This ETF Bets on Big Profits Out of Africa
Another week, another frontier market ETF. Today it is the Market Vectors Africa Index ETF (AFK).
Until now, investing in Africa with an investment product meant a disproportionately large weight to South Africa -- but not so with AFK. South Africa figures prominently at 25%, but Nigeria weighs in at 32% (a combination of 25% of companies actually listed in Nigeria and 7% companies listed elsewhere deriving at least half of its revenue from Nigeria) and is the largest country.
Egypt is allocated at 13%, Morocco 11%, Equatorial Guinea at 6% and the rest are too small to move the needle.
Not surprisingly, the financial sector is the largest at 33%, since every country has at least one big bank. Basic resources is the second-largest, at 18%, as mining is a significant economic catalyst for many countries.Consumer stocks have almost no representation, so the fund is a bet on the big-picture prosperity as opposed to consumers. Anyone who spends more than a little time researching exotic stocks might recognize a couple of names in the fund like Sassol (SSL) from South Africa, a couple of the Orascom companies from Egypt and a couple of the mining stocks, but beyond that most of the names will be unfamiliar. AFK holds 50 stocks and charges 0.83%. The info sheet from Van Eck shows no backtest information. This may seem odd at first, but really is not -- the mindset for buying into Africa needs to be much different than deciding on some other sort of investment. More so than with any other theme I can think of, Africa is a bet on the future.
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