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.

Finweek English Edition - - Market Place - ed­i­to­rial@fin­week.co.za By Niel Jou­bert

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. ■

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