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AQIL: The fund will use fast-moving trading techniques to capitalise on short term price anomalies in markets.

Faisal Aqil, general manager retail banking at Emirates Islamic Bank, talks ABF through the Emirates Islamic Equity Trading Fund, which utilises quant strategies.

What is the name of your fund?

Our latest launched fund is Emirates Islamic Equity Trading Fund. The fund was launched on November 15, 2007, therefore we have not yet had any valuation points. However, the fund seeks to generate long-term capital growth, and strong risk-adjusted returns, through investment in Shariah compliant equities across the globe by employing mainly quantitative strategies.

Is it focused on any particular sectors or markets, and what is its strategy?

The fund is a Shariah compliant, long-only global equity fund that aims to use market inefficiencies by employing research, based on investment insights and objective evidence.

This research uses systematic techniques that identify short term anomalies in the price diffusion process of stocks across markets. Returns in excess of the general market are sought through a model that screens live prices, and quantifies the profit opportunities that come from fast moving trading signals at high frequency.

Where is the fund domiciled, and why?

The fund is structured as a sub-fund of Emirates Funds Limited, Emirates Bank's Islamic fund company which is domiciled in Jersey, Channel Islands. Jersey has been chosen because of its robust investor protection and a regulatory framework which is recognised internationally.

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

The external administrator is Standard Bank Fund Administration (Jersey) Limited and the custodian is Standard Bank Jersey. Although from the same company, the functions are kept separate.

What do you use as a benchmark?

The fund will be compared to the Dow Jones Islamic Index, an index of Shariah compliant global equities. It should be noted, though, that because of the unique trading strategy employed within the fund, performance may at times differ significantly from the index.

What is the minimum subscription?

The fund provides investors with two share classes: sophisticated share class with a minimum subscription of US$25,000 and institutional share class with a minimum subscription of $1m.

When is the NAV calculated?

Bi-monthly, on the 15th day, or first business day thereafter, and the last business day of each month.

When can investors enter or exit the fund?

Bi-monthly, on the business day following a valuation day, subject to five business days' notice.

What management fees are payable?

Annual management fees are 1.25% for institutional share class and 1.50% for sophisticated share class.

What advantages does your fund have?

The fund offers investors a different approach to Shariah compliant global equity investments. Rather than being based on the long-term prospects for individual stocks, the fund will seek to profit from anomalous price movements that take stocks away from the trend of its sector, or a related sector.

The turnover from the fund is expected to be significantly higher than that of mainstream equity funds and Performa returns indicate strong risk-adjusted returns over a complete economic cycle.

Active, real-time trading ensures there is no drag in fund performance during rising markets and ensures manoeuvrability throughout the investment cycle. The fund should, therefore, provide diversification benefits as part of a wider portfolio.

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

Yes. A proprietary database is used as we require every second's worth of trading of every stock that might be accessed by the portfolio. Also, the levels of dealing place greater strain on the back office of the investment advisor and the administrator so significant steps have been taken to ensure that the settlements and dealing procedures are robust.

Turnover of the portfolio is expect to be about 20% so the entire portfolio is likely to change each week. This said, these features make the fund more difficult to replicate.

Who is in the fund management team?

The fund is the sixth Shariah compliant in-house managed fund in the Emirates Funds Limited suite of funds. The fund is managed by Emirates Fund Managers (Jersey) Limited who has in turn, through a series of agreements, ultimately delegated investment management decisions to Emirates Investment Services Limited, a company licensed and regulated by DFSA.

In turn, due to the specialist nature of the trading, EIS has appointed Old Mutual Asset Managers (UK) Limited as Investment Advisor to the fund.

What are your views on the outlook?

There is a strong investment outlook for the fund, although it should be viewed as a medium to long term investment. Due to the volatility associated with the markets in which the fund will invest, investors should look to invest in the fund with a three to five year time horizon.

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