Business | Banking
Mutual fund buyers more aware of risks
The regional mutual funds industry needs to be more transparent to investors if it is to develop in a sustainable manner, in light of the global economic slowdown.
- By Rachna Uppal, Staff Reporter
- Published: 23:28 July 14, 2009
Dubai: The regional mutual funds industry needs to be more transparent to investors if it is to develop in a sustainable manner, in light of the global economic slowdown.
The slowdown in the world economy has inevitably had an impact on mutual funds and previously assertive fund managers have found themselves grappling with diminishing returns and a mini existentialist crisis of sorts.
At the same time, recently released data from Zawya Research shows that 43 mutual funds were launched in the first six months of 2009, compared with 39 in the same period last year. Of these, nearly half were still equity funds, but increasingly, funds such as money market funds or Islamic sukuks are considered as less risky options.
"New funds are being created which are considered safer than equities, such as money market and sukuk," Pamela Chikhani, vice-president, funds investment, at Zawya, told Gulf News.
Though widely acknowledged, the lack of transparency within the regional funds industry was brought into sharp focus as a consequence of the economic downturn. Regional equity markets which previously promised high returns fell significantly in the last quarter of 2008 and into 2009. Other asset classes such as private equity have also suffered, but some, such as Islamic bonds or sukuk, have become more attractive due to the perceived lower risk associated with them.
Investors, too, will be wary of committing assets to high-risk fund portfolios, without due transparency.
"In the future, there will be more funds attracted to the region and to the markets, but they will be very selective, and carry out due diligence before investing," says Mousa Haddad, head of discretionary sales and asset management at National Bank of Abu Dhabi. "The region needs different types of funds, but the problem is there are still not many vehicles to invest in. We need more vehicles to attract more funds."
Four key pointers size up performance
Dubai: In a bid to draw attention to the issue of transparency and disclosure in the regional funds industry, Zawya has developed a fund ranking system which ranks eligible funds in the region across various categories on the basis of four key components - returns, volatility, fees and compliance.
The compliance and returns components are weighted equally at 30 per cent, with the other two weighted at 20 per cent each. "The compliance category promotes transparency. The fund industry is still very nascent in the region, and this category is one way to help the industry grow," says Pamela Chikhani, vice-president-funds investment at Zawya said, adding that "central banks across the region are closely monitoring the situation, and will no longer allow ambiguous funds to exist in the market place."
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