Prudent macroeconomic policies, strong hydrocarbon sector and increased public spending have contributed significantly to the growth of Qatar's economy. By the end of 2013 and 2014, the country's GDP is expected to expand by 5.3% and 5%, respectively - the highest in the Gulf region - according to the International Monetary Fund's (IMF) May 2013 forecast.
The tiny Gulf state's robust fiscal performance is also fueling fresh confidence in the asset management arena especially as Qatar strengthens its bid to become a hub in the Middle East, said Afa Boran, head of asset management at Doha-based investment firm Amwal.
Speaking to Zawya, Boran offers an invaluable insight into Qatar's investment dynamics and the general trends shaping the domestic asset management business. He also underscored the growth opportunities that lie in the local equities market, where listed local companies have posted double-digit growth in earnings over the past five years, dramatically outperforming global average figures.
The Qatari government's eagerness to attract equity investors has been reflected in the Qatar Exchange's (QE) efforts to improve market accessibility in the country. In a 2012-2013 economic outlook report, the country's General Secretariat for Development Planning (GSDP) highlighted QE's strategy to expand and widen trading opportunities in the local bourse.
QE has been actively seeking an upgrade of status from pioneer to emerging market at MSCI Inc. GSDP said the MSCI reclassification will bring in more international institutional investors to Qatar, opening new avenues of funding to domestic entities. Last year, QE made another stride towards strengthening the local equities market when it launched QE Venture Market, a secondary bourse dedicated to small and medium enterprises (SMEs) - an initiative that seeks to boost the private sector and promote Qatar's economic diversification program.
Boran, who was formerly fund manager at Dubai-based Shuaa and sell side research analyst at Credit Suisse and Natwest Markets in London, said all these developments are fuelling renewed optimism among private investment banks and fund managers. The numbers alone speak of the vast potential that Qatar's equity market has to offer, he said.
What's your view on Qatar equities?
Despite the good returns Qatar equities had in recent years, the market is still cheap in comparison to many other equity markets. In the last five years, Qatari companies had around 12% earnings growth on average, while during the same period, average earnings in the world were down 5%. In the last year in particular, global valuation multiples expanded by around 20% while they stayed broadly the same in Qatar.
In addition to attractive valuations, Qatar has many companies providing good growth exposure to both the local economy as well as to key frontier markets. Also importantly, many Qatari companies pay high dividends which add to its overall attractiveness. While dividends by themselves are only a portion of the total return, consistent dividends serve as a useful indicator of operating cash flow and earnings quality.
Qatar has strong ambitions on becoming an asset management hub. What has been your experience in attracting more AUMs?
Indeed, Qatar aims to become an asset management hub in the region. To serve this purpose, it has set up the Qatar Financial Center (QFC) which aims to make it easy for firms looking to establish presence in the country. While we were established in 1998, we also recently moved our operations to the QFC to benefit from the advantages provided by the new set-up.
On attracting AUMs, it is a rather slow process, though. Partly because the investors here are very different from those in the west and partly because we wanted to first build a long and consistent track record before actively marketing our services to investors. Our aim is to demonstrate to investors that with a methodical approach to managing money, you can deliver superior returns, which is what we have done. On a three-year basis, our Amwal-Qatar Gate Fund returns were 55.7%, which were around 20% above the index.
Top 10 Equity Funds in MENA, Ranked by Performance over Three Years
You mentioned the different investor profile. Can you expand on that?
Equity ownership is high but most investors invest directly. We recently calculated the value of privately owned stocks versus the amount managed by asset managers like us, and we found that professionally managed AUMs are a mere 5%. In most developed markets this ratio is at least around 40-50%. In a way our key competitors are still the investors themselves.
The key difference is that most of the individual wealth in the west is passively accumulated through salary income, which automatically gets channeled into pension funds that in turn hire asset managers to manage it. So in the west, effectively all you have to do as an asset manager is know the channels and perform better than your competitors. In this part of the world, a large part of the wealth is very concentrated and entrepreneurially created, either by investing in real estate or by setting up businesses. As the economies are still relatively new, there are still many direct investing opportunities in this region.
While risk-taking culture is positive for the asset management industry, the self-investing habits were a disadvantage to us initially, as we were an early entrant. So we had to come up with new ways to sell our services to local investors. In a way we found a way to demonstrate our added value in managing portfolios. Building a long enough track record is also key so we can prove that year after year, we can deliver strong results. This was particularly important as luck can play a role in good performance in a particular year, but to do well year after year requires more than just luck.
We are now starting to see the results of our efforts, but nevertheless the industry is still in a very early stage of development.
Can you please talk about your investment process and how you manage your funds?
We are fundamental long-term investors, but we don't just buy and sit on positions. Instead, we monitor both earnings and share prices very closely and actively revise the portfolio as things change. Our approach is very disciplined and includes continuous monitoring of key data points, as well as frequent management meetings for stocks in our investment universe. Our portfolio includes stocks that we have owned since we launched the fund, but we also have stocks we sold or reduced exposure six months after buying as we learnt things we didn't like.
Most importantly, we are true believers in the advantages of investing in stocks particularly in today's low yielding environment. In addition to higher returns, stocks also don't have maturity like bonds do. If you invest in the right companies, you can hold them forever and as long as the company keeps generating stable or growing profits, the stock will keep generating returns both as dividends and/or price appreciation.
How much these returns are from one year to another depends on many things like valuations and sentiment in addition to fundamental profits, which is why we don't over-emphasize on short-term returns. Even in the real world, sometimes you walk, sometimes you run and sometimes you go back, but what matters is you move ahead and reach your destination. Our destination in managing money is achieving best possible returns. As our recent rankings show, our long term returns are significantly above both the benchmark index and our competitors.
Zawya 2013
