as evidenced by enhanced investor inquiries and capital flows. The survey respondents cited developmental foundations as one of the fundamental underpinnings of longer-term growth prospects in the region. The survey highlights no less than eight sub-Saharan African (SSA) countries that are projected to clock over 6% GDP growth in 2013, with IMF projecting 13 other countries to deliver growth in excess of 6% in 2014. Interestingly, Africa is home to 6 out of 10 of the world’s fastest-growing economies.

The following graph reveals projected GDP growth of selected regions, with the Sub-Saharan African region set to record strong growth:

Funds Projected GDP growth

African markets still tagged as frontier markets

Novare’s survey notes that despite African markets growing from strength to strength over recent years, most of these are still classified as frontier markets as they have yet to achieve the liquidity, market depth and trading costs associated with their emerging market peers on other continents.

As revealed in the following graph, one could witness a wide dispersion in the returns produced by individual markets. While Ghana clocked the best return of 108.4% during the 12 month period ended 30th June 2013, Egypt posted the worst performance with 13.6% lower.

Returns from African markets

The survey concludes that Africa will remain an interesting growth story in days to come, as skills and infrastructure already exist in well-established funds in Africa. Hence, the survey concludes investors who are able to perform their own in-depth due diligence or utilize the services of skilled third parties will be able to reap benefits from Africa’s growth story.

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