Financial Advisor Forum

This ETF Bets on Big Profits Out of Africa

07/21/08 - 09:29 AM EDT

Roger Nusbaum

Another week, another frontier market ETF. Today it is the Market Vectors Africa Index ETF(AFK - Cramer's Take - Stockpickr).

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 - Cramer's Take - Stockpickr) 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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At the time of publication, Nusbaum had no positions in any of the securities mentioned, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.


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