Manager shares best practices in investing during a crisis

Gulf News: How would you describe the fund?

Mazin Baghdadi: In spite of the fact that the Saudi Equity Trading fund belongs to the conventional category, it is an open-ended equity fund which aims to invest in the Saudi market listed shares with the exception of conventional banks. It is an actively managed fund. We are long only where risk rating of the Fund is high.

What kind of redemptions have you seen in the fund?

With regard to the redemptions, during the 2006 crash, most of redemptions came from the retail side where panic controls their investment appetite. During the financial crisis, investors became more aware about the correlation between global markets and global economies in general.

What have been the dominant sectors in your portfolio?

The dominant sectors for the fund are the petrochemical industries, banks and financial services sectors besides a decent exposure to agriculture and food industries and retail sector where we see higher growth rate in earnings.

What has been your investment strategy?

We mainly follow a bottom-up approach where we manage our funds actively through comprehensive screening relying on different valuation methods to define forecasted earnings for our picks .Then, the Mutual Fund Investment committee will approve the allocation.

What are the lessons of the financial crisis?

Fundamentals of companies' valuations (P/E ratio, dividend yield, DCF, etc) along with market news prove to be the basis of investment during the crisis.

Two, global equity markets and oil prices should be monitored at all times as they become more and more correlated and consequently affecting local markets.

Three, diversification is a must, bearing in mind risk factors such as Beta and standard deviation of the fund.

What tips would you give retail investors of the region?

Finally, mutual fund investors are advised to monitor all funds' performance within the same category along with the performance indicators (i.e. Alpha in different time horizons) and define their risk tolerance in advance and then they make their investment decisions through asset allocation .

If we look at the Saudi Equity trading fund, as an example, we will find that the fund's three year performance is 4.61 per cent up while the fund's benchmark performance is down 15.94 per cent.

Fund facts: KHSBC SAUDI EQUITY TRADING FUND

• INVESTMENT MANAGER: HSBC SAUDI ARABIA
• FUND MANAGER: Mazin Baghdadi
• RANKING PERIOD: March 2007-March 2010
• FUND TYPE: Open-ended
• INCEPTION DATE: October 1997
• FUND CURRENCY: Saudi riyal
• FUND SIZE: US$88,506,995 (as of March 2010)
• ELIGIBILITY: Open to all investors provided they open an account with HSBC Saudi Arabia
• SUBSCRIPTION & REDEMPTION FREQUENCY: Bi-weekly
• MINIMUM INITIAL INVESTMENT: 5,000 riyals
• MINIMUM ADDITIONAL INVESTMENT: 2,500 riyals
• MANAGEMENT FEE: 1.5 per cent per annum
• PERFORMANCE FEE: None
• SUBSCRIPTION FEE (Upfront): Up to 3 per cent
• DOMICILE: Saudi Arabia