How To Find The Best Emerging Market Funds For You

Finding the right investments can be tricky, and if you’ve been searching for the best emerging market funds for your portfolio, you’ve probably discovered that you have quite a few options. But which option is the best fit for your needs? Here’s some insight into the different emerging market investments available.

What Is An Emerging Market?

There are three types of markets – developed markets, emerging markets and frontier markets. Developed markets include countries or markets such as the United States, Japan, Singapore, Australia and the United Kingdom as these are places with long-established stock markets and generally strong currencies.

Emerging markets are countries that have established markets and relatively stable currencies, but they aren’t quite as strong or as established as developed markets or access to their markets is more limited than with developed markets. These include countries such as Mexico, Brazil, Kuwait, Egypt, South Africa, India, Thailand and China.

Frontier markets are less developed or less accessible markets than emerging markets, but typically these are markets that are working toward or making progress toward becoming an emerging market. These include countries such as Kenya, Morocco, Nigeria, Vietnam, Romania, Jordan and even Iceland. Another frontier market is known as the West African Economic and Monetary Union (WAEMU), which is a group of African countries that includes Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.

Countries are rated as developed, emerging or frontier markets by investment research firms or stock market indexes such as Morgan Stanley Capital International (MSCI), Standard & Poor’s (S&P) and Financial Times Stock Exchange (FTSE). These groups differ slightly in their definitions of each group. For instance, Argentina is classified by MSCI as an emerging market, while FTSE and S&P list it as a frontier market. The classifications also can change as the individual countries’ markets develop or decline.

In general, the less developed the market, the higher the risk. So, an emerging market investment might carry a higher risk than one in a developed nation. However, companies in developed nations can go bankrupt and dissolve and developed markets can face economic issues that devalue their currency. Of course, emerging markets and frontier markets also could potentially provide a higher return on investment than you might find in a developed market.

While an emerging market or frontier market investment might seem riskier on the face of it, you can minimize the risk by looking for the best emerging market funds. With a mutual fund or exchange-traded fund, you lower the risk because the fund is diversified and includes a variety of holdings. If one of the holdings declines in value, there are still other companies in the fund that might improve, which can keep the fund profitable.

When it comes to emerging and frontier markets, such as those in Africa, these markets can have some advantages over developed markets. These less developed countries tend to have younger, more consumer-driven populations which means there is high demand for new goods and services. In developed nations, populations are older and there is more focus on providing social security, health care and entitlements for an aging population.

Another reason to consider investing a portion of your portfolio into emerging market funds or frontier market funds is the social responsibility factor. When you invest in emerging markets, you are helping these countries grow and become stronger and more stable.

Stable, diverse economies are healthier economies and not only does this benefit the people in a specific country, but it also benefits entire regions and even continents. We can use the European Union as an example. When countries such as Greece faced a banking crisis, this affected the stability of the EU’s currency. When the countries are stable, the currency becomes stronger.

Even with countries that are not part of a “union,” stability is crucial. If your country is stable, but your neighbor has a poor economy, this can create problems. When you invest in emerging markets and frontier markets, this can have a domino effect, helping to improve economies in many countries or regions, but even helping the economy in a single country can be impactful and improve the lives of many people.

Of course, in the final analysis, every investor’s goal is to make money and, typically, to build a solid retirement plan. Investing in emerging and frontier markets can be a way to build your portfolio and help others at the same time.

What Are The Best Emerging Market Funds?

Every investor wants to know the answer to this question, but there’s no magic short of time travel that will truly tell us which funds will perform the best. As an investor, learning about the different types of investments and what to look for when investing can help you make the smartest possible decisions.

When searching for funds, you have the option of choosing mutual funds or exchange-traded funds (ETFs). Both types of funds are diversified, but the main difference between the two is that ETFs are traded like stocks, and you can buy and sell shares throughout the trading day. With a mutual fund, you can only sell shares at the close of the trading day.

ETFs provide you with more flexibility than mutual funds, and they tend to be less expensive. There’s also the added advantage of transparency. ETF managers will publish the total expense ratios, and this allows investors to truly see all of the costs they pay associated with that ETF.

Mutual fund managers aren’t as transparent, and this means that an investor might think they are investing in a highly diversified fund only to find out (after the fund declined sharply) that the manager put all of the holdings into one company or one sector. With an ETF, you have more certainty that what you see is what you get, in terms of holdings.

When searching for the best emerging market funds, you have the option of investing in businesses within a single country, such as a South Africa ETF or an Egypt ETF. You also have the option of investing in several countries in a specific region, such as a general Africa ETF or perhaps an emerging market ETF or a frontier markets ETF that invests in several emerging or frontier markets. Additionally, you can focus on a sector or industry in a frontier or emerging market such as energy or healthcare or infrastructure.

The best advice we can give is to research each investment carefully and include a mix of different types of investments in your portfolio. This might include stocks in specific companies, mutual funds, ETFs, etc. Choose from a mix of developed market investments and add a few emerging market and frontier market investments, as well.

When searching for the best emerging market funds or frontier market funds, research each of the holdings carefully as well as researching the sectors involved in the fund, such as energy or real estate. Take a look at the historical performance of the investment and, perhaps, compare it with a historically stable benchmark such as the S&P 500.

At Money Watch Africa, we focus on investing in Africa and there are many exciting opportunities to consider throughout this diverse, resource-rich continent. With a little research, you might discover that the best emerging market funds or frontier market funds can be found in Africa. To learn more about investing in Africa, be sure to sign up for our newsletter. 

A Look at Investment Opportunities in Africa

When building a portfolio, many people don’t think about investment opportunities in Africa, but with more than 50 diverse nations and largely untapped economies, investing in Africa can be an excellent way to expand your portfolio. Let’s take a look at these emerging and frontier markets and what they have to offer investors.

Emerging Markets & Frontier Markets In Africa

While many nations in Africa are experiencing solid economic growth, these nations are still classified as emerging markets or frontier markets. Established or developed markets, include nations such as the United States, Japan, Singapore, Canada, Australia, the United Kingdom and others.

These developed markets nations or city-states with established stock markets and strong currencies, and while they might seem like the safest bet investment-wise, there are many opportunities for investors in emerging and frontier markets, such as South Africa, Nigeria, Kenya, Tunisia, Egypt and Morocco. The West African Economic and Monetary Union (WAEMU) also is considered a frontier market and includes the countries of Benin, Burkina Faso, Cote D’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.

But there are also many countries with growth potential that haven’t quite reached a frontier market status, as measured by indices such as MSCI. For instance, Tanzania is listed as unclassified by MSCI and S&P, although FTSE lists it as a frontier market. Zimbabwe is listed as a frontier market by MSCI, but unclassified by S&P and FTSE, so you see that even the powers that be at these index providers don’t always agree on the status of each country.

Africa is a unique continent and attractive to investors for several reasons. Africa, in general, has a very young population. The average age throughout all African countries is about 20 years old. Compare that with Europe, where the average age is about 43. With an older population, the economy becomes more focused on health care and entitlements, while a younger economy tends to be more consumer-driven, seeking a wide variety of goods and services.

The population growth rates in Africa also are increasing at a faster rate than in developed countries, which means there’s going to continue to be greater demand for goods and services in general as compared to countries with lower population growth rates.

Investment Sectors To Consider

As an investor, you always have the option of investing in specific industries, and when it comes to investment opportunities in Africa, you have many choices, including:

Agribusiness

Agribusiness in Africa is one possible investment option. Our blog founder, Larry Seruma, serves as the executive chairman of Feronia, Inc. This agribusiness includes three palm oil plantations in the Democratic Republic of the Congo (DRC) managed by Plantations et Huileries du Congo (PHC).

These PHC plantations not only supply people of the DRC with palm oil, but they also support the economies around these plantations, employing nearly 4,000 permanent staff and about 4,000 seasonal workers. An investment in Feronia can help strengthen the economy of the DRC as well as expanding your portfolio. While we aren’t recommending Feronia over other agribusiness investment opportunities in Africa, this is simply an example of one type of individual investment that you might consider.

Mining

Africa is a continent rich in natural resources, and there are many investment opportunities in mining. You could invest in a specific mining operation, and there are many options including gold mines, cobalt, iron, etc. There are also a few ETFs out there that include African mining operations as part of their holdings.

Waste Management

Waste is an issue for every country in the world, and this is certainly true among the nations of Africa. Typically, most waste in Africa is burned or ends up in landfills and sometimes, unfortunately, in water sources. However, there are many companies in Africa that are trying to better manage waste. In some cases, waste is transformed into animal feed or fertilizer and in some countries, such as Ethiopia, waste is being recycled and used to provide electricity for its citizens. Investing in waste management can help improve the quality of life for many people in Africa, as well as potentially helping your portfolio.

Energy

With a fast-growing population of more than one billion people, the continent of Africa has huge energy needs. You can invest in traditional forms of energy or consider investments in green energy or clean energy, such as wind energy and solar farms.

Infrastructure

In addition to improving energy access throughout Africa, many other infrastructure improvements are starting to be made. These include building or improving roads, establishing communication networks, improving water quality and accessibility, creating mass transit systems and much more.  This is yet another investment opportunity that not only might yield solid returns but helps improve the quality of life for people throughout Africa. 

Investment Options

When investing in Africa, either in emerging or frontier markets, the best way to minimize risk to study each investment carefully and diversify your Africa investing portfolio to include a variety of industries, companies and countries. An Africa ETF or Africa mutual fund can be one option consider, and these types of investments include multiple holdings which can reduce risk.

You could invest in an Africa ETF or Africa mutual fund that focuses on a specific country or a specific industry. You also could purchase shares of individual countries in different industries. This can be an excellent option for anyone interested in socially responsible investing as you can choose companies or projects that provide goods or services that are meaningful to you.

Whether you decide to invest in farming, energy or some other sector, investment opportunities in Africa are bountiful. To minimize risk, we again recommend researching each investment carefully and diversifying your risk with a variety of investments. If you are interested in learning more about becoming an Africa investor, be sure to sign up for our newsletter. 

How To Invest In Africa: Options To Consider

If you’ve been thinking about expanding your portfolio into emerging and frontier markets, learning how to invest in Africa can be a good option to consider. There are more than 50 countries on the continent of Africa, which provides investors with a myriad of investment options

Why Invest In Africa?

While there is certainly no shortage of investment opportunities available, investing in Africa can be an attractive option for several reasons. Many countries in Africa are rich in natural resources. For instance, Africa contains about 50% of all proven gold reserves and 90% of platinum group reserves, not to mention resources such as oil, iron, cobalt and more.

In general, throughout the countries of Africa, the average age is about 21, which fuels a high demand for goods and services. In many European countries, as well as in the United States and Japan, we have older populations. For instance, in the United States, the average age is about 38 years old, and this older population tends to spend more on health care and entitlements than on goods and services. Essentially, Africa is booming, both population-wise and economy-wise.

Typically, you also will find that African markets and stocks will trade at lower multiples and are less liquid than investments in other emerging markets or in many developed markets. African companies, as well as households, also tend to have low debt levels, which is another attractive feature if you decide to invest in Africa.  

Of course, with investments, the name of the game is making money, and if you want to increase the value of your portfolio and think that an African investment or investments might be a good fit, here are some options on how to invest in Africa.

Emerging Market Investments

As an investor, you have the option to invest in established or developed markets, such as the United States, Japan and the United Kingdom, but you also have the option to invest in less well-established markets and these are classified as either emerging markets or frontier markets based upon several factors.

Throughout Africa, you will find both emerging and frontier markets as well as investments in countries that are not yet classified as frontier markets. Typically, investment risk is lowest with developed market investments and then emerging markets and finally, frontier markets.

This is because these developed markets tend to have stronger currency and more established markets, but even an investment in a developed market can fail, so there is always a risk with any investment. The bonus of investing in an emerging market is that there may be more potential for a higher return on investment than you might have with a developed market investment.

Egypt and South Africa are both listed as emerging markets in Africa by Morgan Stanley Capital International (MSCI) as well as the S&P Global BMI (Broad Market Index). Both of these organizations track available market capitalization in countries around the globe.

Frontier Market Investments

Frontier market investing tends to be riskier than emerging market investing, but, again, with this risk also comes the potential of a greater reward. Certainly, there is no guarantee that any investment will yield positive results, but if you are interested in investing in Africa, there are quite a few frontier markets to consider.

Kenya, Mauritius, Morocco, Nigeria, Tunisia and the West African Economic and Monetary Union (WAEMU) all are classified as MSCI frontier markets. The WAEMU includes several West African nations, including Benin, Burkina Faso, Cote D’Ivoire, Senegal and several more, however, these four nations are included in the MSCI WAEMU Frontier Market Index. S&P additionally includes Botswana, Ghana and Zambia as frontier markets.

The MSCI classifies Botswana and Zimbabwe on its Standalone Market Indexes, and S&P classifies Malawi, Rwanda, Tanzania and Uganda as Standalone Frontier Markets. While many factors go into the decisions MSCI and S&P make on determining a country’s placement on these indexes, essentially, a standalone nation would be seen as a nation slightly below the frontier market.

For African nations on the standalone index, this tends to indicate that the country is poised to move toward frontier market status. In some cases, however, nations can be moved down to standalone status based upon volatility. For instance, Russia, after its invasion of Ukraine was downgraded from an emerging market to a standalone market.

In the case of Russia, classification as a standalone market is not positive, but for African nations, it can indicate that they are poised for expansion, so don’t necessarily count out a standalone nation. Whether you decide to invest in Africa or select any developed, emerging, frontier or standalone market, the most important advice we can provide is to research the investment carefully to determine if this is truly the best investment for your portfolio.

Of course, these aforementioned nations are just a few of the 54 on the African continent, and many African countries are not classified as either frontier or emerging markets, but that doesn’t mean you can’t find profitable investment opportunities in these countries.

How To Invest In Africa: Different Options To Consider

Financial planners will always tell you to diversify your portfolio. After all, you never want to put all of your eggs in one basket, so to speak. If you want to invest in Africa but are a bit worried about the risks of emerging or frontier markets, a mutual fund or an exchange-traded fund (ETF) can be good options to consider.

Mutual funds and ETFs are funds that contain many different holdings. With stocks, you are purchasing shares in one specific company, but with a mutual fund or ETF, you purchase shares in many different companies. Because these funds are diversified, this can limit your risks. If one of the companies in the fund does poorly, the other companies might do well and help the fund maintain profitability.

The key with either type of fund is to study the holdings carefully and do some research about each holding or company. Study the country weightings, as well. In some cases, you might find an Africa ETF where the percent of net assets isn’t really concentrated in Africa, but in China or the United States or Canada or another developed country.

This isn’t necessarily a bad thing, but many people choose to invest in Africa for reasons beyond financial gain. Making a profit is always the goal, but if you are searching for a socially responsible type of investment, an Africa ETF that is truly focused on African countries and African people can be a good option to consider.

If you are focused on socially responsible investing, there are also hundreds of Africa-based companies as well as other types of investment opportunities where you can purchase direct shares. For instance, you could purchase shares in a farming collective or agribusiness or perhaps invest in a company that focuses on providing clean energy, low-cost internet or clean water to people in a particular country or region.

These can be trickier to find but contacting a brokerage firm that specializes in investments in Africa can be a good place to start looking for options. If you opt for an investment such as an Africa ETF, these can be purchased more easily typically through your regular broker or even from online brokerage firms. There are also frontier market ETFs that might include some African companies in the mix.

In the final analysis, learning how to invest in Africa can be more complicated than investing in developed markets, but there are profitable options to explore. If you want to invest in Africa, speak with your trusted financial advisor to find an African stock or Africa ETF that might suit your portfolio, but, again, it’s always wise to research these investments yourself to ensure that you have picked an investment that is the best fit for your financial goals.