Franklin Templeton is launching an Africa fund for veteran investor Mark Mobius, making it the latest fund group to test investor appetite for the world's second-largest continent.
The Templeton Africa fund, scheduled for launch next month, will invest in African equities or companies which have their principal businesses in Africa.
Mobius will be lead manager on the fund, with support from Franklin Templeton’s 50-strong emerging markets team.
In another sign fund groups are once again seeing long-term potential on the continent, J. P. Morgan has reopened its $377m Africa Equity fund. The fund soft-closed in 2010 but the team is now comfortable it can offer new capacity while investing on a sustainable basis.
African equities fell sharply last year, with the MSCI EFM Africa index dropping 16% amid a global sell-off, but it has risen 10% year-to-date as the continent’s equity markets benefit from an improvement in global risk appetite.
“There are of course many challenges to investing in Africa, but it is all about growth,” Mobius said. “As the largest frontier funds manager in the world, we are in a good position to launch such a fund.”
Africa funds have a chequered history in the UK retail market, in no small part due to the demise of New Star’s Heart of Africa fund in 2009. The fund was the subject of a major marketing campaign in 2007 but was suspended, wound up and sold off two years later as New Star struggled to meet redemption requests.
"New Star's fund was high profile for the wrong reasons but it was run by a UK equity manager based in the UK. But Mark Mobius' team is as long as it is broad and an Africa fund is a natural extension of their emerging and frontier market capabilities," said Darius McDermott, managing director of Chelsea Financial Services.
"Africa is a niche opportunity and naturally a high risk investment, but it is seen as a very exciting investment area by many."
Asked about liquidity, Mobius said he had encountered few problems when investing in Africa through his Frontier Markets fund.
“If you are trying to get into some stocks it can take a while, but in other areas you have terrific turnover. It is not unusual to find a number of companies that turn over more than a million shares per day.”
A number of other Africa-focused funds available to UK investors sit in the IMA Specialist sector, including the J. P. Morgan fund, the Neptune Africa fund, the Investec Africa & Middle East fund, and the JM Finn Africa fund.
The oldest African funds in the sector – from J. P. Morgan and Investec – have returned 79.7% and 44.9% respectively over the three years to 5 April, according to Morningstar. Over one year, the four funds have lost an average of 9%.
Such vehicles tend to invest the majority of their portfolios in South Africa, classified as an emerging rather than a frontier market, which accounts for the majority of the MSCI EFM Africa index.
Franklin Templeton’s fund, meanwhile, is benchmarked against the Dow Jones African Titans 50 index, which includes UK-domiciled Tullow Oil and Old Mutual as two of its largest constituents.
“We will not be inhibited by the index of names but there are a number of UK and US listed companies that are pure African plays. We certainly do not want to miss those opportunities,” Mobius said.
Mobius expects the fund, which will have an AMC of 1.6% and a minimum investment of $5,000 or currency equivalent, to hold around a third of its portfolio in South Africa at launch.
Nigeria – the largest single country weighting in the Frontier Markets fund – will be the next largest holding with a weighting of around 20%-25%, followed by a significant allocation to Kenya.
Commercial banks will form the largest sector weighting at launch, at as much as a quarter of the portfolio, with telecoms also interesting Mobius. But the manager may underweight the oil & gas and mining sectors due to the number of companies that are either state-owned or large multinationals.
The fund will be Luxembourg domiciled with a sterling share class (subject to FSA approval).
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