Calvert Group Launches Africa Mutual Fund : Investment: Money manager is seeking to attract much-needed capital to the continent and produce top returns in the process.
Socially responsible funds aren’t usually pitched on their investment returns. The New Africa Fund, a new open-ended mutual fund, hopes to change that.
“This is the first time the politically correct thing to do, the socially correct thing to do and the economically correct thing to do are all the same,” Justin Beckett, the manager of the New Africa Fund, told the Bloomberg Forum.
The fund was launched by the Calvert Group, a Bethesda, Md.-based money manager that pioneered efforts to keep investment out of South Africa to protest apartheid in the 1980s. Now that Nelson Mandela has been elected president, Calvert is seeking to attract much-needed capital to the continent and produce top returns in the process.
In the past, some of Calvert’s socially responsible funds haven’t turned in stellar performances. Over the past five years, the Calvert Social Investment Fund ranked 219 out of 226 U.S. growth funds tracked by Lipper Analytical Services. The fund posted a 19.53% cumulative return, compared with an average 68.85% for its peers.
The New Africa Fund hopes the “tremendous growth potential” of nascent markets in Africa will translate into returns of more than 20% over the next three to five years, said portfolio manager Beckett. The fund is being managed by Sloan Financial Group, a Durham, N.C.-based investment firm, which employs Beckett.
The fund is the first open-ended mutual fund that will invest broadly in Africa, and Beckett said it could eventually grow to $100 million. The fund is geared toward individuals, with a minimum investment of $2,000.
Initially, as much as 80% the fund will be invested in South Africa, where the bulk of the $300 billion worth of listed stocks on the continent are traded. As the 14 other stock exchanges grow in size and more are created, the portfolio will become more diversified, Beckett said.
So far this year, investors in the South African equity market haven’t had much to celebrate. The Johannesburg All Gold Index is down 29.36% in dollar terms since the beginning of 1995, while the All Market index is down 7.8% in dollar terms.
Some of the smaller African markets are where the best returns may be produced, Beckett said. African markets accounted for four of the top five performing markets in the world in 1994, according to Birinyi Associates Inc. The Ghana stock market index was the second-best performer, for example, rising 122%, while Kenyan shares rose 75%.
One reason Beckett sees opportunities in countries including Ghana, Nigeria, Zambia and Tanzania is that they are big producers of commodities such as gold, diamonds and oil. Moreover, should inflation in the United States pick up, investments in commodities will serve as a hedge.
“As we feel the twinge of inflation in America, the commodities-based investments in Africa are beginning to appreciate,” Beckett said.
Ghana, for example, is home to Ashanti Goldfields Co. Ltd., which saw its gold output increase 16% in the first quarter. Angola and Nigeria are big producers of crude oil.
As in emerging markets anywhere in the world, one trade-off for large growth prospects is the fact that the markets are thinly traded. “You do get illiquidity, but you do an undervalued stock,” said Beckett.
To succeed, the fund is counting on the development of a larger middle class in Africa. Under the apartheid system, as much as 80% of the population was excluded from economic advancement in South Africa, Beckett said. As those people gradually move into the economic mainstream of the country they will begin first to buy consumer products such as refrigerators, televisions and VCRs.
Beckett’s top picks include South African Breweries, the largest consumer products group in the country with an 85% interest in the beer market, as well as stakes in hotels and retailing. This year, shares are up 7%. While the company could come under increased foreign competition, there are barriers to protect it--such as its operations in the glass market.
Another favorite pick is Impala Platinum Holdings Ltd., one of world’s largest producers of palladium, which is used in catalytic converters. As the fortunes of U.S. car makers have improved, so have this company’s prospects.
Investors have also been encouraged by the South African government’s decision to abolish the financial rand--a dual exchange rate that had hindered investment. “Exchange controls are one of those flags investors look at. Once they were lifted, people realized there is some stability in the domestic government, and as investors, that makes us excited.”
