JOHANNESBURG. Swedish public-equity funds investing in African-listed shares did fairly well in 2007. The interest in these funds seems to be on the increase – judged their growing numbers. Sweden, uniquely, now has three such funds to offer mainly private households/investors. The latest, Swedbank Roburs new Africa fund, was added to the mix at the end of November.
All the funds are heavily invested in South Africa, with several duplicate investments including mobile-phone giant MTN and Standard Bank, but are also diversified into other African countries. For example, all three funds have holdings in Egyptian Orascom Construction.
While Swedbanks fund is too new to be able to deliver any comparable 2007 figures, the other funds reported trading up between 26 and 34 percent during the year.
“For our customers there is an opportunity now … because Africa as a continent is ready for investment in equity markets,’ says Kristofer Barrett, one in the Africa fund-manager team at Swedbank Robur. “South Africa has been ready for a long time.”
Swedbanks Africa fund includes holdings in South Africa, Egypt, Morocco, Kenya and Nigeria. ‘We are looking into investing in other markets as the investment climate opens up,’ adds Barrett.
Additional markets that Swedbank is keeping an eye on for its Africa fund include Tunisia, Zambia, Namibia, Ghana and Botswana and Mauritius, Barrett says. ‘Generally what needs to happen is increased market liquidity and size, and (the country overcoming) regulatory hurdles,’ he adds.
The total portfolio is “relatively diversified,†with most holdings in finance, materials and telecoms, Barrett says. As a region matures, the consumer and industrial markets are generally next in line.
There aren’t many mature consumer markets in Africa yet, he explains. The first market to mature in a country is generally the financial market. So that’s where Swedbanks holdings in Morocco and Kenya are placed.
The fund’s largest holdings include: Egypts Orascom Construction and South Africas MTN and Standard Bank.
The other two public equity stock funds in Sweden invsting in African-listed shares are managed by HQ and Simplicity. They both began trading in mid 2006.
Karin Fries, HQ’s Africa fund portfolio manager, says the fund performed well during 2007, as it traded up 34 percent (in SEK). To put the Africa fund’s performance in perspective, she explains that HQ Funds have five emerging market funds besides Africa: a China fund; an India fund; a Russia fund; and a global emerging markets fund. “All but the Russian performed better in absolute return than the Africa fund in 2007, but when comparing with benchmark, the Africa fund was the star performer”.—
When HQ’s fund began trading, it was heavily invested in South Africa, but with “the goal to diversify away from South Africa throughout 2006 and 2007, to take South Africa down to roughly 50 percent of the holdings,” she says. By May 2007, the South African holdings were down just below 50 percent, and remained around that mark for the rest of the year, she adds.
“It turns out to have been a successful strategy as the South Africa market was one of the slow performers in 2007, largely dragged down by poor sentiments toward equity markets around the world, together with poor sentiments toward the macro climate in South Africa”, she adds.
The HQ fund manager says that South Africa will most likely remain the single largest market (tracked in the fund) for liquidity reasons. “Contrary to most African funds, our fund is daily traded and our clients are able to withdraw their cash at any point, hence we also need to have a liquidity aspect when we invest,”she says.
The second largest market represented HQ’s Africa fund, in 2007, was Egypt, with roughly 20 percent invested there by the end of the year, Fries explains. “The Egyptian market was one of the better in Africa especially towards the end of 2007, as sentiments around the world got even worse and risk aversion has increased,” she says. “Other than that we have also been successful in Nigeria, Kenya“ despite the current turbulence“ Zambia and Ghana.
Among HQ’s top Africa holdings are MTN Group Ltd, Standard Bank Invest, Impala Platinum, Orascom Construction, and Billiton. The top sectors represented are Finance and Real estate; and Materials. After South Africa and Egypt, the fund’s holdings in Kenya are the largest.
At Simplicity, the Africa fund returned 26 percent for 2007, according to Simplicity’s Mathias Lundmark. A majority of the funds investments are in South African companies. “The bulk of the funds holdings are still invested in South Africa, even if the share has, over time, decreased from 94 percent to 62 percent,” he says.
Instead, Nigeria and Egypt has increased its share of the portfolio with 16 and 13 percent, respectively, and each now make-up 16 and 17 percent, respectively, Lundmark explains. “Even Morocco increased a couple of percentages, and now makes up four percent of the portfolio,†he adds.
The developments in the African markets during 2007 have been good, says Lundmark. The funds main market, South Africa, grew by 15 percent. And its main markets outside South Africa have performed even better, he says. Morocco grew 32 percent during 2007; Egypt by 48 percent and Nigeria a whopping 71 percent. The African stock markets have been relatively unaffected by the recent credit concerns.
The major sectors represented in the portfolio are Finance and Real Estate and Materials, he says. “The biggest change in the market make-up of the portfolio during 2007 is that Finance and Real Estate increased its share by 19 percent to 37 percent, and now comprises up the most important market in Simplicity Africa.”
Among Simplicity Africa’s top holdings are South African construction and engineering groups Murray and Roberts Holdings, Avenge Group and Egyptian Orascom Construction.
Back at HQ, Fries shares some general economic trends she observed during 2007, and ponders what the future might have in store for investors. Investment trends as seen in general in South Africa in 2007 was shunning anything that had to do with retailers, may it be banks or consumer stocks and continued interest in anything that had to do with construction, she says.
“We’ll have to wait and see what 2008 has in store, but I think that there will be continued focus on the economic- and political environment in South Africa and that general GEM (global emerging markets) funds are likely to be hesitant towards South Africa in 2008.
Depending on where international financial markets are heading right now, Africa outside of South Africa is likely to remain an interesting investment arena,” she adds.
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Internationally Swedish asset managers are in the forefront of investing in African shares. No single country of Sweden’s size has a similar representation. And, interestingly, the investors are to a large extent Swedish middle of the road households and to a much lesser degree private portfolio investors.
While Simplicity follows a tracking model, and therefore is less research heavy, the other two funds are largely depending on research done by international investment bank’s teams – mostly placed in Johannesburg.
Weather you should invest in any of these Swedish funds, which all come at a cost, or e.g. build your own portfolio or invest in local mutual funds, instead depends entirely on your inclination. Optionally, if you want to go your own way, you could go for South Africa’s leading independent asset management firm Allan Gray, which has been the country’s most successful institutional investor over a longer period of time. Or, if you are more interested in cruise-controlled type of investments, go for the very popular, relatively inexpensive, local tracker fund option Satrix, which tracks various sectors and asset classes.
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