MARKET COMMENTARY: Enko Africa Debt Fund
Every month we select a fund manager, active in the African continent, to share his thoughts on the performance of African listed markets (equities or bonds). If you want to be featured in this section, get in touch via editor “at” africaglobalfunds.com
In May, on the hard currency side, the Sub-Sahara Africa debt index (EMBI SSA) lost -3.08% on the month, taking its YTD return to -13.68%. Global hard currency EM debt (JPM EMBI) suffered a 5th consecutive negative month with a return of -0.19%. This has left the EMBI with a YTD loss of -14.39%. Local currency EM debt (JPM GBI-EM) rebounded with a return of 1.99% in May, however the index has a YTD loss of -10.35%.
While the first five months of the year have generated the Fund’s largest drawdown to date, the Enko Africa Debt Fund (EADF) continues to outperform the included EM debt indices. The EMBI and GBI-EM’s current drawdowns are larger than the ones registered during the COVID induced sell-off in 2020. On cumulative basis since the Fund’s inception, the GBI-EM is negative (-3.27%), and the EMBI is slightly positive (2.03%).
The Fund has outperformed the EMBI SSA since inception by over 75% (net). The Fund’s Sharpe remains above 1.7 over the 3-year, 5-year, and inception periods. The Fund’s correlation to regional and global EM debt indices remains flat to slightly positive over the 3-year, 5-year, and inception periods EADF’s portfolio ended the month with exposure to 12 different African countries and 3 hedges.
The largest risk exposures (ex-cash) were to Rates Hedges (34.4%), Egypt (18.6%), Kenya (15.6%), Nigeria (12.4%), and Angola (12.4%). At the end of May the Fund had several smaller exposures to Côte d’Ivoire (2.8%), Gabon (1.2%), Uganda (0.8%), Ghana (0.7%), Zambia (0.6%), DRC (0.3%), Cameroon (0.1%), and Botswana (0.1%).
The Fund also had exposure to macro hedges (0.1%), and Euro hedges (<0.1%). The portfolio (ex-cash) was concentrated in sovereign issuance at 99.7%. The remaining risk allocation of 0.3% was in corporates.
The Enko Africa Debt Fund’s volatility and negative returns in 2022 have deviated from its first 5 years of performance. While Enko has positioned the Fund in a defensive manner aligned with its macro views and the opportunities present in the market, the unprecedented sell-off in certain markets has imposed a mark-to-market loss on the Fund. However, the Fund’s performance versus both hard and local currency emerging market debt indices remains compelling over the Funds 5+ year history.