Investing in turmoil

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Sophisticated investors are looking at mutual funds as a means of reducing risk in portfolios.

Dr Nasser Saidi, chief economist at Dubai International Financial Centre Authority (DIFCA), points out that the limited number of listed companies also deterred investors in the region from looking to funds, and kept down the number of products available.

"You've got many new companies that have now come in, and therefore you can now have a mutual fund that is well diversified." The industry needs to educate the market about the benefits of diversification, he says.

"Once you go into 30 or 40 companies, you've lowered your risk by 40 percent or 50 percent," Saidi says.

In 2006, the GCC had an estimated $60-$65bn of assets under management. By 2010, that number could rise to $160bn, according to data from DIFC.

"What we would like to see happen is that the mutual fund industry starts creating products that are directed at the region itself," Saidi says.

Those products include real estate, infrastructure and Sharia-compliant funds. "If you take an individual investor who has $10,000, he'd probably be hard pressed to buy one position in one company," says Ahmed of Mashreq Capital.

"If he tries to invest in seven different countries and he evaluates companies in eleven different countries, which is what we do prior to making our final portfolio construction decision for the Makaseb Arab Tigers Fund, there is no way that he can do that."

In the US, assets in investment companies - mutual funds, exchange-traded funds, closed end funds and unit investment trusts - totaled $12.2 trillion in mid-2007.

Households held about 84 percent of those assets.

"I don't know if that will happen anytime soon in the UAE but there are going to be so many listed companies out there and so many different options that instead of spending time doing it themselves, more people are going to need someone to manage [their wealth] professionally," says Jalal Faruki, senior associate at Al Mal Capital Asset Management.

Still, it could take a while before the average man on the street starts buying into funds.

The minimum investment required by Gulf funds is high by international standards. A limited number of custodians add to the cost, which is likely to come down as the market gets more competitive.

"It's not just the fund managers themselves, there are a lot of things that go into the pricing of a fund, other than management fees," Faruki says.

Exchange and regulatory fees in the region are higher than in more mature markets, where turnover is higher.

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