After more than a decade of U.S. tech stock domination, investors are increasingly looking for opportunities overseas. And while Europe and Asia are the typical starting points, contrarian types will find ample reasons to consider Africa. The only ETF devoted to the broader content offers a combination of valuation, technical attractiveness, and a sector allocation that complements tech-heavy portfolios.
On paper, investing in African stocks might seem uninspiring. Unless, of course, you are a contrarian investor at heart, like I am. This ETF’s portfolio sells at a remarkably low valuation amid a historically overvalued U.S. stock market.
A Chronic Underperformer Is Starting to Stir
The VanEck Africa Index ETF (AFK) is a $45 million exchange-traded fund that holds a portfolio of stocks that earn at least half of their revenue in Africa. Don’t be fooled by the nascent status of that continent’s market. AFK’s weighted average market capitalization is $7.4 billion, 80% as large as the U.S. midcap stock index.
AFK has gained 32% over the past 52 weeks, but is still down 33% over the past 10 years. It is an astonishing 600% behind the S&P 500 Index ($SPX) over that time. That is a good starting point for contrarians.
The fund is a performance leader so far in 2025, up more than 10% year to date through mid-February.
AFK paid an annual dividend every year since its 2008 inception, but skipped last year. So it is not an ETF to be relied on for income-seekers.
Why AFK Stands Out as an ETF to Buy in 2025
AFK’s portfolio of about 75 stocks sells at 9x trailing earnings, versus 27x for the S&P 500 SPDR ETF (SPY) and 18x for the Russell 2000 iShares ETF (IWM). Think it’s easy to find equity funds selling at one-third of the market multiple? Not at all! That steep discount is part of its appeal, as it may just be starting to be discovered. Here are three other reasons to like AFK now:
- The fund is ultra-cheap on a forward price-sales basis as well, checking in around 1.3x for the year ahead.
- AFK has a zero weighting to tech stocks. That by itself makes it a strong consideration to complement U.S. portfolios, which are often tech heavy, thanks to years of outperformance by those sectors.
- In addition to a lack of tech exposure, the appeal of AFK as a diversifier includes its laser focus on a trio of sectors that make a lot of sense when considering the nature of the emerging African economy. Basic materials, including some prominent North American gold miners, make up 30% of assets, while financial services comprise another 36%. Communications stocks round out the triumvirate at nearly 20%, making that group AFK’s drivers, at 86% of the entire fund.
That microscopic P/E ratio is for a fund whose current portfolio has projected 5-year earnings growth of 14.5%, increasing the compelling nature of this ETF’s long-term potential.
AFK’s 34% annual trading turnover reflects the fact that the universe of stocks that meet its criteria is well beyond the 75-stock mix it employs. That’s a good sign for an ever-changing market.
With an average dollar trading volume of more than $200,000, AFK is big enough for many retail investors, who don’t have to be too concerned about institutional types invading their territory. That should keep this ETF a well-kept secret for a little while.
The Bottom Line: AFK Is an Adventurous Choice for Aggressive Portfolios
For investors concerned that U.S. small-cap stocks are not a value at any price, given the pending “debt cliff” that will soon test the long-term viability of nearly half the Russell 2000 stocks, AFK offers a refreshing alternative to consider.
That said, AFK’s 10-year correlation to both IWM and the EAFE iShares MSCI ETF (EFA) is only 0.68%, which implies that it can also be a good diversifier for portfolios that include allocations to small-cap and developed non-U.S. stocks.
