Egypt conjures images of pharaohs, pyramids and the Sphinx. It also calls to mind the tumult of the Arab Spring in 2011, protests in Tahrir Square and continued questions about the strong-arm tactics of the current regime.
But what isn’t questioned is the economic progress occurring under the leadership of President Abdel Fattah el-Sisi, which has propelled the bellwether Egypt EGX 30 stock index to a roughly 160 percent gain since mid-2016.
And that strength has been reflected in the performance of the VanEck Vectors Egypt Index ETF (EGPT), a self-indexed fund composed of 28 companies that are either incorporated in Egypt or are incorporated outside of the country but have at least 50 percent of their revenue and/or related assets in Egypt.
EGPT commenced trading in early 2010, or about a year before the Arab Spring erupted and rocked both that country and the region. As you might expect, this fund has taken investors on a wild ride, with the end result being it’s down roughly by half since it launched. But the fund is up nearly 50 percent since November 2016, and sports a 22.8 percent year-to-date return, which makes it tops on the emerging-market equity ETFs chart, according to Morningstar. In fact, it’s one of the top performing non-leveraged ETFs of any sort so far this year.
The fund has nearly $86 million in assets under management and a net expense ratio of 0.94 percent, and is the only pure-play Egypt-focused ETF on the market.
The improvement in the underlying Egyptian economy is no pyramid scheme (sorry, I couldn’t resist). As described by the World Bank, the Egyptian government in 2014 began a “bold and transformational reforms program” designed to kickstart growth, improve the country’s business climate and lead to balanced and inclusive growth. The program’s first wave addressed taxes, energy subsidies and letting the Egyptian pound float. The second wave, which was punctuated by the Civil Service Reform Law that passed in October 2016, aims to make it easier to attract local and foreign investment.
According to the World Bank, these various reforms, coupled with the gradual restoration of confidence and stability, have produced positive results. Specifically, annual GDP growth rates were 4.3 percent in 2015 and 2016, which were more than double the annual rates between 2010 and 2014.
Real GDP is forecast to grow by 5 percent in fiscal 2018, and the World Bank reckons that will improve to 5.8 percent by fiscal year 2020 thanks to resilient private consumption and investment, along with improved revenue from tourism and natural gas.
According to the International Monetary Fund, Egypt is forecasted to be Africa’s third-largest economy in 2018 as measured by nominal GDP, at more than $311 billion (trailing Nigeria and South Africa).
The EGPT fund is fairly diversified with financials (25 percent), real estate (22 percent), basic materials (18 percent) and consumer, non-cyclical (11 percent) leading the way, according to XTF.com