Zawya.com, the regional information portal, recently released its ranking of the top performing funds based in the GCC, over the three years to the first quarter of 2010. There were several ranking categories, including GCC-Equity Conventional, GCC-Equity Islamic, Mena-Equity Conventional, UAE-Equity Conventional, Kuwait Equity, Saudi Arabia-Equity. Fund returns, fund volatility, fund fees and fund compliance comprised the ranking criteria.
The percentage allotted to the four factors were 30 per cent, 20 per cent, 30 per cent and 20 per cent respectively.
Gulf News' Gaurav Ghose spoke to Shakeel Sarwar, head of asset management at Manama-based Securities and Investment Company (Sico). Sarwar runs the fund that came first in the GCC-Equity Conventional category among 12 of its peers. He had some investment strategies and tips for investors. Investing regularly with set objectives helps
Gulf News: Is it a long only fund?
Shakeel Sarwar: Khaleej Equity fund is a long only fund. The Fund seeks long-term capital appreciation by investing principally in equity securities listed on the stock markets of GCC countries.
What's been your strategy in terms of selecting equities? What are your holdings?
We are basically bottom up investors with an emphasis on stock picking. We like to invest in companies that we believe are undervalued. When we invest in a stock, we do intensive due diligence and research on it. The idea is to invest in companies that we fully understand, have long term earnings growth potential and are bought at reasonable valuations. We make it a point to regularly meet the management of the companies that we invest in. Nothing is more valuable and important as meeting the management of the company that you are investing in. Management meetings help you in understanding the rationale and logic behind numbers and the long term strategic objectives of the firm. Since, we are not index investors or benchmark chasers; we are not forced to invest in companies, sectors or geographies just because of their size and weight in the benchmark.
This strategy has enabled us to produce excellent long-term returns for our investors. For example the annualised return of Khaleej Fund is around 11 per cent since its inception in March 2004. These returns are much higher than that of the overall market and other competing funds. In addition to this, these healthy returns have been produced during a period in which the GCC stock markets experienced two crashes [2006 & 2008].
We would not like to disclose what stocks we invested in. That is confidential information.
Have you followed a buy and hold strategy or it depends on factors when to buy and sell and buy something else?
Generally as long-term investors we prefer to buy and hold. However, when market conditions change, being active managers we also change our strategy.
For example during the crashes of 2006 and 2008 when the GCC markets went through steep and prolonged declines, we substantially reduced our equity exposure and went into cash in order to protect the downside. Similarly, when a stock reaches its target price or fair value it is sold.
Also, when it comes to volatility, why has this been relatively low when compared to peer funds? How do you control this aspect?
As stated earlier we invest in fundamentally sound businesses which tend to have lower volatility both in earnings and stock prices. Consequently, our portfolio has exhibited lower volatility against its benchmark as well as peers.
And finally, if you were to give five tips to retail investors [not high net worth] what would they be?
• Investment objective: As an investor you need to determine your Return and Risk objectives. For example, someone who is 30 years old will have a different appetite for both return and risk versus someone who is 60.
• Diversification: You need to have a diversified portfolio in terms of asset class as well as geography. Invest in equities, fixed income, real estate, hedge funds globally according to your investment objectives.
• Expert advice: Don't try to do everything yourself. You probably need a good financial advisor who sets your investment objectives and then helps you in choosing appropriate funds that provide you diversified exposure to the above mentioned asset classes. As a retail or small investor you may end up having an extremely concentrated portfolio skewed towards local real estate for example if you choose to invest directly.
• Long term horizon: You need to have a long term investment horizon ie at least 10 years. For example, most of the asset classes are yielding negative returns over the past 3 years mainly due to the financial crisis of 2008.
However, if you stretch time horizon from 3 years to 5-10 years, the returns on almost all asset classes become positive and healthy. Nothing beats a well diversified long term portfolio.
• Regular Investments: Invest regularly and gradually. Most retail investors invest at peak when the optimism is very high and sell close to lows when pessimism increases. By investing in a disciplined manner you tend to avoid these peaks and valleys and get better long-term returns.
