I’m a big fan of the folks at Van Eck Global. They’re making frontier stock markets more accessible than ever before. Over the past three years, the money manager has launched exchange-traded funds (ETFs) covering Colombia, Indonesia, and Vietnam. It also set up the most diversified African ETF, the Market Vectors Africa Fund (AFK).
Now they’re preparing to launch a Nigeria ETF, which, to my knowledge, would be the first of its kind.
The fund will try to mirror the performance of the Market Vectors Nigeria Index, which is comprised of companies that are either based in Nigeria and listed on its stock exchange or companies that generate the majority of their revenue in Nigeria.
Van Eck hasn’t yet announced a launch date for the fund, but, in my mind, it can’t come soon enough. The Nigerian market looks like a promising place to park some assets.
Just last month, Morgan Stanley released a very bullish report on the Nigerian economy in which they forecasted growth of 8.4% this year and 8.5% next year. If the country stays on its current growth trajectory, it will likely overtake South Africa and become the continent’s largest economy by 2025.
Notably, Morgan Stanley’s analysts don’t see oil being the prime driver of this growth in the near term. Instead, they see the telecommunications, construction, and retail sectors doing the heavy lifting. Why? The government recently raised the minimum wage by more than 5%, putting more money in consumers’ pockets. There’s also big infrastructure spending on the horizon and a system to remove bad debts from banks’ balance sheets.
Unfortunately, we don’t yet know which specific companies will constitute the Nigeria ETF, but I’m guessing the following companies will be represented.
- Nigerian Breweries (PE Ratio: 21.9, PB Ratio: 13.3, 5-year Annual Income Growth: 29.7%) – Majority-owned by Heineken, the country’s largest brewer has posted phenomenal earnings growth the past few years. The increasingly affluent population should ensure that there’s plenty of beer to be sold in spite of increasing competition.
- Zenith Bank (PE Ratio: 12.4, PB Ratio: 1.3, 5-year Annual Income Growth: 23.7%) – With the Nigerian government absorbing its toxic loans, Nigerian banks like Zenith look to be on the turnaround. Zenith prides itself on being a technology-leader among its peers and is the country’s largest bank in terms of market value. It also operates subsidiaries in Gambia, Ghana, and Sierra Leone.
- Guaranty Trust Bank (PE Ratio: 11.7, PB Ratio: 1.7, 5-year Annual Income Growth: 34.7%) – The first Nigerian bank to cross-list on the London Stock Exchange, GTBank operates 160 branches throughout the country. It is a leader in business banking and known for its innovative products.
- First Bank of Nigeria (PE Ratio: 12.9, PB Ratio: 1.2, 5-year Annual Income Growth: 18.9%) – First Bank traces its roots back 117 years and is a leader in the retail banking segment. Management has recently hinted at an acquisition that would expand its geographic footprint well beyond its Nigerian home.
- United Bank for Africa (PE Ratio: 17.0, PB Ratio: 0.8, 5-year Annual Income Growth: -43.5%) – One of Africa’s most geographically-diversified banks, UBA operates in 18 African countries. It intends to launch subsidiaries in Congo-Brazzaville and Mali this year.
I expect fees to be roughly equivalent to the Market Vectors Africa Index ETF (AFK). AFK’s annual expense ratio presently stands at 0.83%.
Disclosure: I have a long position in the Market Vectors Africa Index ETF (AFK).