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How active portfolio management can maximize opportunities in Africa

Monday, January 24, 2011
Opalesque Industry Update - Over the past decade, an increasing number of investors have discovered the potential of investing in the smaller and less developed “frontier markets,” many of which have been developing rapidly into excellent growth opportunities. Although many of the greatest investment opportunities of the next decade will likely emerge from the frontier, these markets are often characterized by limited research coverage and low liquidity. However, investing in frontier markets offers a good deal of potential for investors who hope to increase their exposure to developing nations, including the majority of the African continent.

Once an investor has decided to increase his or her exposure to frontier markets, there are still a relatively limited number of ways they are able to invest. Although there are a number of index and exchange-traded funds which are designed to mimic the performance of stock markets, we believe that active stock selection and portfolio management is a key driver of success in frontier market investment. Index funds are often weighted towards larger markets and more liquid stocks.

We believe that there are a number of overlooked opportunities trading at attractive valuations which a more active approach will help discover. Active management facilitates risk management in a portfolio, while allowing investors to patiently invest in less liquid stocks, identify key investment themes and opportunities, and follow attractive catalysts. To simply invest in an index or exchange traded fund means missing many of the benefits a more active strategy could provide.

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