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Alquity Africa offers entry route to exciting growth story


Africa remains one of the least-invested regions globally for UK retail investors. It is most certainly at the far-end of the ‘exotic’ scale. However, there remain significant investment opportunities across the continent, which many UK investors miss out on.

The continent is rich in resources, a source for a plethora of metals, minerals, oil, and gas used in industry and technology every day. Real estate is another growing sector in Africa, with an increasing demand for both residential and commercial properties.

Demographically Africa has a compelling story. With a population of around 1.5 billion, forecast to grow to over 2 billion by 2040, a median age of 18.8 years and increasing life expectancy, educational attainment, and global connectivity, the continent cannot be ignored in terms of consumption.

Africa’s economy on the whole, whilst dominated by commodities, is reasonably uncorrelated to developed economies, and with most of its economies developing or emerging, has a greater potential for growth.

Most investment is FDI (Foreign Direct Investment – a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy) and according to United Nations Conference on Trade and Development (UNCTAD), the rate of return on FDI in Africa was 6.5% in 2019, higher than the rates in developing Latin America and the Caribbean at 6.2%, and also higher than the 6% return in developed economies. UNCTAD also found that Africa is the most profitable region in the world for FDI. Between 2006 and 2011, the rate of return on FDI in Africa was 11.4%, compared to 9.1% in Asia and 8.9% in Latin America and the Caribbean.

Mind the infrastructure gap

However, the continent is also lacking in infrastructure, which in itself is an exciting opportunity. Africa has just short of 30 stock exchanges, with a market capitalisation of USD1.6 trillion. The largest are Johannesburg (South Africa), Nigeria, Nairobi (Kenya) and Egypt. One of the major drivers of growth in African stock markets has been the increasing interest of foreign investors.

As emerging markets, many African countries offer high potential for growth and investment returns. In addition, many African governments have implemented reforms to improve the business climate and attract investment. For example, the African Continental Free Trade Area (AfCFTA), which came into effect in 2021, aims to create a single market for goods and services across the continent, which could lead to increased trade and investment, basically copying what the EU has done, but across Africa.

Africa’s stock exchanges can be volatile and illiquid – meaning that it can sometimes be hard to exit an investment in a locally-listed company. However, many companies that operate in Africa – primarily in the resources sector – are listed on developed market stock exchanges, such as the All-Share, AIM, Australian and Toronto (Canada) stock exchanges, and as such do not suffer from illiquidity, or a perceived lack of regulatory oversight.

Investors in the UK can invest in African stocks directly, either through a developed market exchange or in some cases overseas. Exchange Traded Funds (ETFs) and funds also exist to spread the risk and take away the need for individual stock-picking. One such fund is the Alquity Africa Fund.

Long-term capital growth

Alquity Africa, was launched in 2010 and is managed by Mike Sell and Kieron Kader from London. The fund aims to provide investors with capital growth by investing in the equity of publicly-listed companies across the African continent over the long term.

At least 70% of the fund’s net assets are committed to listed securities of companies trading on the regulated markets of African countries, or equites listed on other exchanges outside Africa as long as at least 50% of the company’s revenues are derived from operations on the African continent. The fund has the flexibility to invest in the same companies through fixed income investments such as bonds. To manage volatility the fund can hold cash and cash equivalents, and although it has the mandate to do so, will not invest in financial derivates.

Emerging Markets equities do carry risks, so to protect the fund, Alquity Africa will not have a greater exposure to any one stock of more that 10% and as part of the process takes account of a target company’s Environmental, Social and Governance performance.

A Luxembourg-based SICAV, dollar-denominated with unit prices expressed in sterling, interestingly the fund is managed without reference to a benchmark, as it is aiming for capital appreciation over the longer-term. As such it is not a suitable investment for anyone wanting to take their money out before three-to-five years.

Small and concentrated

It’s a small fund of USD3m with 23 stocks, and 10% of the revenues from the funds are donated to Alquity Transforming Lives Foundation, a UK registered charity that offers grants and non-concessional finance to SMEs in Africa and other developing markets where Alquity operates.

Sell has been with Alquity since 2014 and is head of global emerging markets equities after stints with Baring Asset Management, Thames River Capital and F&C, all in emerging markets equities. The day-to-day running of the fund falls to Kader, who joined Alquity in 2019 from BP and coming in from the pensions funds sector.

The fund’s performance record has been patchy. Over three years to the end of June the fund returned -12.3%. Given that this is marketed as a longer-term fund, the poor performance over this key landmark date isn’t a good advertisement. Since inception in 2010 the fund has lost -42.5% and even in shorter periods, the fund also was in negative territory: -10.4% over a year and -7.9% over six months.

The dial is slightly correcting however, over three months the fund returned +1.5% and from end of May to end of June was +3.9%. Could the fund be turning a corner? We will have to see how the rest of the year goes. In the three months to 4th August Sell and Kader managed a 3% return.

Alquity Africa Fund top five holdings:

Company Country Sector % Holding
Commercial International Bank Egypt Financial Services 8.8
Edita Egypt Food Production 7.0
Attijariwafa Bank Morocco Financial Services 6.9
Firstrand South Africa Financial Services 6.7
LabelVie Morocco Food Retailing 6.5

Source: Alquity, 30 June 2023

Although Africa is a tantalising investment prospect, it is important to sieve the winners in terms of stock, industry, and country, from the losers. The same could be said for Africa funds. The Alquity Africa fund is not going to be for everyone. Its unconstrained nature means that in a peer review its performance will be very different from other Africa funds in the market. However, it has a strong social and environmental brief, it won’t be concentrated in Africa’s biggest financial market, South Africa, and will seek opportunities in other parts of the continent and through the  Alquity Transforming Lives Foundation is providing microfinance from its own pocket to help lives in the countries it operates.

Available on several platforms, it has a 5% entry charge, but no exit charge, an ongoing management charge of 3.64% and charges a 20% performance fee of the amount by which it has performed over and above its previous high watermark.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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