Frontier funds tend to be very concentrated at the sector level. Just about every country has a big bank, a big oil company and a large telephone company and these businesses tend to dominate the benchmark index. This is the case with NGE which allocates 41% to financials and 24% to energy companies. It is logical that a Nigeria fund would have a large weighting in energy because it is oil that makes the economy go. Nigeria is the largest oil producer in Africa and number 12 in the world with about 2.5 million barrels per day.
As the literature from Global X points out, Nigeria was included in the Next-11, a marketing gimmick from Goldman Sachs in 2006 that sought to be the new BRIC countries. Nigeria does have many of the attributes that would be expected of a promising investment destination. In addition to have something the world needs, that being oil, it has a large population of 160 million people with an average age of just 18 years old. With many developed nations having serious demographic problems looming in the near future, Nigeria's average age stands to become a huge advantage in terms of future productivity.
GDP growth in Nigeria has been running around 7% annualized for the last few years and was untouched by the global financial crisis. This generally favorable outlook has been reflected in local equity prices as the benchmark All Share Index is up 64% in the trailing 12 months.
The bear case for Nigeria, besides the possibility that it is up too far too fast, centers around the violence, oil strikes, poverty and human rights violations are significant and although beyond the scope of this article need to be considered by anyone interested in investing in Nigeria. Nigeria also ranked 139 out of 176 in Transparency International's 2012 Corruption Perceptions Index; the lower the number, the worse the corruption.
As for some nuts and bolts for NGE, the fund will have 28 holdings, charge a 0.68% expense ratio and any dividend payout will be once a year. Rounding out the sector exposure is consumer discretionary at 13%, consumer staples at 11% and industrials at 5%. Surprisingly, there is no telecom exposure but that service is provided by foreign companies like MTN from South Africa.
At the time of publication, the author had no holdings above..
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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