African ETFs: A Complete Guide to Investing in Africa

The guide of how to invest with the right etf for your region and what other factors you should consider when investing in africa.

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18. Apr 2022
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African ETFs: A Complete Guide to Investing in Africa

African ETFs: A Complete Guide to Investing in Africa

For an investor looking to add exposure to a particular region or country, there are few better options than investing in an exchange-traded fund (ETF).

Investing in an ETF is almost as simple as buying a regular mutual fund or open-end fund. All you need is a digital account and a broker to buy and sell ETFs. So if you’re looking to invest in Africa, you’ve come to the right place. There are a range of African ETFs available, covering the continent’s many investment themes. This article will help you understand what African ETFs are and how they can help you achieve your investing goals.

 

What are African ETFs?

ETFs are a form of index fund that aim to replicate the performance of a particular market or commodity index. They are traded just like stocks, but are regulated as securities and are traded on an exchange like stocks. The most common type of ETF is an equity ETF that holds large companies that make up a particular market index.

 

There are two kinds of ETF: simple and complex. A simple ETF simply holds the stocks that make up the index it tracks. This is often more cost-effective than a complex ETF, which includes the custody and maintenance of the underlying investments; however, a simple ETF may not actually be appropriate for some investors.

Investors should research and decide what type of ETF is best before investing.

 

Africa’s Largest ETFs: Vanguard FTSE Africa Index Fund ETF

The Vanguard FTSE Africa Index Fund ETF (KWA) is the largest African ETF by assets under management (AUM). The fund holds stocks in 40 companies from the continent, including Africa’s largest companies like South Africa’s Standard Bank and Nigeria’s First Bank. The fund’s AUM is $2.5 billion.

 

The fund’s expense ratio is 0.10%, which is a little more expensive than other African ETFs. It is available via the Commodity Index Tracking Fund (KWIA), which is a registered investment company (RIC). This means that the ETF is managed by a separate fund that is required to track the commodity index. This method is more expensive than a similar ETF that is available only via a traditional mutual fund.

 

Africa’s Mid-Cap ETFs: iShares MSCI Nigeria Investable Market Index ETF

The iShares MSCI Nigeria Investable Market Index ETF (NGE) is a broad, diverse ETF that tracks the MSCI Nigeria Investable Market Index. The fund holds stocks in over 100 companies in 10 sectors across Nigeria, which is the largest economy in Africa. The fund’s AUM is $200 million.

 

The fund’s expense ratio is 0.65%, which is the second-lowest expense ratio of any African ETF. It trades like a stock, so you can buy and sell it like a stock, but it is a fund, not an actual stock. You can purchase this fund through any broker that trades ETFs.

 

Africa’s Small-Cap ETFs: iShares MSCI Ghana Index Fund ETF

The iShares MSCI Ghana Index Fund ETF (GFA) tracks the MSCI Ghana Investable Market Index, which includes the shares of large, established companies in Ghana. The fund holds stocks in over 50 companies in the country, which is one of the most stable democracies in Africa. The fund’s AUM is $72 million.

 

The fund’s expense ratio is 0.74%, which is the fourth-lowest expense ratio of any African ETF. It is available through any broker that trades ETFs.

 

Invest in Africa with Currency Hedged ETFs

Investing in Africa with a normal ETF that doesn’t hedge the currency risk is a risky move. This is because the exchange rate risk is not contained within the ETF. If the foreign currency exchange rate fluctuates too much, the value of the ETF can go down as well as up. This can lead to losses.

If you want to invest in Africa, Currency-Hedged ETFs can reduce the risk. A Hedged ETF keeps a percentage of its assets in cash, so if the value of the currency goes down, the value of the ETF stays the same. This helps contain any potential losses if the exchange rate fluctuates.

 

How to invest in African ETFs

There are a number of ways to invest in African ETFs.

You can purchase an African ETF like the Vanguard FTSE Africa Index Fund ETF (KWA) or the iShares MSCI Nigeria Investable Market Index ETF (NGE).

You can also purchase a Hedged African ETF like the iShares MSCI Ghana Index Fund ETF (GFA).

You can also purchase an ETF that invests in a sector or commodity that is specific to Africa like the iShares MSCIT Ghana Mining ETF (GEMG).

You can also purchase an ETF that hedges the currency risk of an African ETF like the Vanguard FTSE Africa Hedged Index Fund ETF (VFA).

 

Conclusion

Now you know what African ETFs are and how they can help you achieve your investing goals, it’s time to get started! After all, it’s never too early to start building your investment portfolio.

Investing in ETFs is simple and easy, and there are a number of African ETFs to choose from. With these funds, you can invest in an entire region or country, or you can choose to invest in specific sectors or industries within that region.

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