“Second, non-Africa-listed stocks also are eligible, provided the companies generate the majority of their revenues in Africa. Thus, United Kingdom companies make up 17% of the index’s float-adjusted market cap,” Prestbo added.
Investors in Africa ETFs should be prepared for volatility. AFK has a three-year standard deviation of 17.6, versus 14 for the S&P 500, according to Morningstar.
“Occasional periods of scrumptious returns are interspersed among interludes of treading water or steep declines. Emerging and frontier markets are vulnerable to vicious volatility as investment capital sloshes in and out,” Prestbo notes.
“This boom-bust cycle might tempt some investors to try tactical timing to reap the fat returns and duck the disasters. But if market timing is a fool’s game with U.S. stocks, it’s sheer insanity for a whole region, and an unfamiliar one at that. Africa cries out for long-term investment, and my prediction is that in time those providing it will be rewarded,” he said.
Prestbo concluded: “Just don’t forget to pack your patience.”
Market Vectors Africa Index
