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Africa ETF Favors Countries with Higher GDP


The emerging markets are known for their high volatility and robust economic expansions. For those focused on growth, one exchange traded fund that tracks Africa allocates based on countries’ GDP.

Traditionally, most ETFs that focus on international markets weight by market capitalization – the largest companies with the greatest market cap make up a larger portion of the ETF. This type of weighting tilts the ETF toward a region’s most developed capital markets, which leaves the smaller companies out, reports Eric Balchunas for Bloomberg.

The Market Vectors Africa Index ETF (AFK) weights countries determined by the size of its gross domestic product. Component companies have to be either headquartered in or generate the majority of their revenue in Africa.

Current country allocations include Egypt 24.7%, South Africa 23.0%, U.K. 16.7%, Nigeria 13.1%, Morocco 10.3%, Canada 5.2%, France 2.2%, Ireland 1.3%, Australia 1.2%, Kenya 1.2% and Singapore 1.2%.

Previously, the ETF had 15% in Egypt and 25% in Nigeria. South Africa, Morocco and Kenya weightings stayed relatively the same. [Egypt ETF Surges 9% on Signs of Political Stability]

Additionally, the ETF’s small-cap exposure has more than doubled to 20%, with allocations to Sierra Leone, Zambia, Mozambique and Tanzania, while large-caps diminished to 45%. Due to the difficulty of gaining exposure to the smaller countries, the ETF added companies from the U.K., Canada, Australia, Singapore and the U.S. that receive significant revenue from Africa.

Sector allocations include financials 36.6%, energy 18.2%, materials 13.0%, telecom services 11.7%, industrials 8.9%, consumer staples 5.7%, consumer discretionary 5.0% and health care 1.4%.

The switch to GDP weight also reduced the ETF’s financial sector exposure from 48% while increasing the exposure to energy, materials and industrials.

AFK is up 7.1% over the past month, but the ETF is down 6.6% year-to-date.

Some critics, though, argue that GDP weighting is a backward looking measurement since GDP is reported quarterly and often revised.

Market Vectors Africa Index ETF

For more information on Africa, visit our Africa category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.