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Out of Africa for JM Finn

JM Finn – CF JM Finn Africa Fund

Type: Oeic

Aim: Growth and income by investing mainly in equities and bonds issued by African companies and governments, or companies based elsewhere that trade mainly with African economies

Minimum investment: Lump sum £1,000, monthly £100 through savings plan

Investment split: 100% in equities, bonds and other assets

Isa link: Yes

Charges: Initial up to 5%, annual 1.5%, performance fee 15% waived until July 1, 2010

Commission: Initial 3%, renewal 0.5%

Tel: 020 7600 1660

This fund takes a thematic approach to companies across Africa. It will invest in equities and bonds issued by companies based in Africa or those based elsewhere whose main activity is trading with African economies. The fund can also invest in securities issued by African governments.

Hargreaves Lansdown senior analyst Meera Patel observes that the growth emanating from emerging markets is stronger than the developed markets. She believes investors need to re-consider their exposure to the region. “In the past, many advisers would have recommended no more than 5 per cent of a portfolio in emerging markets. Nowadays, we feel this could be anything from 5 to 20 per cent depending on an investor’s risk profile.” She says that investors should consider broader based emerging market funds, but where risk appetites allow, an Africa fund like this could also offer an exciting long-term investment, making up 1-2 per cent of a portfolio for those who understand the risks.

“Anthony Eaton, the fund manager, is someone we have followed for years. He runs a very successful global growth fund of which a big proportion is invested in Africa, so he is not a complete novice in the area.”

Patel finds in interesting that the fund aims to take advantage of globalisation. “Africa has resources in abundance, including energy, raw materials and precious metals. This has been the case for a long time, but China has taken an increasing interest in recent years.

“China is one of the greatest industrialisation projects on earth and Africa has the raw materials it needs. The value of China’s trade with Africa has risen from $5.6bn a year in 1996 to $100bn today, so its growth cannot be underestimated.”

Africa is not just a commodities story, says Patel. She notes the fund will also invest in companies with the potential to benefit from the emergence of the African consumer. “These will mainly be companies supplying countries such as Nigeria, Egypt, Kenya and South Africa which have big populations and higher income per person.

“Anthony Eaton will invest in companies doing business in Africa, but estimates 70 per ceet of the portfolio will be invested in companies listed on exchanges outside the continent. HE can invest up to 60 per cent on local African exchanges, including in higher risk smaller and less liquid companies, meaning the fund will be volatile.”

Patel adds that the fund will have a focused portfolio of around 60 holdings at launch, but this will be diversified to around 100 over time to spread the risk.

Turning to the less attractive features of the fund Patel says: “This is a high-risk region, so will not be suitable for all investors.

“Liquidity could at times be a problem, particularly with stocks listed on some of the niche sectors or smaller markets, so investors must take a long-term horizon of more than 10 years when investing in this region.”
Patel also takes issues with the 15 per cent performance fee on any outperformance above 3 per cent of the benchmark. “We are not huge fans of this fee structure as we feel performance fees only benefit one party – the fund manager,” she says.

Africa funds from Investec and JP Morgan are viewed by Patel as the main competition. She adds that JPMorgan Asset Management has recently soft-closed its Africa fund.

BROKER RATINGS

Suitability to market: Good

Investment strategy: Good

Charges: Poor

Adviser remuneration: Average

Overall 8/10

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