Finding value in African markets
This fund offers investors exposure to Africa’s high-growth markets and aims to outperform the MSCI Africa ex-South Africa Index over the medium to longer term.
Fund manager insights:
It’s been a tough few years for African markets as they tumbled from a high in September 2014, falling 45% over the following two years.
Peter Townshend, a veteran of African investing and portfolio manager of Sanlam’s African Frontier Markets fund, is however as excited by the opportunities on the continent as he has ever been.
“The last three years have been the most difficult period I have witnessed in my decade of investing on the continent. African markets have been buffeted by revolutions in North Africa, the double whammy of collapsing commodity prices and currencies, as well as soaring inflation,” says Townshend. “But, Africa bottomed early last year and the fund has subsequently been turning in strong performances.”
The tumbling of the market led to “one of the sharpest deratings seen in African markets in a decade”, says Townshend, and in early 2016 the portfolio traded on a 7.3 times price-to-earnings multiple (P/E) and a 4.4% dividend yield, “presenting a unique investment opportunity”.
Despite the strong performance seen since then, Townshend believes there is still plenty of room for Africa to accrue further strong gains.
For 2017 the fund’s holdings trade on an 11.8 times P/E and with a 4% dividend yield, which is substantially cheaper than the JSE, the emerging markets universe and developed markets globally, says Townshend.
He believes there is an “unstoppable, slow-burn evolution” happening across Africa, primarily driven by demographics. According to him, the primary investment opportunity lies with the continent’s young and rapidly urbanising population that is more easily accessible to multinational consumer and financial firms.
“The ‘Africa Rising’ narrative as trumpeted by The Economist magazine cover late in 2011 was probably overhyped. But the scepticism of the last three years has also been overdone. We reached the point of maximum pessimism last year, precisely when the next bull market in African equities quietly got underway.”
The members of the team apply a long-term investment approach and back their stock-picking abilities to outperform the market.
“We are not afraid to row against the tide,” says Townshend. “Africa remains the last frontier of investing and comes with some unique risks. For the long-term investor it offers valuable diversification benefits and has outperformed the JSE (in USD) over the last five years,” he adds.
Why finweek would consider adding it:
The fund offers investors exposure to Africa and growing companies on the continent. It is amongst the top-performing Africa funds over all meaningful time periods.
The fund has consistently outperformed its benchmark, the MSCI Africa ex-South Africa Index over the last one-, three-, five-year periods and since inception. ■