Growth of African Local Currency Bond Markets
Local African capital markets have grown in both breadth and depth over the past decade, and much has been done to improve the regulatory frameworks and capital market infrastructure, and expand the potential investor base. e bonds, both in terms of liquidity and issuance value. Outstanding local currency pan-African government securities amounted to approximately USD 500 bn at the end of 2017. Accordingly, government bonds are a more efficient way to invest in the African fixed income asset class.
A diversified exposure in African fixed income markets via a transparent and cost effective vehicle
The asset class offers diversification benefits (African local currency bonds have a correlation coefficient of -0.41 to 0.38 to major asset classes), which is attractive from a portfolio efficiency point of view. It also offers yield pick-up compared to its developed market peers with 10-year bond yields ranging between 7% and 18% in local currency.
However, despite the improving macroeconomic story in Africa and the prospect of significant economic growth opportunities, institutional investment in African local currency debt is under-represented in most investment portfolios outside of Africa. This is primarily due to difficulties around market access, which the ADBF attempts to address by providing exposure through a relatively low cost and liquid vehicle.
There are no entry and exit fees applicable on the ADBF for investors on the primary market, except for duties and charges which currently stand at 0.45%. The Total Expense Ratio of the Fund is expected to be 0.65% p.a. based on assets under management of USD 100 million.
Transaction fees on fixed income ETFs has been reduced to 0.10% per trade.
Favourable tax regime
ADBF is domiciled in Mauritius and authorised as a Global Fund. As such, it benefits from taxation treaties in place between Mauritius and several African countries with regard to investments in their bond and equity markets. Additionally, Mauritius currently does not levy any taxes on capital gains or dividends for listed instruments. The fund is listed on the Stock Exchange of Mauritius.
ADBF Daily NAV
Price as at: 11 Jan 2021