Between 2009 and 2012, the top three holdings of Al Mal Capital UAE Equity Fund were National Bank of Abu Dhabi, Emaar Properties and DP World. Currently they are overweight on the first two and underweight on DP World
“Our top holdings met our criteria in terms of asset quality, solid management with proven track record and most importantly potential future growth, said Tariq Qaqish, head of asset management at Al Mal Capital, Dubai.
“Because the UAE market is made up of a small basket of investable liquid equities, there is a large concentration in market capitalization on the top ten to fifteen equities,” said Qaqish. As a result of this, our concentrations in top names have been staples in our portfolio and have rewarded us well.
“Following the crisis, we allocated funds to companies whose fundamental outlook was clear, management team was adept and whose debt servicing costs were more than manageable.”
He also added that Al Mal Capital is first and foremost value investors. “Valuations drive our investment process. We do not like to chase momentum names even if that means that it negatively impacts our performance.”
Among the top stocks that figured in Makaseb’s Arab Tigers Fund during the period of assessment were Etihad Etisalat, State of Qatar, Almarai, Jarir Marketing, Fawaz Abdulaziz Marketing, Qatar Fuel Company, Saudi Arabian Mining and Savola.
“The common things between these names are sustainable business model, sustainable growth, very high quality of earnings, sustainable and strong cash flow generation, and very strong balance sheet,” said Reda Gommo, portfolio manager at Mashreq Asset Management.
“So, you can say they all are consistent in delivering good numbers.”
With its focus on Saudi Arabia, where consumer affordability is high, telecom operator Etihad Etisalat has strong average revenue per user, Gomma said.
The company was successful in taking market share from the market leader Saudi Telcom, which is a multi country operator exposed to currency fluctuations and frequent one- offs, and is also growing its data high margin business.
Al Marai’s strength lies in its strong distribution channel and it is a high-margin company when compared to its emerging markets peers, Gomma said. Qatar Fuel is a monopoly of fuel distribution in Qatar and it is high dividend yield company and sustainable in delivering double digit growth. Al Hokair, a fashion retailer in Saudi, is expanding into Mena and Europe and is sustainable as well.
“Jarir Marketing is Saudi Arabia’s biggest retailer and enjoys extremely high return on equity,” Gomma said. As for 2013 preferences, consumer stocks comprise the bulk of the top quartile of their preferred names, Gomma said. “Telecommunications are the second best preferred stocks in our model portfolio given the sustainability in their dividends and the potential growth in data revenue,” he said.
“[Gulf] banks, especially Saudi banks, are offering good value as they are trading at discount to emerging markets peers,” Gomma said.
Since 2009 until 2012, the top five stocks in Jadwa Investment’s Saudi Equity Fund and GCC Equity Fund revolved around names such as Sabic, Al Rajhi Bank, Al Bilad, Alinma Bank, Saudi Arabian Mining Company, Saudi Arabian Fertiliser Company (Safco), Almarai, Industries Qatar, Etihad Etisalat, Saudi Vitrified Clay Pipe Company (SVCP), Mobile Telecom. However, three dominant names of the two funds were Sabic, Al Rajhi and Safco.
While not commenting on their specific positions, Sarah Al Suhaimi, managing director and chief investment officer at Jadwa Investment, said their stock selection process consists of fundamentals analysis, technical analysis and market behavior analysis.
“The reason the top three holdings stayed the same for a long time is a testimony to our investment time horizon,” she said. “Moreover we invest in fundamentally strong companies and may hold them for long periods.”