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.