The AMI Big50, the JSE’s first Africa-focused exchange-traded fund (ETF), is gaining traction since listing on South Africa’s stock exchange in April.
According to the fund’s founder and chief executive Maurice Madiba, the fund is doing well. “We have delivered a 13 percent return, declared a dividend equivalent to a dividend yield of 2.3percent and managed to grow assets more than 200percent,” he says.
The AMI Big50 managed by Cloud Atlas Investing offers investors exposure to 50 African blue-chip companies listed outside South Africa.
It has been specifically designed to provide diversification, as most African equity index products tend to have high sector and country concentrations.
Historically, Egyptian construction stocks and Nigerian banking stocks have dominated.
The ETF is similar to Standard Bank’s Africa Equity index as it excludes instruments listed in South Africa.
However, unlike the Standard Bank’s exchange-traded notes, the ETF physically owns the underlying shares in its basket.
In general, South Africa’s exchange-traded product industry is trending upwards.
According to etfsa.co.za, the total market capitalisation of all ETFs and ETNs listed on the JSE at the end of June amounted to R79.7billion ($6.14bn), an increase of 7.5% on the total market capitalisation as at the end of last year.
The figures for capital raised show that a total of R3.3bn in new money was raised by the ETF industry from new listings on the JSE during the first six months of this year.
ETFs fall under South Africa’s collective investment scheme rules. They are traded like normal equities and their price varies depending on the price of the underlying asset.
Most ETFs don’t always raise a lot of new capital unless they enter the market with a new and different product.
That is where the AMI Big 50 has hit the mark.
“It didn’t start off as a collective investment scheme (CIS). There were things along the road that led us to be a CIS,” he says.
Madiba, a former banker at Deutsche, Bank initially set out to build a hedge fund.
“I started developing some models using South Africa as a proxy, and it soon began to look like indexation.
“I came across the different ways that people use to get market exposure and found ETFs and indexation,” he says.
He takes pleasure in relating the story behind the fund but notes that like many other entrepreneurs, he too was refused funding by the IDC, National Empowerment Fund and development finance institutions.
Despite having achieved this at the age of 29, Madiba is modest and believes it’s important not to lose touch with reality.
The performance of his fund does not make him complacent.
“We wanted to give Africans an opportunity to participate in the continents growth by creating an ETF that is easily accessible. You can trade it using our website or via Easy Equities,” he says.
For Madiba, understanding the sectors and the African environment is most interesting. “I don’t just sit in an office and evaluate some numbers,” he said.
Africa is in a bull market. In 2011, African markets were at an high and investors were enthusiastic about investing in the continent.
But a high dependence on commodity prices, specifically oil, revealed deep systemic problems.
One of those problems involved accessing foreign currency after commodity prices collapsed. Central banks in countries such as Egypt and Nigeria began to control the price and flow of foreign currency.
At the same time, asset prices were going through the roof because investors were trying to take advantage of the bull run.
“As African markets shift to cement themselves as frontier markets and then move to becoming emerging markets, we can expect a lot of growth,” he says.
Madiba says that the structure of African exchanges means that investors will still have an overweight exposure to some sectors, most noticeably financials.
He explains that there is at least one listed bank in every country, whereas there won’t be a listed healthcare company in every country.
Cloud Atlas has ensured that there is a mix of country exposures.
“This is a product for institutions and investors that want to participate in the continent’s long-term growth.
It happens to be the cheapest asset that is available at the moment,” says Madiba.