Investment Strategies
INTERVIEW: Taking A Contrarian Walk Through Africa In Pursuit Of Returns

Bellevue Asset Management, a firm that runs the BB African Opportunities Fund (£51 million in AuM as at end-January), is a firm unafraid to stick around in those countries seemingly in the midst of serious turmoil.
A mistake that investors can make is to shift in and out of
countries’ markets in a knee-jerk fashion in reaction to positive
or scary news headlines. There have been plenty of stories – some
of them good, some very bad – from Africa down the years. And the
relentless 24-hours news cycle only adds to the temptation.
To avoid that sort of error means investors who use discretionary
advisors to manage Africa-themed assets must be trusted to use
their – hopefully – sound judgement of the facts on the ground.
And it requires patience over several years.
Bellevue Asset Management, a firm that runs the BB African
Opportunities Fund (£51 million in AuM as at end-January), is a
firm unafraid to stick around in those countries seemingly in the
midst of serious turmoil, so one of the fund’s management team,
Malek Bou-Diab told this publication recently.
“We went into areas….such as Egypt where it would have been very
easy just to say let’s avoid it….You have to control your risks.
Companies there include some that are very solid and can
withstand the volatility of the country. In Africa, things will
improve but not without crises,” he said.
Bou-Diab said clients need to be given a realistic understanding
of risks of investing in Africa and the timeframes that should be
used in investing (ie, long term). Africa equities should form,
he thinks, no more than about two or three percent of an equity
portfolio.
He said one “contrarian” call within infrastructure vs
consumption, that he would make is that infrastructure spending –
and the firms that make money from that – is the trend to watch
since this is vital for helping African countries develop a more
sustainable growth path, while the market continues to favour
consumption names which trade at substantially higher valuations.
Results
Performance so far has been relatively encouraging. The January
2014 factsheet on the fund (euro share class) shows that the fund
is up 0.56 per cent since the start of the year, compared to the
- 2.91 per cent fall in the DJ African Titans 50 benchmark; over
one year, the fund’s shares are up 7.83 per cent, while the
benchmark fell more than 2 per cent. The fund was launched on 30
June, 2009 and is structured as a Luxembourg UCITS vehicle.
Typically holding between 50 to 70 stocks, the fund adopts a
bottom-up approach to stock selection and is recommended to
investors taking a five-to-seven-year time horizon.
Bou-Diab, who has a Swiss and Lebanese background, thinks his own
accomplishment as a physics PhD, linguistic training (he’s fluent
in French, German, English and Arabic) and experience at places
such as Julius Baer give him an edge. He loves to drill down into
the details of a country rather than make snap judgements on an
investment opportunity.
One of the common assumptions that needs to be questioned, he
said, is the idea that strong GDP growth equates to rising equity
markets. That is not always the case, he said.
The fund’s largest position is in Egyptian stocks, making up over
36 per cent of the total portfolio, followed by Nigeria, at 17.7
per cent, South Africa, at 13.4 per cent, and Kenya, at 8.3 per
cent. The fund also has a 1.5 per cent holding in cash.
Financials account for 46.1 per cent of the fund, the largest
sector holding, followed some way behind in second place by
materials, at 16.4 per cent. This is definitely a fund where
significant bets are being made.
To view a recent feature on Africa and wealth management, click
here.