🚀Africa Rising: The VanEck AFK Opportunity

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Today, we're focusing on Africa and the VanEck Africa Index ETF $AFK ( 0.0% ) . Although Africa may not be the first place you think of for investment, its 50+ countries present unique opportunities. AFK provides an easy way to gain exposure to this emerging market without the complexities of investing in individual African securities.

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What is AFK?

Africa represents a key opportunity for global investors. With a population of around 1.4 billion, expected to double by 2050, the continent offers substantial long-term growth potential that is hard to overlook. AFK provides a comprehensive, single-basket solution for investors seeking this potential.

AFK tracks the MVIS GDP Africa Index, which includes companies that generate at least 50% of their revenue from Africa. This methodology ensures that the ETF focuses on businesses with significant exposure to African economic activity rather than just companies based there.

We have a multitude of compelling reasons to monitor developments in Africa today closely:

• 🌱Demographic Dividend: Africa has the world's youngest population, with a median age of less than 20. This youthful demographic is entering its most productive years, creating a substantial workforce and consumer base that could drive economic growth for decades.

• ⛏️Abundant Natural Resources: The continent is home to approximately 30% of the world's mineral reserves, 8% of natural gas reserves, and 12% of oil reserves. As global demand for resources continues to rise—especially for critical minerals essential for clean energy technologies—Africa's wealth of resources positions it as a key player on the global stage.

• 📲Digital Leapfrogging: Many African nations are skipping traditional stages of development and embracing mobile and digital technologies. Innovations such as mobile money platforms, like M-Pesa, have revolutionised financial inclusion, while the rapid growth of e-commerce is creating investment opportunities in both the technology and financial sectors.

• 🏗️Infrastructure Development: Major infrastructure initiatives across the continent are improving connectivity and economic efficiency. Projects like the African Continental Free Trade Area (AfCFTA) aim to create a single market that facilitates intra-African trade, potentially making it the world's largest free trade area by the number of participating countries.

Investment Strategy📝

Incorporating AFK into your portfolio requires thoughtful consideration of both allocation and timing. Here are implementation strategies to consider:

• 🛰️Core-Satellite Geographic Diversification Play: For investors seeking to diversify beyond traditional developed and emerging markets, allocating a modest portion (5-10%) of your portfolio to AFK can expose a region with low correlation to major markets. This approach treats African exposure as a satellite position that complements core holdings in U.S., European, and Asian markets.

• 🌍Emerging Markets Enhancement: If you already maintain exposure to emerging markets through ETFs like EEM or VWO, consider carving out a portion (10-15%) specifically for Africa. While these broader emerging market ETFs typically underweight African markets, AFK allows you to increase this exposure intentionally.

• 💎Resources and Commodities Angle: Given Africa's resource richness, AFK can be a component of your commodities strategy. Unlike pure commodity ETFs, AFK provides exposure to the businesses that extract and process these resources, offering better inflation protection with greater growth potential.

Given the volatility in frontier markets, consider increasing your allocation when commodity prices, particularly for energy and minerals, are rising. Monitor the U.S. dollar's strength against African currencies, as depreciation can impact returns. Dollar weakness may offer better entry points for U.S. investors.

AFK at a glance

ETF Issuer: VanEck

Inception: 2008-07-10

Asset Class: Equity

Underlying Index: MVIS GDP Africa

Geographical Focus: Africa

Expense Ratio: 1.31% (as of last data point)

Dividend Yield: N/A (as of last data point)

Distribution Frequency: Annual

Historical Performance

AFK was launched in July 2008, offering over 16 years of performance history. The fund has experienced notable volatility, reflecting the challenges and opportunities of investing in African markets.

• Since its inception, AFK has posted an annualised return of about -2.3%, underperforming most emerging market indices and developed markets, with notable exceptions in 2016-2017 and 2019.

• From 2022 to early 2025, AFK has shown signs of stabilisation after previous periods of underperformance, reflecting improved economic conditions in key markets such as South Africa, Egypt, and Nigeria.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Unparalleled Demographic Tailwinds: Africa's population is young and rapidly urbanising. By 2050, an estimated 950 million more Africans will live in cities than today. This urbanisation trend typically correlates with increased productivity, higher incomes, and greater consumption. Companies in AFK's portfolio that serve these urban consumers—particularly in financial services, telecommunications, and consumer goods—stand to benefit from this secular growth trend that could span decades.

2. Resource Security in an Era of Supply Chain Reconfiguration: As developed economies increasingly focus on supply chain security and diversification, particularly for critical minerals essential to the energy transition, Africa's resource wealth becomes strategically important. AFK provides exposure to companies involved in mining and processing critical minerals like cobalt (70% of global reserves are in the Democratic Republic of Congo), platinum group metals (South Africa), and copper (Zambia and DRC).

3. Valuation Disconnect: African equities trade at significant discounts compared to developed and emerging markets. This valuation gap provides a margin of safety and room for multiple expansions as African markets mature and attract more international capital.

Top 3 Reasons Not to Invest

1. Political and Governance Risks: Many African nations face governance challenges such as political instability, corruption, and weak institutions. These factors can create unpredictable business environments and potentially lead to negative investment outcomes through policy reversals, nationalisation threats, or currency controls.

2. Liquidity Concerns: With approximately $50 million in assets under management as of April 2025, AFK is relatively small compared to major emerging market ETFs. This smaller size, combined with the limited liquidity of some underlying African securities, can result in wider bid-ask spreads and potential difficulties in executing large trades without moving the market.

3. Currency and Inflation Volatility: African currencies have historically experienced significant volatility and depreciation against the U.S. dollar. Countries like Nigeria, Egypt, and Ghana have seen double-digit depreciation in their currencies in recent years, eroding returns for dollar-based investors. Additionally, several African nations struggle with high inflation rates, impacting corporate margins and consumer spending power.

🌍AFK: Your Gateway to Africa's Economic Renaissance

With its youthful population, abundant natural resources, and increasing integration into the global economy, Africa represents one of the last true frontier markets for investors willing to take a long-term view. AFK offers a unique opportunity to gain exposure to this continent with tremendous long-term potential.

However, investing in AFK requires patience and a tolerance for volatility. Allocating a modest portion of your portfolio to AFK could provide diversification benefits and exposure to growth stories that aren't captured in mainstream indices.

We’re eager to hear your insights on frontier market investing and your thoughts on integrating African assets into your portfolio! Subscribe to our ETF UNO newsletter for engaging discussions on emerging market opportunities and challenges. Wishing you joyful and successful investing until we connect again!

DISCLAIMER: This article is for informational purposes only and should not be considered as investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.