By Cecilia Valente
Mideast's cash-rich sectors can offer returns despite the impact of downturn.
Cash-rich sectors in the Middle East such as utilities can offer returns despite the impact of the global crisis on the region and Dubai's struggle to meet its debts, said alternatives firm Gulfmena.
Utilities, telecoms, fertilisers and some infrastructure projects offer a chance for investors to extract returns amid the turmoil in the Middle East according to Haissam Arabi, CEO of Gulfmena Alternative Investments and manager of its first hedge fund.
He likes Qatar Electricity and Water Co and Saudi Electricity Co.
"We think these are good dividend yielding places," he said.
Arabi set up Gulfmena last year after an eight year career making long-only investment calls at financial group Shuaa Capital. He has now branched out to managing the Gulfmena boutique's first hedge-fund, Arab Opportunities.
He and his Gulfmena partners have pooled their own money in the hedge fund, which aims to attract $50 million by the first half of the year and reach a "critical" size of about $100 million between the end of 2010 and mid-2011.
At the moment Arabi also likes UAE telecom Etisalat, Mobily in Saudi Arabia and Qtel, which he said grew over 10 percent during the last year.
"All these companies have been growing over 10 percent in the year, which means they will be able to pay at least the same dividends as last year," he said.
The hedge fund combines bets on market movements with absolute return strategies which use financial instruments to try to mitigate negative markets, cut risk and enhance returns.
Arabi said the concept is still relatively untapped in the region.
While the fund will be open to using hedging strategies it will limit its leverage to a maximum of 20 percent and only in positive markets.
His growth strategy in more turbulent markets, consists of investing in fertilisers like Saudi Arabian company Safco and some petrochemical stock such as Sabic.
"Today fertilisers' capacity has pretty much been sold out and all of a sudden you have an increase in prices, which immediately impact the bottom line - so we are going to go for fertilisers right away," he said.
Arabi is also keeping an eye on stocks offering exposure to infrastructure revamp projects, especially companies most likely to receive government investment, with a bias to Saudi Arabia.
Arabi said he was in talks with international institutional investors and hopes in time to attract inflows from former Shuaa clients.
Arabi has so far invested about 30 percent of the fund's assets and aims to return 15 percent a year with annual volatility not exceeding 7 percent. (Reuters)