Business | Investment
New funds make the most of volatile markets
At the start of the year, when markets were overwhelmed by gloom and not a single optimistic market research report was in sight, EIS Asset Management launched the Emirates Mena High Income Fund.
- By Yadullah Ijtehadi, Special to Gulf News
- Published: 23:04 July 4, 2009
Dubai: At the start of the year, when markets were overwhelmed by gloom and not a single optimistic market research report was in sight, EIS Asset Management launched the Emirates Mena High Income Fund.
"The fund was a play on companies that yielded high dividends, plus corporate bonds and Sukuk looked attractive, too," says Deon Vernooy, senior executive officer at EIS Asset Management.
The fund has posted 18 per cent return to date in volatile market conditions. And while many other funds surpassed these returns, the move does show that asset managers continue to find opportunities to create new funds and returns despite tough market conditions.
And there have been some nasty market gyrations. The Dubai Financial Market index rose as much as 25 per cent from the start of the year, before wiping out much of its gains at the end of June. The Saudi market had also risen to as much as a quarter, but is now around 10 per cent higher than the start of the year.
"Markets will likely oscillate between hope and despair in a process that will run into next year and play out within the parameters of a wide trading range," notes a Nomura Bank report ominously.
Vernooy agrees: "These markets are very volatile right now, there is no doubt about it."
While investors continue to look for direction, EIS asset managers made up their minds quite early in the year.
"We started to focus on companies with strong balance sheets and cash flows and could sustain themselves even on lower volumes such as telecom," says Vernooy.
With markets in such turmoil, what are fund managers doing to ensure they catch the next rally and, more importantly, avoid the next slump?
"The ironic truth is not many fund managers and investors have really participated in this unprecedented rally," says M.R. Raghu, senior economist at Markaz, in his report Missing The Rally - Will You Get Another Opportunity?, referring to the rally that began in early April but has by now fizzled out. "They will certainly under perform their benchmarks. However, the rally has now started pulling in retail investor interest. Is this a good time?"
The answer is hardly straight-forward, but with interest rates at historic lows, equity valuations seem tempting compared to other asset classes.
Markaz is overweight on the UAE market and notes that the Saudi Arabian index needs to rise by 240 per cent to return to its peak, while the UAE would need to rise 190 per cent to break its peak. In comparison, emerging markets need to rise 77 per cent to return to their peak, so the room for upside in both these key markets make them to ripe to get into. But with a regional real estate slump and the financial sector in all sorts of trouble, from exposure to Saad and Algosaibi group and other non-performing loans, defensive sectors and energy continue to find favour with stock-pickers.
More importantly, fund managers continue to piece together new funds. With no less than 43 regional funds launched this year, including the Duet Group's Mena Opportunities Fund, HSBC's Capital Guaranteed Saudi Equity Fund and Mena focused Sukuk funds from European Finance House and Tharawat Investment House, the fund management industry may be down, but it is certainly not out.
- The writer is the managing editor of Zawya.com.
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