The African continent appears to generate little enthusiasm among investors. In fact, the total assets under management in African equity funds are so small that the survival of many funds is in question.
Africa possesses several characteristics that could make it a favourite among investors. The continent is home to some of the world’s fastest-growing economies, including Rwanda, Ivory Coast, and Ethiopia. For the continent as a whole, the OECD forecasts economic growth of 3.5 percent for 2024, compared to 3.2 percent for the global economy. Next year, this gap is expected to widen further, with African growth predicted to reach 4.0 percent, against 3.3 percent globally.
This economic growth is partly driven by a relatively fast-growing population. Over the past 30 years, Africa’s population has grown at around 2.5 percent annually—almost double the global average. This has resulted in an exceptionally young population on the continent, with a median age of 19.2 years. In comparison, the median age in the United States is 38.2 years, and in Europe, it is 42.5 years.
Thanks to its rapid growth, African countries are becoming more significant not only on the global economic stage but also in politics. A good example of this is the evolution of the BRIC countries. This concept—representing Brazil, Russia, India, and China—was introduced in 2001 by Goldman Sachs economist Jim O’Neill. In 2009, these countries began meeting, transforming the acronym into a genuine political and economic alliance. South Africa was soon invited—initially as a guest in 2010, and officially as a member from 2011—leading to the formation of BRICS.
While expansion of the alliance slowed for years, from 1 January 2024, several new members, including Egypt and Ethiopia, joined.
Despite these promising developments, investors remain largely uninterested in the continent. Assets under management in the Morningstar category “Africa Equity” total a meagre 448 million euro. Although the continent has occasionally seemed promising for investors, interest in funds focused on Africa has always remained limited. During its peaks in 2010 and 2013, total assets under management barely exceeded 2 billion euro. By the end of November 2024, the category comprised just 29 funds, nine of which are available only in South Africa. Furthermore, the number of African equity funds is likely to dwindle, as most funds manage significantly less than €100 million, raising doubts about their viability.
Fund Radar
Strategies prominently featured on Morningstar’s radar are evaluated either by qualitative assessment from the firm’s analysts—who consider fund management teams and investment processes—or through algorithms applying the same framework. One such fund with a relatively high exposure to Africa is highlighted in this edition. Fidelity Emerging Markets has received an Above Average rating for its People Pillar and a High rating for its Process Pillar from Morningstar analysts, earning it a Silver Medalist Rating.
This strategy has been led by Nick Price, its primary manager since June 2010, who has 18 years of experience in emerging markets investing. However, the team has undergone recent changes. Co-manager Amit Goel left in 2024 to focus on another emerging markets fund within the company and was replaced by Chris Tennant. Additionally, the manager responsible for Latin America departed, with her duties taken over by Zoltan Palfi, who already managed the EMEA portfolio. The team now includes Rajesh Gannamani, who oversees the Asian region. Together, they leverage Fidelity’s emerging markets equity team, comprising 49 analysts.
The fund’s objective is to consolidate the best ideas from this analyst team. Recommendations are passed to the fund’s regional managers, who select approximately 50 of the most attractive stocks for each region. Price and Tennant then conduct further research to identify stocks with the best risk-return profiles. Preference is given to companies with strong, sustainable returns that can operate without external financing.
As of the end of November 2024, Price had allocated 11.83 percent of the portfolio to African equities. While this is only 1.07 percentage points higher than the weighting in the Morningstar EM TME index, it significantly exceeds the average allocation of 7.76 percent for funds in the Morningstar “Global Emerging Markets Equity” category. The African exposure consists of four positions, with telecommunications company Naspers accounting for nearly 7 percent, making it the most significant. Standard Bank follows with a weighting of just over 2 percent, and smaller positions are held in Shoprite and Tiger Brands, each slightly below 1 percent.
Ronald van Genderen is a senior manager research analyst at Morningstar. Morningstar analyses and evaluates investment funds through both quantitative and qualitative research. Morningstar is part of the expert panel for Investment Officer.