Fund fundamentals

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Shakeel Sarwar, head of asset management at SICO (Securities & Investment Company) in Bahrain, explains why he believes the worst is over for GCC securities.

What is the name of your fund?

Khaleej Equity Fund (KEF).

When was it launched, and what has been its performance to date?

The fund was launched in March 2004 and since inception the fund has produced 122% return.

Is it focused on any particular industries, markets, commodities or geographical regions, and what is its strategy?

The fund seeks long term capital appreciation by investing principally in listed equity in the GCC region. Our investment strategy is a bottom-up stock picking strategy which is research intensive in nature. The strategy is consistent with the investment objective of the fund and so far has been able to meet the objective of producing above average returns while keeping the investment risks in check.

Where is the fund domiciled, and why?

The Fund is domiciled in Bahrain as an exempt fund and is open to institutional investors and high net-worth individuals only. The reason for registering the fund in Bahrain are: SICO is a Bahrain based investment bank and it is cost effective and convenient to register the fund in Bahrain; SICO wants to participate in developing the financial services industry and therefore the fund is domiciled in Bahrain; the mutual fund regulatory framework in Bahrain is superior, in our view, as compared to the rest of the region; and a Bahrain domicile makes the fund a GCC investor and thus provides full access to GCC markets.

If it uses an external administrator or custodian, who are they?

The Khaleej Equity Fund uses Gulf Clearing Company as portfolio administrator and custodian. Gulf Clearing Company manages over US$8 bn in custody and administration and is amongst the pioneers in the industry.

What do you use as a benchmark for the fund, and how has the fund performed?

We are not benchmark-oriented investors; however, we use the MSCI GCC Index for comparison purposes only. For last twelve months the MSCI GCC Index performed 11.4% while the Khaleej Equity Fund's return was 23.1%. However, it should be noted that the MSCI GCC Index was launched in June 2005.

What is the minimum subscription, and what kind of investor do you target?

The minimum subscription is US$100,000 and the fund targets high net-worth individuals (HNWIs) and institutional investors only. The primary reason is that our investment style and strategy is long term in nature and HNWI's and institutions generally have a long-term investment horizon.

When can investors enter or exit?

The investors can enter the fund five business days before the month end, whereas they have to notify the fund manager 10 business days before the month end should they wish to exit from the fund.

What management fees are payable?

The management fee is 1.5% of the net assets under management for the Fund.

What advantages does your fund have over other similar funds available?

Our investment style is a bottom-up stock picking approach which is in stark contrast to the generally used indexing and enhanced indexing approach. Therefore, we have the liberty of not investing in the companies we do not understand. This strategy has allowed us to consistently produce above-average returns and our performance has been decent in both bullish and bearish markets.

Are there any challenges involved with managing a fund of this kind?

Yes, as with any opportunity there's a challenge. The biggest challenge is that our strategy is long term in nature and therefore, if the redemptions increase significantly, the performance objectives may not be met. Moreover, our strategy is a fundamentally-driven strategy, and if the markets go haywire and are sentiment driven and completely out of sync with the fundamentals, we tend to under-perform the index because of our defensive strategy in such environment.

What is the outlook for your fund?

We remain positive on the performance of the Khaleej Equity Fund. Our outlook is based on the immense growth potential, attractive valuations and the returns posted during 2007 by the regional markets. We believe that the worst is over in terms of corrections and the regional markets have already recovered to some extent from these levels.

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