ETFs have exploded in popularity over the last decade, accelerating rapidly since the so-called ETF rule arrived in 2019. All kinds of thematic ETFs have emerged for investors to consider. From strategies as broad and thematically rich as cloud computing (SKYY) to some perhaps not as serious (SJIM), thematic ETFs have provided investors with discrete, transparent, and flexible options with which to invest. One class of ETFs, however, has not benefitted from that explosion in popularity: Africa ETFs.
While ETFs provide the opportunity to invest in most regions of the world like Europe, East Asia, and Latin America, just two ETFs focus on Africa. Only one of the pair invests in Africa overall, with the other focused on South Africa alone. Another ETF had invested in Nigeria, specifically, but has since been liquidated, while an Egypt-focused ETF also closed just this year.
The World of Africa ETFs
The broad Africa ETF, the VanEck Africa Index ETF (AFK), launched way back in 2008. AFK currently holds $49.2 million in ETF AUM per VanEck data. Charging 131 basis points, AFK tracks the MVIS GDP Africa Index. Intriguingly, the strategy does not just hold African firms but also firms active in Africa, itself. While the strategy has performed alright since inception, it has performed relatively well YTD, returning 10.9%.
Of course, AFK presents broad exposure, with the other in the duo of Africa ETFs, EZA, offering South Africa exposure. The iShares MSCI South Africa ETF (EZA) charges a 59 basis point (bps) fee to track the MSCI South Africa 25-50 Index. The fund actually launched in 2003, making it one of the older ETFs available. EZA has returned 7.4% since inception and 12.3% over one year.
The decline of Africa ETFs doesn’t necessarily reflect the economic outlook of the continent. Per the World Bank, sub-Saharan Africa saw 3.6% economic growth in 2022, which slowed to 2.5% in 2023. That growth isn’t representative of the whole continent, meanwhile, with West Africa outperforming East Africa. Over the next three decades, the World Bank says, sub-Saharan Africa specifically will see the largest increase in working-age people of all global regions.
While, yes, the region faces big challenges from climate change and political instability, it represents a true group of frontier markets. Africa ETFs may be few, but their potential, and the potential for future Africa ETFs, makes it an intriguing space to watch long term in the ETF world.
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