Weathering the storm with true value

According to Zawya.com's four criteria of fund returns, fund volatility (the risk factor), fund compliance and fund fees, the Al Mal fund received the full 30 per cent allocated for the first and the full 20 per cent for the second as it had the lowest volatility compared to the others in the category.

In terms of fund compliance it accumulated 25 per cent out of the allocated 30 per cent as, according to Zawya.com, the fund manager administered the fund and it was not serviced independently. Finally for fund fees, it received the full 20 per cent allocated to this criteria, incorporating the lowest fee structure among its peers, the information portal said in its comments.

Gulf News spoke to the fund manager Tarek Qaqish and asked him how he weathered the storm and what lessons he learnt in the past two years. Qaqish shared some investment tips too.

Gulf News: How would you describe your fund? What have been the returns in the last three years?

Qaqish: The Al Mal UAE Equity Fund is a long only fund. Its main objective is to achieve medium to long-term capital growth by investing primarily in UAE listed equities. It has been a roller-coaster ride over the last few years. In 2008 the fund was down 57 per cent, and this was after a positive return of 50.4 per cent in 2007. In 2009, we made a solid recovery, gaining more than 31 per cent. Year to date we are just 5.9 per cent down against 12.3 per cent decline in the MSCI UAE Index, the benchmark. We are ahead of our peers in the three-year ranking period.

What kind of redemptions have you seen during the last two years of the global financial crisis?

Redemptions are one of the nightmares of fund managers. Our successful track record for more than three years in outperforming the market by over 40 per cent, the understanding of our unit holders of long-term investments, and the continuous dilogue with our unit holders, helped us in maintaining our unit holders even during the worst financial crisis.

What have been the outflows and inflows into the fund in the last two years until March of this year?

Raising asset under management (AUM) was really a challenge during the past two years. The uncertainty of global markets and the fear of long recession have caused hesitations by investors to put money to work. Al Mal was successful in raising its AUMs, which was boosted by introducing discretionary portfolio management that attracted high net worth investors and institutions who wish to work closely with Al Mal Asset Management team.

What are the dominant sectors in your portfolio?

The dominant sectors have been real estate, transport, banks and energy. As of now, we have allocation sof 31.2 per cent in real estate, 20.9 per cent in transport and 15.9 per cent in banks. As to geographic allocations, we have a little over 50 per cent allocated to Dubai. Abu Dhabi is at 36 per cent we have 13.7 per cent in cash. (see Allocations table on extreme right)

What has been your strategy in selecting companies?

Finding convincing stories is not an easy job especially during the current crisis. Our approach during the start of the financial crisis was to capture opportunities and invest in themes that we believed would perform well even during recession time. Our tactical allocation helped us in mitigating risks based on our bias to fundamental approach; our discipline investment process has been successful in generating optimised risk-reward ratio.

Our team screens equity markets for opportunities, using fundamental screens and technical overlays of over thousand names, resulting in a very small "buy list" given their exacting criteria. Our decision-making process includes meeting with managements, for consistency, focus and durability. We take our work seriously. The buy decision is only the beginning of the process. It's mostly about what happens after you enter that makes the difference. It includes carefully examining company-specific developments and staying in constant contact with the management. The importance of people and strategic direction in determining company success has never been greater.

As a fund manager, what lessons have you learnt in handling this fund during the past two years as you faced the financial crisis and its impact on the region?

The crisis was devastating in terms of strength and complexity. The most valuable lesson I learnt during this unprecedented crisis was to keep your eyes open for opportunities during those tough days. Looking at the glass as half full but keeping an eye on key macro factors helped us in participating in the 2009 equity rally and expanded our outperformance.

‘Nowhere to hide': All previous analysis on low correlation of equity markets across the world failed. What most people missed is the economic correlation and the strong interaction among international financial systems.

Too big to fail: This myth was tested again and proved to be a fairy tale that should be wiped out from our thoughts.

What, if any, changes did you in your holdings as you faced the crisis?

Our tactical allocation in underweighting and overweighting asset and sectors helped us in achieving most favourable risk-return ratio. We maintained high exposure to consumer staples and transportation sectors and underweight financial and real estate sectors, and made sure to raise the cash cushion during early days of the crisis.

Under the current uncertainty of global markets, we look for medium-term investments horizon until things gets clearer.

And finally, what investment advice and strategy tips you have for retail investors of the region?

We advise investors to diversify their investments into different asset classes. Part of the problem that we are facing is the result of investors' high concentration in real estate and equities multiplied by high leverage. Investors should invest only part of their totals assets in high-risk instruments and maintain a well-diversified portfolio. This is where Al Mal can help investors to construct and rebalance their portfolios.