Africa is getting hotter in the business world. New York-based Nile Capital Management L.L.C. recently unveiled the Nile Pan Africa Fund (NAFAX), the U.S.’s first actively-managed mutual fund to focus exclusively on Africa-based investments. “The Nile Pan Africa Fund is, to the best of our knowledge, currently the only actively managed mutual fund that is focused on the continent of Africa,” says Robert Roach, Chief Operating Officer of Nile Capital Management, LLC. “Our objective is to invest for long-term total return in the whole continent of Africa.”
The Nile Pan Africa Fund plans to provide long-term capital appreciation by investing in stocks of African-based companies and expects to invest at least 80% of its assets in stocks of public companies that have the majority of their assets in Africa, and/or derive a majority of their revenues from Africa. “There has been significant growth of investor interest in emerging markets within the past decade. This has created an opportunity for Africa which has quietly experienced impressive economic momentum,” explains Roach. “That momentum should be sustainable as Africa’s GDP growth is projected to be around 6% annually over the next few years. We believe that the BRIC countries (Brazil, Russia, India & China) were once where Africa is now. We believe that Africa’s natural resources, young demographic and trend toward urbanization creates a very compelling, long-term investment thesis. Investors who missed out on the opportunity in the BRIC countries 10 years ago may realize that now is the time to invest in Africa. In addition, we looked at returns over the past 10 years. During that period, returns for emerging markets have been approximately 7.3%. In Africa, the returns have been 13.8%. African markets have performed just as well as other emerging markets.”
According to Nile Fund research, Africa, the second largest continent by land area and population behind only Asia, is a resource-rich continent with vast mineral reserves. Africa holds an estimated 30% of the world’s mineral reserves including 40% of the gold, 60% of the cobalt, and 90% of the platinum group reserves. “We are confident that over time, Africa will increasingly appear on the radar screen of both institutional and retail investors. Our fund should be well-positioned since it represents a pure play on the Africa investment opportunity,” says Roach.
But despite the abundant resources, many are reluctant to invest in Africa due to corrupt and/or unstable governments. Roach, however says these obstacles can be overcome. “Our focus will be to emphasize four basic facts: (1) Africa’s potential returns. African markets have performed quite competitively with emerging markets as a whole over the past 5 and 10 year periods with annualized returns in the 12% range. These returns look even more attractive when compared to the flat to negative performance of developed markets indices. (2) Africa’s historical and projected strong GDP growth. At a 6% projected GDP annual growth rate over the next few years, Africa is expected to match its average annual GDP growth over the past decade. (3) African markets have historically produced a low correlation of returns to both developed and other emerging markets. This means that adding Africa to a core portfolio has the potential to increase portfolio diversification. (4) We expect a continued surge in money flows to emerging markets. This is driven by both investors’ perception that returns in the U.S. and developed markets will not be very rewarding as well as the continued economic issues that developed economies will face due to over leverage, rising budget deficits, high unemployment and loose-money central bank policies,” Roach points out. “We believe that money flows to emerging markets is a sustainable trend and Africa will be a long-term beneficiary.”