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Monday May 10, 2010

More syariah funds to invest abroad

Investors seeking better returns via portfolio diversification

PETALING JAYA: More syariah funds are expected to make inroads into overseas markets, especially Asia, in view of the improving economy and investors diversifying their portfolio for better returns.

Since the beginning of this year till March, nine syariah funds (seven foreign and two domestic) have been launched in various markets, notably in the Asia Pacific region.

The HwangDBS AIIMAN A20 China Access Fund is the latest Islamic fund that offers investors access into China’s A-share market.

The fund, which was officially launched on March 26, is a joint effort between HwangDBS Investment Management Bhd and Asian Islamic Investment Management Sdn Bhd. The latter is the fund manager of the HwangDBS AIIMAN A20.

The fund was also the first syariah-compliant fund to invest directly into the top 20 China A-shares listed on Shenzhen and Shanghai stock exchanges to enable investors, among others, to gain from China’s robust economic growth and potential appreciation of the yuan.

Pacific Mutual Fund Bhd CEO and chief investment officer Michael Auyeung said it was inevitable for these funds to invest abroad as more investors now seek greater diversification to reduce risk concentration in the local market.

He felt the target of new syariah funds would certainly favour Asia and some of the emerging markets due to their long term economic prospects.

Federation of Investment Managers Malaysia president Tunku Ya’acob Tunku Abdullah attributed the growth and demand of syariah compliant funds to the rising affluence of Muslim communities wishing to invest surplus funds in a syariah-compliant manner.

“Another contributing factor is the non-Muslim investors’ desire to diversify their investment through such funds. The recent global financial crisis witnessed the resilient performance of Islamic funds which were relatively shielded from huge losses that affected some asset classes.

“In light of this, more investors are now beginning to understand and appreciate the benefits and value of Islamic funds,” he told StarBiz.

The net asset value (NAV) of Malaysian Islamic-based funds grew by 230% from 2004 to 2009 as compared to their conventional counterparts which grew by only 110%. During the period, the NAV of Islamic funds surged from RM6.7bil to RM22.1bil.

For the three months to March 31, nine new Islamic-based funds were launched compared with a total of 11 conventional funds. As at March 31, the NAV of Islamic-based funds stood at RM22.7bil.

According to Auyeung, the average fund size of offshore syariah-based funds during the period (as at 31 March) was RM170mil, which was commendable considering many of these funds were launched at higher equity market levels. Total assets under management of these foreign funds during the period stood at about RM3.9bil.

Pacific Mutual Fund currently manages three syariah equity funds with exposure in the Asia Pacific region including Oceania (Australia), the US and Canada, as well as in Malaysia.

Pacific Dana Dividen, which was launched in 2007, has outperform its benchmark and is currently ranked top in the Equity Global – Islamic category under the Lipper Hindsight. The fund had generated a return of 30% in the one year to April 30, 2010.

On whether there were plans to launch more syariah offshore funds, Auyeung said: “Our decisions will be investor and distributor driven. At this point, there is some interest in a global syariah equity mandate that has added layers of syariah screening, which may come to fruition in the second half of the year.”

Asian Islamic Investment Management CEO and executive director Nor’ Azamin Salleh said the company has a few syariah funds in the pipeline this year.

“We are expecting to follow a similar marketing strategy as out latest fund, which is to have the fund domiciled in Malaysia, but also distributed in other regions through our parent’s (DBS Bank Ltd) distribution channels as well as through the Mutual Recognition Agreements that the Securities Commission has with foreign regulators. We are running a tight ship and are maintaining our focus to ensure we are not spread too thinly,” he said.

HwangDBS Investment Management and Asian Islamic Investment Management are sister companies. On the outlook of syariah funds this year and next year, he said there are still large untapped and to some extent, underserved markets in Asia and the MENA (Middle East and North Africa) region.

The syariah fund industry requires three sets of impetus for it to grow – sufficiency and depth of syariah-compliant capital market instruments that are investable, a strong culture of product innovation and the growing consciousness among the investors at large, Nor’ Azamin said.

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