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Africa: On the "Money Map"
08/22/2014 10:00 am EST
Global expert Keith Fitz-Gerald, of Money Map Press and Strike Force, thinks now is the time for investors to consider investing in the African continent; current difficulties, he believes, afford contrarian investors a solid buying opportunity.
Steven Halpern: Our guest today is Keith Fitz-Gerald, chief investment strategist of Money Map Press and editor of the premium global advisory, Strike Force. How are you doing, Keith?
Keith Fitz-Gerald: I'm doing great. Thanks for having me back, Steven.
Steven Halpern: One of your secrets to success is a willingness to take positions that go counter to the prevailing consensus on Wall Street. Before we take a look at a specific new idea of yours, could you, perhaps, walk us through a little of the idea behind contrarian investing and the long-term benefits of such an approach.
Keith Fitz-Gerald: Absolutely. I'd be happy to. One of the things that's important to understand is that people believe contrarian investing is going against the grain. That's not actually quite true. In reality, what you're doing is looking to make an argument that others don't yet see, or identify value that others yet can't find.
So, as I practice contrarian investing, it's not necessarily simply going upstream—when the water is going one way and I'm going the other—I'm really looking to find companies, or industries, or even entire countries for which the popular press is, I believe, wrong or for which the earnings picture is different, or for which there is some compelling upside argument to be made.
Steven Halpern: Now, in this case, you're willing to take a contrarian stand against not just a country, but in fact, an entire continent and the latest theme that you've been researching is Africa where the Ebola crisis has had a big impact on investor sentiment. Could you expand on this topic?
Keith Fitz-Gerald: Absolutely. Africa is a very interesting continent. It's not been ready for prime time for a long period of time, but in fact, now we have a situation where people have been selling African securities or companies doing business there as fast as they can, left and right. I think that's a mistake for a couple of reasons.
Number one, if you look at Africa's economy, many of the Sub-Saharan countries' growth is actually 5% to 5.5%, maybe even coming out 6% or 7%, so the IMF is looking at seven out of ten of the world's fastest growing economies between 2011 and 2015 may actually be in Africa.
Granted, they're coming off a low base, but that doesn't diminish the fact that if you start from a low base, you can improve dramatically and that's really what's happening there.
Number two is that Africa's got an exciting resource story. People don't understand it, but there're a lot of rich resources there. There's oil, there's natural gas, there's minerals, there's a lot of food and arable land.
In fact, Africa has a land mass that is more or less equivalent to Europe, US, India, China, and Argentina all combined, according to some analysis I recently saw, so there's a lot of land there. Now, the question is obviously learning how to harness it.
Africa's got low debt, so I'm attracted to that, especially in light of what's going on with Central Bankers around the world and the rest of what we normally see day to day.
Finally, Africa has got a growing middle-class, and it's got a younger workforce comparatively speaking, so there's a growing consumer base being put in place.
Now, Ebola is obviously a significant, significant event, and I don't want to minimize the horrific effect that's going to have on the continent, but it's also a recoverable event.
Like we dealt with the bubonic plague, or we dealt with other illnesses throughout human history, eventually one day that's going to get brought under control, and I think if you believe in buy low and sell high like I do, then logically this is an opportunity to do that.
Steven Halpern: I know, in general, your preference is to pick individual stocks when you've uncovered a theme, but in this particular case, you're recommending an exchange traded fund rather than handpicking individual stocks. Could you explain the reasoning behind that?
Keith Fitz-Gerald: You bet. You know, the thing about this—and why I chose the ETF in general as opposed to a specific stock—is that, really, Africa is a situation that can't be sorted out yet, so it's very, very hard to identify discreetly which companies are going to win, and which are going to lose.
So I'm more interested in catching the entire continent and to do that, I have to use something like AFK—or the Market Vectors Africa ETF (AFK)—because it will encompass everything from North Africa to Sub-Saharan Africa and South Africa as well. It has a very low annual expense ratio.
It's still small. It's only one-hundred-and-thirty-some-odd-million in assets, I think, the last time I looked, but most of the companies in there derive, at least, half of their revenues in Africa, so this is important because it really helps you latch onto the trend in that continent, specifically.
Steven Halpern: In addition to being diversified geographically across Africa, it's also diversified across various sectors in the African markets.
Keith Fitz-Gerald: Absolutely. There's a benefit there. Now granted, you're going to sweep in some of the trash with the trinkets, but that doesn't diminish the fact that what we're really looking to do is latch onto the entire continent here.
As Africa matures, I have no doubt we'll be back with other picks that are specific companies, but for now, this gives us at least a semblance of liquidity we want in an area that we know is on sale today.
Steven Halpern: And so, you think as an out-of-favor play, there is a short-term opportunity here, but it sounds like you're also looking at this as something of interest for a very long-term investment.
Keith Fitz-Gerald: Yes, that's absolutely true. The time frame, of course, short-term opportunities are always most effective when you can latch onto them immediately, but that doesn't diminish the long-term potential here. I'm an optimist.
I believe in the strength of humanity, and I believe that the Ebola virus—if anything—is going to be dramatically underestimated both in terms of its impact, but most importantly its recovery when that time comes, and I want to make the move now or at least start making that move today.
Steven Halpern: Well, it's always fascinating to talk to you. Thank you so much for joining us today.
Keith Fitz-Gerald: My pleasure, thank you.
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