The Dublin-based fund aims for growth by investing in stocks that are viewed by fund manager Eric Kibe and his team as undervalued and offering growth potential that is not yet recognised by the market.
Sanlam sees this fund as a logical progression of the fund management businesses it already runs in Africa, with investment teams in Nigeria, Kenya, Zambia, Botswana and Namibia. The firm also has a presence in other areas such as Uganda and Ghana. This local knowledge may be crucial in providing the information that is necessary to run a fund of this type.
Kibe joined Sanlam in October 2006 as chief executive and chief investment officer of the firm’s Kenya business. He was previously executive director and head of asset management for the East African businesses of African Alliance.
In running this fund, Kibe and his team will build a concentrated portfolio with no sector restrictions, but they will focus only on regulated African markets. They will take a bottom up approach to stockpicking, where an in-house screening process is used to identify potential stocks, which are then scrutinised by the investment team. Price targets will then be set for the team’s best ideas. Up to 30 per cent of the fund’s net asset value may temporarily be held in liquid asset such as cash and cash equivalents to create a more defensive position when necessary.
Sanlam says that African stock markets offer the opportunity to invest in world-class businesses with high-quality management and strong long-term potential for growth, with wider opportunities than commodities and infrastructure. Frontier African markets could also be used as a diversifier because they have low correlation with the mainstream markets that provide the core of general emerging market equity funds.
However, the flip side to the potential rewards of equity exposure to frontier markets in one continent is high risk.