Want To Invest Outside South Africa? JSE Launches First Africa-Focused ETF

Want To Invest Outside South Africa? JSE Launches First Africa-Focused ETF

An initial public offering (IPO) today on the Johannesburg Stock Exchange introduced a new option for investors who want to add some African exposure into their portfolios.

The AMI Big 50 ex-SA, an exchange-traded fund offering 50 African blue-chip companies outside South Africa, began trading on the Johannesburg Stock Exchange (JSE), Business Day Live reported:

Although the JSE already has two exchange-traded notes — Standard Bank’s Africa Equity index and Deutsche Bank’s MSCI Africa Capped 50 — offering portfolios of African shares, the AMI Big50 is the JSE’s first Africa-focused xchange-traded fund.

The IPO is a world first – an exchange-traded fund offering exposure to a pan-African index that excludes South Africa, Moneyweb reported.

Difference between ETFs and ETNs

ETNs differ from ETFs in that they do not hold the underlying assets, IOL reported. The South African Treasury allows exchange-traded funds to be offered via tax-free savings accounts provided they are not focused on a single commodity such as gold or platinum, according to Moneyweb. ETFs fall under South Africa’s collective investment scheme rules, obliging them to own the underlying portfolio of shares or other assets, Business Day Live reported. The rules governing exchange-traded notes are more lax, allowing them to synthetically track indices through derivatives.

The rules governing ETNs are more lax, allowing them to synthetically track indices through derivatives. The existing Africa-focused products offered by Standard Bank and Deutsche Bank are ETNs, so they cannot be bought via tax-free savings accounts.

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The AMI Big 50 is managed by Cloud Atlas Investing, a Johannesburg-based boutique manager focusing on African investment markets. Cloud Atlas will track its custom-designed an index to offer diversified investment at some of the largest companies on 15 African stock exchanges, Independent Online reported.

“We have a focus on Africa to allow Africans to participate in Africa’s growth,” said Maurice Madiba, founder and CEO of the Cloud Atlas fund manager. “We wanted to create a vehicle that people can use to own companies listed on the continent’s stock markets and thereby participate in the growth of those stock markets.

“These could include stocks in multinationals that are listed on African exchanges, as well as local African companies.”

Index constructed to ensure diversification

Most African equity index products tend to have high country and sector concentrations, Moneyweb reported. Egyptian construction stocks and Nigerian banking stocks have been historically dominant, :

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 which therefore ends up being concentrated in one country or sector,” said Nerina Visser of etfSA, an internet-based South African information and transaction website.

“But this index chooses the largest, most liquid companies per exchange, per sector. It says there is no need to have 10 Nigerian banks just because they have the largest market caps. It’s better to look in other countries and other sectors and get that diversification. That is the thing that makes it unique.”

The AMI Big 50 ex-SA will be competing with the Standard Bank Africa Index exchange-traded note. “Where they differ is that the Standard Bank ETN does not physically hold the underlying shares. It is rather a debt product that pays a return related to the performance of the index it references,” Moneyweb reported.

Trading in smaller quantities

AMI Big 50 is a product for institutions and investors who want to participate in Africa’s long-term growth, Madiba said. “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 does allow investors in smaller quantities to trade exposure in and out of Africa.”

Now that it’s listed, AMI Big 50 will be will be accessible to retail investors, and it will be available on the etfSA online platform, according to the company’s managing director, Mike Brown, IOL reported.

The top five exchanges for AMI Big 50 exposure include Morocco, Egypt, Nigeria, Kenya, and BRVM, an Abidjan exchange that serves a handful of West-African countries, according to the fund’s minimum disclosure document. The top five holdings in the index are Maroc Telecom (Morocco), Dangote Cement (Nigeria), Attijariwafa Bank (Morocco), Safaricom (Kenya) and Lafarge Ciments (Morocco), IOL reported.

Cloud Atlas plans to launch two more Africa-focused ETFs by June: the AMI Real Estate ex-SA ETF, which will track an index of African-listed property companies, and the AMI Consumer ex-SA ETF, which will concentrate on the food and beverage, healthcare, retail and telecommunications sectors.

If you are interested in investing in Africa outside South Africa, here are some actively managed equity funds, according to IOL:

  • Absa Africa Equity Fund
  • Ashburton Africa Equity Opportunities Feeder Fund
  • Prescient’s Africa Equity and Africa Sustainable funds
  • Rudiarius BCI Africa Equity Fund
  • Sygnia Africa Equity Fund.