Cape Town-based Allan Gray’s Africa bond fund has managed to outdo its peers this year and protect itself against the sell-off buffeting emerging markets, largely by buying local debt in Nigeria, Egypt and Ghana. The $430m Africa, excluding-SA, bond fund, the biggest with a focus solely on the continent, returned 2.8% throughout the first three quarters of the year. This compares with an 8.2% loss for JP Morgan’s government bond index — emerging markets (GBI-EM) diversified index, against which the fund is benchmarked. Allan Gray began the year by cutting its exposure to African sovereign eurobonds, the thinking being that yields had fallen too low given the build-up of external debt by governments. That strategy worked, with spreads widening about 200 basis points to 550 over US treasuries from the beginning of the year.

Instead, it focused on local-currency bonds, particularly those in Egypt, Nigeria and Ghana, where it could get yields of above 15%. Bonds denominated in nai...

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