TCM Africa High Dividend Equity is a high dividend equity fund, investing in listed shares in the northern and sub-Sahara regions of Africa. Initially it will focus on Egypt, Morocco and Nigeria. In addition, it will invest in Kenya, Ghana, Botswana and Mauritius. In principle, its portfolio will have limited exposure to South Africa.
The funds investment policy will be aimed at achieving capital growth as well as dividend pay outs. In principle, the fund will pay out dividend once a year with an expected dividend yield of approximately 4% per annum.
The risk profile is high, due to investments being channelled into frontier/emerging markets in Africa. The relationship between global financial markets and African markets is low, because the latter are less sensitive to international developments.
To achieve its objective, the Fund invests 95% to 100% of its total assets through TCM Investment Funds Luxembourg in units of TCM Africa High Dividend Equity (Lux). The Fund qualifies as feeder-structure.
TCM has entered into an agreement with Sustainalytics for the screening of the portfolios of the TCM equity funds on ESG criteria (UN Global Compact and Controversial Weapons).
The Fund Manager writes
In July, stock prices on the African continent were under pressure. The EGX30 index in Egypt fell 2.13% and the broader EGX100 index even fell by 9.6%. In Nigeria, the Main Board Index decreased by 6.11%. In South Africa (-0.79%) and Kenya (-0.69%), the declines were somewhat limited. The fund's return for the month was -1.84%. All values are measured in euro based on total return. A positive outlier was the Moroccan market, where the Madex index went up 5.8%. Within the portfolio, Total Maroc (+ 15.1%), Maroc Telecom (+ 5.96%) and Marsa Maroc (5.89%) were the biggest gainers.
This month the position in Maroc Telecom has been expanded by subscribing to the issue of shares held by the state. The issue price was 125.3 dirham and that is a discount of 8.5% on the current share price and a discount of 12.6% on the 3-month volume-weighted price.
In the portfolio, the position in Sidi Kerir Petrochemicals (-23.5%) in Egypt was under pressure. The company is suffering from falling prices as a result of the trade war and from additional exports of petrochemicals by Iran. That country is trying to compensate for lower oil revenues. With a price/earnings ratio of 5.9x and a dividend yield of 5.3%, the share has now become excessively cheap. Local brokers such as Naeem Brokerage and Pharos estimate the fair value at 17 EGP per share at a current price of 8.3 EGP. At the beginning of August the stock recovered by 14%.
From a macroeconomic view, things are moving in the right direction in Africa. In Egypt, the purchasing manager’s index (PMI) rose to the level of 50.3. A survey among Egyptian institutions shows that confidence about the economic future is increasing further. In addition, inflation has fallen to 9.4%, the lowest level in 3 years. The PMI in Nigeria grew to 54.6. The growth was in line with expectations. Inflation fell in Nigeria (+ 11.2%) to the lowest level since August 2018. The Central banks’ inflation target of between 6 and 9% is still far away, but a further weakening of inflation in the next months is expected.
The fund currently holds positions in 35 stocks over 7 different countries. The countries with the largest weightings are now Nigeria (27.6%), Egypt (26.2%), and Morocco (20.4%). These markets currently have the most interesting high dividend shares that meet the quality requirements. The weighting of a country is therefore mainly determined by the relative attractiveness of the market compared to other countries. Consequently, the composition of the fund can differ significantly from the benchmark index.
No rights may be derived from this publication. You are referred to the prospectus and Key Investor Information Document for the fund's terms and conditions. These documents may be obtained from the website or the address mentioned below. The manager of the fund has obtained a licence for this fund from the Netherlands Authority for the Financial Markets in accordance with the provisions of the Financial Supervision.