“We spend as much time as we possibly can travelling the continent, trying to find opportunities, listen to people on the ground and look for ideas that we can put into the portfolio,” Momentum Asset Management head of Africa Investments Fungai Tarirah told CNBC Africa on Wednesday.
“So for a large part I think that has come back to help us, as we can physically see the changes coming through it quite a number of the countries and it helps when it comes to stocks selection.”
The Momentum Africa Equity Fund is ranked 3rd on the Unit Trust Performance Table for the year to date.
Top five funds over the years include Allan Gray Orbis Global Equity Feeder, Old Mutual Global Equity Fund and Stanlib European Equity Feeder.
“If you’re looking for individual stock ideas, that can take you to all sorts of places, and we have exposure in the fund to countries that are not part of the Big Four. We have a healthy exposure to the Big Four but we are looking at other countries as well which are not part of the Big Four but have meaningful contributions to the portfolio,” added Tarirah.
The Big Four countries include Nigeria, Egypt, Morocco and Kenya. These are some of the strongest performing and biggest markets in Africa. South Africa also forms a part of one of the biggest markets in Africa.
Poor liquidity has always been a challenge in African markets and South Africa is one of the few African countries that offer liquidity a lot easier than others.
“One of the things I think a lot of investors have to accept on the outset is Africa is not going to be as liquid. The rest of Africa is not as liquid as trading in South Africa,” Tarirah explained.
There are therefore certain stocks that the Momentum Equity Fund is reluctant to participate in because of liquidity problems and focuses on companies that have a market capital of 100 million dollars or more.
By the end of June, Tarirah anticipates that around 870 companies in Africa will be listed on the various stock exchanges and of that number only 260 will be larger than 100 million dollars.
The Momentum Fund puts companies through a liquidity screening process using a 3-month history of daily liquidity trading. The companies will then have to meet Momentum’s valuation metrics before they can qualify to become a part of the portfolio.