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Alquity takes SRI to Africa

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Emerging markets specialist Alquity Investment Management has established a Sicav investing in Africa within a socially responsible investment framework.

The fund launched in June for European and Asian investors, but a sterling share class has now been added. It invests mainly in African equities, but will have the flexibility to invest in fixed-income securities and money market instruments. It aims for absolute returns in the sense of not producing relative returns, where a fund will perform well if it loses less money than a benchmark index. The firm expects the portfolio to generate double digit returns on an annual basis but will not use leverage or short selling.

Alquity Investment Management was founded earlier this year. It believes emerging markets represent strong investment opportunities due to a range of factors such as rising domestic growth, improved finances which contrast with the finances of developed markets, natural resources. The firm also believes environmental, social and governance issues are important and can have a positive effect on fund performance. In this area it is guided by the international standards for business set out by the United Nations and works with risk management and corporate governance specialist Riskmetrics Group.

As well as profit for investors, the firm wants to ensure local communities in Africa benefit. It will donate at least 25 per cent of its annual management fee and performance fee to The One Foundation. This will be used to support humanitarian projects such as Microfinance projects, which enable disadvantaged people to start or improve small businesses to help themselves out of poverty, which should benefit the African economy.

Alquity says not all 53 countries in Africa are attractive but this should not affect investors’ views of the whole continent. It says Africa is rich in resources and is benefiting from China’s demand for commodities and from growing domestic demand for consumer goods.

Alquity will invest only in countries that are stable or are improving. Sectors will have attractive growth prospects and the companies will need to be well managed and trading at a reasonable valuation. Stock selection is driven by investment themes such as increasing consumer wealth leading to increased demand for banking services.  In this example, listed banks in the country would be assessed on a range of criteria, including valuation.

African markets may have high growth potential but are more volatile than developed markets. Alquity sees this as less of a problem for long-term investors and feels some investors may have reassessed their views of risk in emerging markets after the financial crisis showed that developed markets may be riskier than they seem. However, a new fund from a new manager in an area that is new to many investors could have niche appeal, even if there is a charitable element to it.

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