Ex-S Africa ETF heads for the JSE
AMI BIG-50 FOR CONTINENT’S LONG-TERM INVESTORS Widespread poverty and under-development mean long-term growth opportunities for long-term investors. That’s why a unique ETF headed for the JSE might just suit their objectives.
Long-term investors appreciate big, structural growth stories. China dominates today, but anyone considering tomorrow should also be eyeing India and Africa. Their demographics are most in favour of growth. They are also focal points of infrastructure spending and rapidly increasing consumer demand. But it has not always been easy to access these markets. However, this week sees an initial public offering (IPO) on the JSE that opens that door.
The IPO is a world first – an exchange-traded fund (ETF) offering exposure to a pan-African index, excluding South Africa.
Cloud Atlas is launching the AMI Big 50 ex-SA ETF, which has a broadly diversified portfolio of larger stocks across 15 different African exchanges.
“This is really a product for institutions and investors that want to participate in Africa’s long-term growth,” says Maurice Madiba, the CEO of Cloud Atlas.
“A lot of people do worry about the liquidity risk, but being an ETF means that there is a secondary market on the JSE, which allows investors in smaller quantities to trade exposure in and out of Africa.
“We have a focus on Africa to allow Africans to participate in Africa’s growth,” says Madiba. “We wanted to create a vehicle people can use to own companies listed on the continent’s stock markets and participate in the growth of those markets.”
The index has been constructed for diversification, as most African equity index products tend to have high country and sector concentrations. Most notably Nigerian banking stocks and Egyptian construction stocks have historically dominated.
The AMI Big 50 ex-SA Index has therefore been put together so that the largest constituent from each sector on each eligible exchange is included. This means that there can be only one Nigerian bank and one Egyptian construction company in the index, which also includes stocks listed in countries such as Morocco, Tunisia, Kenya, Tanzania, Zambia and Mauritius.
“It’s easy to fall into the trap of doing something mechanically and therefore end up being concentrated in one country or sector,” says Nerina Visser of etfSA. “But this index chooses the largest, most liquid companies per exchange, per sector.” The AMI Big 50 ex-SA competes with the Standard Bank Africa Index exchange-traded note (ETN) which does not physically hold the underlying shares. It is a debt product that pays a return related to the performance of the index it references.
So pension funds that cannot invest in ETNs and investors that prefer knowing that they own the underlying companies will prefer the new product.