Upbeat outlook for MFs

DUBAI — Leading UAE mutual funds (MFs) are expected to outperform the benchmark indices in the second half of 2005, despite the high market volatility. While many investors have been struggling to cope with the volatile market conditions from early May, mutual fund investors have reaped rich dividends from professionally managed local funds.

By Babu Das Augustine

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Published: Sun 31 Jul 2005, 10:42 AM

Last updated: Thu 2 Apr 2015, 2:49 PM

Most mutual funds in the UAE delivered excellent returns during the first half of the year.

However, for the past one-month, the UAE market has been going through a technical correction resulting in more than 30 per cent decline in Dubai Stock Index and 23 per cent decline in the NBAD ESM index since they peaked in mid-June.

Although the stretched valuations and temporary liquidity crunch resulting from a host of rights issues, new IPOs are expected to keep the UAE market relatively bearish during the current quarter, analysts expects the markets are currently bottoming out and is expected to rally ahead in the fourth quarter.

“The markets have slipped substantially from their mid-June peak. At worst, it could slip further a maximum of 5 to 10 per cent and then it should turn around,” said an equity analyst.

The NBAD managed UAE Trading Funds (UTF) posted a 117 per cent return since the beginning of the year, the NAV/unit reaching Dh36.957 from Dh17.0484 in December 2004. Since its inception, in February 2004, the return to investors amounted to 270 per cent.

The UAE Growth Funds (UGF), another NBAD fund, up to the end of June has delivered 104 per cent gain. The UAE Islamic Fund-Al Naeem return was 74 per cent to Dh17.3591 per unit from Dh10/unit since its launch in January 2005.

In a recent study covering 5,000 equity mutual funds filtered using the tools and data available on the Bloomberg analytics and primary sources, NBAD has reported that the UTF and UGF topped the world mutual fund performance. There were three UAE-based funds in the top ten list produced by the comparative study.

“The expertise of the management team of the funds continued to provide a balanced and risk-controlled exposure to the market as well as access for foreign investors to those stocks not currently open to foreign ownership,” said Richard J. Amos, General Manager, Investment Banking Division, NBAD.

Daman UAE Value Fund recently announced a dividend payout of Dh8 per share and growth by 36.56 per cent for the second quarter of 2005. This quarterly dividend payout follows strong performance by the UAE Value Fund, which closed the second quarter with an ex-dividend Net Asset Value (NAV) of Dh517.47 per share against Dh454.74 on June 1.

“Even in a volatile situation, we are proud to have reported excellent performance. Our investors have gained incrementally through the period every month and quarter,” said a senior executive with the fund.

Contrasted against the benchmark NBAD Index, this dividend payout works out to an annualised yield of 5.41 per cent on the ex-dividend NAV as against 0.81 per cent for NBAD.

The EFS Emirates Flagship Fund (EFF) has reported healthy growth during the previous quarter and had paid out a stock dividend of 3.5 per cent. Since January 2003, EFF has paid dividends aggregating to 31.1 per cent.

The current market valuation is about 25 times while many leading scrips are trading at P/Es about 35. “The current valuations of many stocks are not sustainable and the market is likely to remain volatile during the third and the fourth quarter providing periodic opportunities.

In the context of high volatility, stock picking should be left to the market experts who have the right investment strategies to beat the trend,” said an analyst.

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