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07 December 2023

GCC domiciled fund assets up by 9 per cent or $2.3bn in H1 2010

By Staff

Gulf Cooperation Council (GCC) region based mutual fund assets rose by 9 per cent or $2.3bn in the January 29th to June 20th 2010 period for funds, according to a study released on Wednesday. The global mutual fund industry regained some lost ground in 2010 and the Gulf Cooperation Council countries (GCC) witnessed a flurry of new funds. These findings were released in "GCC Mutual Fund Industry Survey 2010."

"The global market for Islamic financial services, as measured by Sharia-compliant assets," the book offers in a chapter on benchmarks, "was estimated to have increased 25 per cent by year-end 2008 from 2007. Much of this growth can be attributed to indexes, which, by screening investments for compliance with Sharia law, help to reduce research costs and compliance concerns that investors would otherwise face in constructing Sharia-compliant investment portfolios. Through benchmarking and screening, index providers will play a key role in the future of investing in the GCC."

The Study noted that according to the Investment Company Institute the global mutual fund assets at the end of June 2010 stood at $21.4 trillion, a jump of 5.4 per cent to from a year earlier. Assets under management, however, were still 18 per cent lower than the peak of $26.15 trillion at the end of 2007. The partial recovery in mutual fund assets largely emanated from the rebound in global equity prices from a year earlier.

Global mutual fund assets stood at $21.4 trillion (up 5.4 per cent y-o-y) at the end of 2010Q2 in 68,820 funds according to data compiled by Investment Company institute (ICI) from 39 countries. The partial recovery in mutual fund assets largely emanated from the rebound in global equity prices from a year earlier. Global mutual fund assets were 18 per cent lower than the peak ($26.15 trillion) reached at the end of 2007.

Global fund assets fell by 6.9 per cent q-o-q at end-2010 Q2. Worldwide funds experienced $92bn in net outflows in 2010Q2 (outflows were $103bn in Q1) according to ICI, with continued flows into long term funds, while short term funds saw outflows. Money market funds have experienced outflows since 2009Q1 due to a near zero interest rate environment. Equity fund assets declined compared to the first quarter, but were still higher on a year on year basis.

GCC mutual fund industry is relatively young and accounts for a fraction of global mutual fund assets. Saudi Arabia has the largest mutual fund industry in the region. Fund managers located in the GCC are estimated to control about half of global sharia compliant fund assets. Fund managers located in Saudi Arabia, in particular, dominate the sharia compliant fund segment. In general, ranking of GCC domicile locations relates to the size of each country's asset management industry. However, while the position of the UAE ranks higher as an asset management centre in the GCC, it ranks lower as a fund management centre. In other words, UAE has a relatively large number of asset management firms operating in the country, but these choose to domicile a significant portion of their mutual funds in other jurisdictions.

Equity funds in the GCC saw net outflows in the January 29th-June 20th period for which data were available. Fixed income funds also witnessed outflows against the background of flows and ebbs of regional debt restructuring news. The only category to witness inflows was Islamic money market funds reflecting risk aversion. The only country in the GCC that saw any meaningful increase in net new cash flow into funds was Saudi Arabia. GCC domiciled fund assets rose by 9 per cent or $2.3bn in the January 29th to June 20th 2010 period for funds in our dataset.

Investor sentiment was weighed down in the UAE following the impact of the global crisis, decline in oil prices, fall in real estate prices, and debt concerns. Tight liquidity resulted in banks bidding for deposits which further crowded out investor demand for mutual funds. After a quiet year in 2009 in terms of fund launches, 2010 witnessed a pickup in new fund launches in line with a partial recovery in sentiment and desire by fund sponsors to cater to the changed investor appetite. The first locally listed exchange traded fund in the GCC was launched early in the year. Mutual funds tracked in our dataset that are domiciled in UAE saw minor net outflows in the January 29th to June 20th 2010 period. The decrease affected predominantly equity funds.

In Saudi Arabia, there were 340,515 subscribers (about 1.4 per cent of the population, down from 2.5 per cent of the population in 2005) in 241 funds in Saudi Arabia at end-2010Q2, according to data from the Saudi Arabian Monetary Agency (SAMA). The number of subscribers was down by 8,959 or 2.6 per cent quarter-on-quarter and down by 28,730 or 7.8 per cent year-on-year. The number of mutual funds subscribers declined by 15,816 in the first six months of 2010. Fund assets stood at $26.4bn (+11.7 per cent y-o-y) at end-Q2 , of which $5.2bn were in foreign assets (+45.5 per cent y-o-y and 24.2 per cent q-o-q) and $21.2bn in domestic assets (+5.7 per cent y-o-y and 2.6 per cent q-o-q). Fund assets were up 10.5 per cent from end-2009 to end 2010Q2, with domestic assets up 7.2 per cent and foreign assets 26.1 per cent.

Mutual funds in our dataset that were domiciled in Kuwait saw net outflows of $603m in the January 29th to June 20th 2010 period. The decrease was across the board in various fund categories. Investor preferences in Qatar shifted towards more conservative assets as in the rest of the region. In Bahrain, in terms of the profiles of investors, the share of individuals in fund assets peaked at 49 per cent of total fund assets in 2008Q1 and declined to 25 per cent in 2010Q1. Overall assets of mutual funds domiciled in Bahrain tracked in our dataset were roughly unchanged in the January 29th to June 20th 2010 period.