Wanting mutual appreciation

The mutual fund industry in the country is growing - in fact as we reported in Gulf News, 17 new funds were domiciled in 2007 in the UAE - and is expected to advance rapidly in the coming years.

But what strikes me - although the situation is rapidly improving - is that it cannot yet be considered a mass retail industry as in the developed markets, or even in emerging markets such as India, Pakistan and China for that matter.

Before going deeper, we must keep in mind that the UAE or countries of the region are wealthier, with the per capita income much higher than in the South Asian countries.

Fund managers and analysts here say that the minimum investment size has come down from a high of Dh100,000 a few years ago to Dh10,000, and now many of the banks and financial institutions are promoting mutual fund products - among them fixed income, equity and some index funds - that have an appeal to their own accountholders.

But all agree the mutual fund industry is still in its nascent stages and is in the process of maturing. Local investors have historically invested directly in the stock market with a short-term horizon expecting quick returns. Mutual funds being long-term in nature (three to five years) have had less appeal.

"The lure of a 100 per cent gain in the space of a week or two in one or two specific stocks continues to overshadow the benefits of long-term investments in mutual funds," says Sherif Mahmoud Salem, fund manager at National Bank of Abu Dhabi.

Though investors were burned in 2006, leading some of them to the safe and more professional management of mutual funds, it is still largely semi-retail, analysts and managers say. The retail investor population is still very small. Given the relatively low exposure of nationals to these funds, a certain amount of mis-selling goes on.

It is true that for retail investors at the lower end of the investment threshold, they will be talking to a non-specialist, who will just give the prospective client a rundown of the product(s). "The quality clearly will not be on par with private banking clients," says Ebrahim Masood, senior investment officer, asset management, mashreq.

Deterrent

Cost may be a deterrent from mutual funds becoming a mass retail opportunity. The reliance and ability to scale up is far greater when targeting high-value investors as opposed to retail. Very often the fees structures are determined by the market and could be regarded as low here.

But as one analyst explained it, 100,000 retail investors have to be found as opposed to 10 wholesale investors for the same pool of money. "That has tended to discourage much wider retail approach: it is expensive."

So the mutual fund industry in these parts is different. Nonetheless, it is evolving fast.

Though investors were burned during 2006, leading some of them to the safe and more professional management of mutual funds, it is still largely semi-retail. The retail investor population is still very small.