Why invest in the African Domestic Bond Fund?
Local African capital markets have grown in both breadth and depth over the past decade, and much has been done to improve the regulatory frameworks and capital market infrastructure, and expand the potential investor base.
Within the local currency African bond space, government securities easily dominate corporate bonds, both in terms of liquidity and issuance value.
Outstanding local currency government securities in eight African countries (South Africa, Egypt, Nigeria, Kenya, Namibia, Ghana, Zambia and Botswana) which represent 85% of the African domestic bond market amounted to approximately USD 500bn at the end of 2017, of which government bonds totalled USD 175bn.
Growth of African Local Currency Bond Markets (US$ Billion)
Corporate bonds in local currencies are <10% of government issuance in most countries and as such government bonds remain a more efficient way to invest in the African fixed income asset class.
The asset class offers diversification benefits (African local currency bonds have a correlation coefficient of -0.22 to 0.52 to major asset classes), which is attractive from a portfolio efficiency point of view. It also offers yield pick-up compared to its developed market peers.
Cross Correlation (2016-2018)
|African Bonds||ABABI 25% Capped||1|
|US Equities||S&P 500||-0.03|
|US Bonds||US 10-Yr Note||-0.88|
|US High Yield||HYG ETF||0.14|
|US Emerging Mkt||EMB ETF||0.38|
|EU Equities||MSCI Europe Index||-0.02|
|EU Bonds||German 10-yr Yield||0.04|
|Asian Bonds||iBoxx ABF Pan-Asia||0.45|
|Asian Equities||MSCI Asia ex-Japan||0.29|
|Currency||GDP YoY||1--yr Bond Yield||Highest Credit Rating|
Despite the improving macroeconomic story in Africa and the prospect of significant economic growth opportunities, institutional investment in African local currency debt is under-represented in most investment portfolios outside of Africa. This is primarily due to difficulties around market access, which the ADBF attempts to address by providing exposure through a relatively low cost and liquid vehicle.
ADBF Investor profile
The Fund is suitable for Investors who:
- are looking to access the sovereign bond markets within Africa, thereby diversifying their fixed income portfolio;
- have an investment horizon of at least 3 years; and
- look for regular returns in USD from coupon income and potential long-term gains from capital appreciation of the underlying bonds.
How to invest in the ADBF ETF
ADBF is expected to be launched in 2018. For more information, please contact:
Name of Fund: African Domestic Bond Fund
Place of incorporation: Mauritius
Exchange: Stock Exchange of Mauritius Ltd
Type of Fund: Exchange Traded Fund (Collective Investment Scheme)
Index: AfDB/AFMISM Bloomberg® African Bond Index 25% Capped
Legal Form: A public company limited by shares with a Category I Global Business Licence issued by the Financial Services Commission
Management type: Enhanced Indexed
Replication Method: Stratified Sampling
Dividend Policy: Semi-annual distributions
Minimum initial investment pre-listing: 2,500 shares
Minimum initial investment post-listing: 1 share
Fees: TER 65bps (based on asset under management of USD 100 million)
0.45% duties and charges for Authorised Participants only
0.10% trading fees on SEM
Manager: MCB Investment Management Co. Ltd
NAV Calculation: MCB Investment Management Co. Ltd
Company Secretary: GFin Corporate Services Ltd
Banker: The Mauritius Commercial Bank Ltd
Custodian: Standard Chartered Bank (Mauritius) Limited
Registrar: MCB Registry & Securities Ltd
Benchmark Provider: Bloomberg®