Van Eck Africa ETF

A lot of people are looking at investing in emerging markets and few are venturing one step beyond and looking at Africa too.

At present, there aren’t many ETFs that focus on Africa, so your options are limited. Van Eck Africa ETF (AFK) is one of those limited options, and here is an overview of this Africa ETF.

This is a relatively new ETF that commenced operations only in July 2008, so it is just slightly over a year old.

The total net annual fund operating expenses of the Van Eck Africa ETF is 0.88%. It has 18.6 million dollars asset under management according to its fact sheet on 2Q 2009.

Index Underlying Van Eck Africa ETF

This is an ETF that tracks the Dow Jones Africa Titan Index.

The ETF normally invests 80% of its funds in equity securities of companies that are:

  • Domiciled in Africa
  • Primarily listed in an exchange in Africa
  • Generate at least 50% of their revenues in Africa

This index comprises of stocks that have a market capitalization of greater than 200 million dollars, and if the market capitalization of any stock falls below a 100 million, then that company may be deleted from the index. The stocks should also have at least a three month daily average turnover of 1 million dollars or more. The total market cap of this index was greater than $80 billion dollars on March 31st 2009.

Here is a country breakdown of the index as on 2Q 2009:

South Africa 29.61%
Nigeria 20.21%
Egypt 14.25%
Morocco 13.61%
Equatorial Guinea 6.01%
Nigeria 5.00%
Zambia 2.48%
Mali 2.38%
Canada 2.06%
Kenya 0.98%
Ghana 0.86%
Australia 0.91%
Angola 0.87%
South Africa 0.71%

Here are top ten stocks from the index as on 2Q 2009:

Tullow Oil PLC 6.01%
Mobile Telecommunications Co 5.00%
First Bank of Nigeria 4.41%
Maroc Telecom 3.74%
Old Mutual PLC 3.58%
MTN Group 3.54%
Orascom Constructions Inds 3.37%
Sasol Ltd 3.29%
Attijariwafa Bank 3.29%
Nigerian Breweries 2.99%

Banks form about 32% of the index and basic resources 16.9%. Telecom and oil and gas form 12.5% each of the index as on 2Q 2009.  There are a total of 50 securities in this index.

Risks facing the Van Eck Africa ETF

As you can imagine, this ETF is considered more risky than the ones investing in other developed markets. Here are some risk factors unique to Africa ETF that you should keep in mind.

Less developed equity markets: The equity markets in Africa are considered to be less developed than even other emerging countries so there can be higher volatility in prices and greater risk of illiquidity, inflation and lower market capitalization.

Governmental control on foreign ownership: Certain African countries require government approval before foreigners can invest in local companies and this may delay or in some cases even prevent equity ownership.

Political risk: Certain African countries may influence substantial control over the private sector and therefore government action can have significant impact on the way the economy develops.

Foreign Currency Risk: Since AFK invests in securities outside the US, it exposes itself to currency risks.

These are just some risks that are unique to ETFs investing in Africa and most emerging countries, apart from these risks, the other risks equity funds face are also applicable to this ETF.

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