Investing in High Growth Africa: iShares MSCI South Africa Index (ETF) (EZA), SPDR S&P Emerging Middle Est & Afrca ETF (GAF)

The SPDR S&P Emerging Middle Est & Africa ETF (NYSEARCA:GAF) seeks to closely match the returns and characteristics of the total return performance of the S&P Mid East and Africa BMI Index. The ETF has some very compelling companies such as MTN Group Ltd (ADR) (PINK:MTNOY) (which is a a multi-national telecommunications group offering voice and data communications products), Naspers Limited (ADR) (PINK:NPSNY) (which is a multinational group of media and e-commerce platforms) or SANLAM LTD ADR (PINK:SLLDY) (which provides financial solutions to individual and institutional clients). Those and most of the companies that constitute the fund, operate not only in South Africa, but also in the most prominent countries of Sub-Saharan Africa.

The fund is a reasonable way to look some exposure to companies operating in Africa. Besides, its fairly diversified with 10.5% of the fund being Telecom companies, 16.5% companies within the consumer discretionary sector and 7.96% within the consumer staples sector (my favorite one!). This ETF has a gross expense ratio of 0.59%, 3% cash dividend yield (very compelling), 135 holdings and an expected 2013 13.5 P/E. Like most ETF’s it trades at 1times net asset value (NAV).

The iShares MSCI South Africa Index (ETF) (NYSEARCA:EZA) resembles the SPDR S&P Emerging Middle East & Africa ETF despite its “South Africa” name. The reason is that, undoubtedly, South Africa is the most developed country within the region. The iShares fund, with a gross expense ratio of 0.60%, a 2013 19 P/E and 51 holdings is less diversified and more expensive than the ETF built by SPDR. Right now it’s selling at a 1.5% discount to NAV and yields the same dividend and the SPDR ETF.

The Africa IndexETF by Market vectors is the third viable option I found. This ETF has an expensive gross expense ratio of 1.07% and holds 51 different companies. Despite its seemingly low expected 2013 11x P/E I would rather the iShares or SPDR ETFs because the Africa Index ETF is too concentrated in the financial sector (47% of total holdings).

The bottom line

The three options listed above are all viable options but I think SPDR’s ETF is the best option given the quantity of the holdings that the fund has, its valuation, its relatively lower cost and its sector diversification.

The article Investing in High Growth Africa originally appeared on Fool.com and is written by Federico Zaldua.

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