First African Local-Currency ETF to list in Q2

The first African local-currency bond ETF will launch in the second quarter this year with an initial investment of $25-30 million, according to the fund’s manager AbhimanyuYadav, head of fixed income and currencies with Mauritius Commercial Bank Investment Management Ltd.

The Mauritius-headquartered fund manager, part of the MCB Group, will start roadshowing the African Domestic Bond Fund next month in London, Dubai, Cape Town and Johannesburg, Yadav said in e-mailed responses to questions on Jan. 23. The target is to raise $25-30 million for the launch, $100 million after a year and $500 million in three years’ time.

The ETF will be denominated in U.S. dollars and will be a so-called enhanced tracker. This means that 80 percent of the fund will replicate the performance of the AFMI Bloomberg African Bond Index, a weighted composite index of local-currency sovereign debt in South Africa (accounting for 60 percent of the index’s weighting), Egypt, Nigeria, Kenya, Namibia and Botswana. The remaining 20 percent will be actively managed.

All investments will be in local-currency debt.

The BADB Index lost 17 percent last year, mainly due to the devaluation of the Egyptian pound in November.

“While the bond market growth does not look impressive in U.S. dollar terms, the bond markets of South Africa, Egypt, Nigeria, Kenya, Namibia and Botswana have grown 286 percent in constant dollar terms and from 200 percent (Botswana) to 600 percent (Egypt) in local currency terms, since 2009,” the African Development Bank’s Coordinator for the African Financial Markets Initiative, Cedric AchilleMbengMezui, said in e-mailed responses to questions on Jan. 27. The AfDB is providing $25 million or 25 percent, whichever is lower, to the fund as a seed investor.

The ETF will be listed on the Mauritius stock exchange and is expected to have a total expense ratio of 65 basis points.