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Cloud Africa lists new hard-currency ETF

SA investors sitting on cash now have an opportunity to diversify away from rand-based earnings to dollar-based earnings: Cloud Atlas CEO Maurice Madiba.

SIMON BROWN: I’m chatting now with Maurice Madiba, CEO of Cloud Atlas, about the new exchange-traded fund (ETF) just listed, the S&P Africa Hard Currency Sovereign Bond Select Index. Maurice, I appreciate the early morning time. A couple of important points: it is hard currency. In other words, we’ve got Egypt, Ghana, Kenya, Morocco, Namibia, Nigeria, and South Africa – but these are government bonds being issued in dollars; I imagine some euros as well.

MAURICE MADIBA: Yes, good morning Simon, to you and your listeners, and thanks for this chance. Cloud Atlas has come out with that ETF in conjunction with S&P. Hard currency is a term that few people would understand, but in essence, what it means is dollar-denominated debt. So a lot of the bonds in there, of the 19 bonds in this index and this ETF, all are issued in dollars. One of them from Morocco is issued in euros. So that’s really giving you exposure to the global currencies which a lot of countries hold in reserve, but also sticking true to that Cloud Atlas mission of making and designing some of the best African products that we can.

SIMON BROWN: And in this case, the countries are all, as are we, sub-investment grade – a fancy way of saying ‘junk status’ from the credit ratings. And in fact, we’re not even then at the top of the list in terms of investment grade. But it is offering a fairly decent yield – a 7% or 8% yield in ultimately US dollars, which is attractive for many investors.

MAURICE MADIBA: Yes. When you look at that, this product is comparable to your US Treasury, and that we all consider to be investment grade. But when you look at the yield compensation that you receive from these bonds you’re getting 4% or 5% extra just to be invested in this type of instrument. So every investment instrument has its risk, but Africa has stable reserves. 

We are entering into somewhat of a higher commodity cycle than we had in the past decade, and when you look at the fiscal discipline of these African governments in particular that are in this basket, you find that they maintain good debt reserves. They maintain low debt-to-GDP ratios compared to some other regions in the world and even other African counterparts.

But ultimately it’s giving you this higher yield in an environment where yields are very low and investors are hungry for yields which they can’t find elsewhere. 

SIMON BROWN: An important point of this is that I was surprised by just the size and liquidity of this hard-currency bond market into the rest of the continent.

MAURICE MADIBA: At Cloud Atlas, we are quite familiar with Africa and the perception of liquidity with the equity markets. We’ve seen what the liquidity is like and it is very low in some respects. But now, when you look at this bond market, in particular, the euro bonds, you have liquidity per day of around $200 million. That’s very attractive for international investors and even local investors who tend to trade in bonds and fixed-income instruments. 

One of the interesting things about this product design is that in South Africa we get a lot of attraction to our bonds because of the carry trade. But now when you look at the comparison of this index versus the (S&P) Givi (Global Intrinsic Value Index), it’s starting to slightly outperform that.

So really also an offering for South African investors who are sitting on cash an opportunity to diversify away from rand-based earnings and actually get dollar-based earnings at pretty much the same rate.

SIMON BROWN: That yield, as you say, in that hard currency. Distributions quarterly. The code for those interested – ASBI. It’s of course trading on the JSE and it can go into your tax-free savings account as well.

Listen to Tuesday’s full MoneywebNOW podcast here.

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South Africans are increasingly becoming spoilt for choice from some of the participants in the SA Financial sector just hope SA Investor gravitates more towards these funds and takes advantage of the offers

If they make sense and build good track records… Don’t see why they wouldn’t.

Some real options and innovation would be good in this sector!

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