STANLIB Africa Equity Fund receives FSB approval

The STANLIB Africa Equity Fund, which offers South African investors the opportunity to invest in Africa’s emerging markets, has been approved by the South African Financial Services Board. Africa is increasing in its appeal as an investment destination and Gross Domestic Product for the continent is forecast to exceed 6,0% for this year. STANLIB established a Dublin based UCITS Africa Equity Fund for international investors in August 2007, and that has risen 17,5% in US Dollar terms since inception until June 2008.

Fund manager Stephane Bwakira, says that over the past few years, a number of countries in Africa have made serious progress in addressing investor concerns. “Debt levels have come down, interest rates and inflation have been brought under control, and political stability and economic reform have been government priorities. This abundantly resource-rich continent is now attracting record investment flows. However it is not only the resource sector which makes for a compelling investment case - banks, other financial services, telecoms, construction and tourism sectors are all reflecting strong growth in corporate earnings thus enabling African markets to outperform. The added advantage is that as individual African markets are lowly correlated with each other, the continent as a whole therefore offers low volatility.”

The STANLIB Africa Equity Fund’s objective is to maximise capital growth over the medium to long term. Its investment universe extends to seventeen African stock markets - with over 1 100 stocks to select from - as well as companies which are listed on other exchanges such as Toronto in Canada, AIM in London or Sydney in Australia. The overriding investment filter is that the majority of a company’s business must reside in Africa, excluding South Africa.

Practically speaking, the suitable investment universe is around 200 stocks on African exchanges and 50 on other markets, and the fund usually holds between 45-60 positions. Because of volatile global market conditions, the cash holding of the fund is presently high at around 10%, but in more stable times, would usually be at around 5%. The fund’s mandate includes a 10% allocation to unlisted securities with the condition that they will list on an exchange within twelve months.

The fund is supported by a team of five investment professionals and because of the uniqueness of African markets no rigid investment style can be adopted. A strong bottom-up approach advocates detailed on-the-ground research to ensure appropriate and optimum stock selection. Ideally, company management should be visited twice a year supported by a constant informal dialogue between the fund and the company. The fund does not leverage and although currency hedging is permitted, this can be difficult and is therefore not a fund strategy.

With regard to the unique nature of African investments, investors in this fund need a longer-term horizon, at least three to five years. With a minimum investment of R1 million, it is most suited to institutions and high net worth individuals. The Rand-denominated fund is priced daily and will accept South African investor inflows from September.

Bwakira says the outlook for African markets is that they will continue to perform well and recent profit-taking in Nigeria and Egypt is modest compared to the declines seen in China and India. “At country level, we are very positive on prospects for Nigeria, supported by the oil price and a growing consumer base and we anticipate a recovery in Kenya after its recent political upheaval. African markets no doubt will be influenced by the downturn in the global economy but over the long term the continent provides an invaluable diversification opportunity.”

Based in Johannesburg, Bwakira, who holds a B.Sc. in Business Administration from Drexel University in the USA and an MBA from the University of Cape Town, has specialised in the analysis and management of African equities since 2004.