Dubai: Arqaam Capital’s asset management business is focused on Frontier and Emerging markets. Having started with the Middle East and North Africa (Mena) based asset classes, the bank is now preparing for two new fund launches with underlying assets from GCC and Africa.
The new funds include a GCC focused equity fund that would have stocks picked from a universe of consistent dividend payers and an Africa fund that has direct growth linkages to South Africa, Sub-Saharan Africa and North Africa, Dr Ameen Al Kholy, Managing Director of Asset Management at Arqaam Capital told Gulf News in an interview.
Arqaam funds have a history of consistently beating market benchmarks, according to figures on Zawya and Bloomberg. Alpha Fund, a risk managed hedge fund will complete four years on December 1 is up 24 per cent till date, beating regional indices such as the S&P Pan Arab Index which is up 13.5 per cent, the MSCI Frontier Market Index and the MSCI Emerging Market Index which are up 12.3 per cent and 8.5 per cent up respectively.
“The strategy is based on a risk managed approach with Mena and Turkey underlying assets and is not managed with respect to any index, but seeks absolute positive returns, “ said Dr Al Kholy.
Arqaam’s Value Fund launched in May 2011 is long only fund focusing on value and growth. Since its launch the fund is up 40.8 per cent compared to 5.2 per cent growth in S&P Arabia index and -0/6 per cent in MSCI Frontier Market Index and -14 per cent in MSCI Emerging Market Index. “Typically we take positions in 20 to 25 stocks purely on value and growth potential and sell these when we see they have reached close to their fair value. The key to our stock picking strategy is research,” he said.
The asset manager’s investors are mostly regional institutions, family offices from the region and a growing number of foreign institutional investors and family offices.
African growth
The bank’s first Africa fund will have exposure to all major African market including South Africa. “With cross-border businesses booming in Africa, many north African companies have strong share of the growth story in East Africa and Sub-Saharan Africa. We are looking at capturing these growth linkages. Of course, we will look at direct exposure opportunities in two key African markets such as Kenya and Nigeria,” he said.
Arqaam is also keen on relatively new markets in the continent like Libya which has a stock market that could see new public offerings once the political situation improves and liquidity picks up. Apart from the Africa Fund, Arqaam is in the process of closing a new GCC equity fund. The stock picking for the fund will be based on consistency in dividend payments and dividend growth. There are a number of GCC companies that were in their early stage of growth in 2005–06. Now many of them have completed their investment cycles, brought down leverage and are generating cash. Top GCC 200 companies by market cap have a median dividend yield close to 5 per cent.
High dividends
“We see an opportunity in these companies. With the interest rates where they are now, even as you see them rise in future, there is clearly a mismatch. One of two outcomes will benefit investors, either they stay invested in these stocks and get high dividends or stock prices would eventually appreciate making a capital gain, so either way it is an opportunity,” Dr Al Kholy.
Arqaam is launching this fund again from an alternative investment angle. The stocks will be largely picked on their sustainable dividend payment and growth potential. Dividend growth is a great hedge for equity investors if dividends rise faster than interest rates. Again this portfolio is going to be based on GCC equities, which means there is going to be no currency risk.
Consistent dividend payers will be identified through fundamental analysis. In addition the company will add a layer of active management to investing by constantly analysing the balance sheets of these companies to evaluate the sustainability and growth potential of their dividend pay outs.
