Should you follow Mobius into Africa?

Veteran emerging-markets fund manager Mark Mobius is opening his Africa-focused fund to investors. Should you buy in? Matthew Partridge investigates.

In the hunt for the next big emerging market, the investment industry occasionally tries to hype sub-Saharan Africa as worth a punt'. But by and large, the region has yet to live up to its promise. The most high-profile launch in recent years New Star's Heart of Africa fund ended in tears. It was wound up in 2009, crippled by illiquidity as the credit crunch hammered frontier' markets, with many investors badly burned in the process.

However, the latest big-name venture into Africa might be of more interest. Veteran emerging-markets investor Mark Mobius is set to head up the Templeton Africa Fund, which opens to investors later this month. According to Ventures Africa, "the fund will aim for long-term capital growth by investing in African-listed equities or companies based elsewhere but with principal business activities in Africa".

It goes without saying that investing in Africa is risky. However, there are signs that the continent is starting to overcome its problems. At the end of last year, The Economist claimed that "after decades of slow growth, Africa has a real chance to follow in the footsteps of Asia".

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It emphasised three key factors: better governance, youthful demographics, and a boom in commodity prices. The number of middle-class Africans is also growing fast. "According to Standard Bank, around 60 million Africans have an income of $3,000 a year, and 100 million will in 2015." Mobius himself expects GDP for Africa as a whole to grow at areal annual rate of 7% a year for the next decade. Another good sign is a sharp fall in child mortality.

As Investment Week notes, most funds marketed as African have the vast majority of their assets in South Africa. Templeton Africa Fund aims to correct this somewhat, with Mobius planning to invest significantly in Nigeria and Kenya, although South Africa will still account for a third of the portfolio. Costs will be finalised when the fund launches, but it is expected to charge an annual fee of 1.6% similar to JP Morgan's Africa fund.

So should you invest? Mobius has a solid track record, and Africa has lots of potential. But it is also highly correlated with both commodity prices and global risk appetite, so if you do invest, keep it to a small proportion of your portfolio and be prepared to wait for some time. If you are looking for a more easily tradable play on Africa, you may want to consider investing directly in an Africa-focused company, such as conglomerate and MoneyWeek favourite Lonrho (LSE: LONR).

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri