SICO BSC (c), a leading regional asset manager, broker and investment bank (licensed as a conventional wholesale bank by the Central Bank of Bahrain “CBB”), announced today that the SICO Kingdom Equity Fund closed 2018 as the top-performing Saudi fund in the region delivering positive returns of 23%. The fund outperformed the benchmark by a healthy margin of around 15% mainly due to the asset management team’s superior stock selection from various segments of the market.
“We take a tremendous amount of pride in the fact that our experienced team of asset managers have been able to consistently deliver these remarkable results with our flagship Kingdom Equity Fund, which has doubled in value over the past seven years since inception in an environment where market returns have barely hovered above 20%,” said Najla Al Shirawi, Chief Executive Officer at SICO. “As Saudi Arabia continues to capture passive fund flows ahead of the Kingdom’s inclusion in the MSCI in June and the FTSE emerging market index in March, we look forward to creating even more value for our investors in the year to come.”
Commenting on the positive performance of the Fund during a year when the Saudi market rose 15% in the first half followed by a contraction on the back of geopolitical concerns and declining oil prices in the second half, Shakeel Sarwar , Head of Equities Asset Management at SICO , “2018 was a story of two halves. At the beginning of the year, we invested aggressively in large caps where fundamentals supported our investment rationale. This segment saw increased interest ahead of the inclusion of Saudi Arabia in the emerging markets indices. Many of our core holdings, particularly in the banking and petrochemicals sectors, posted healthy returns.”
“We did not totally dismiss the small to mid-cap segment of the market, but identified the winners. Within the consumer sector we played on the consolidation theme and invested in companies that were growing their market share in an environment where the market as a whole was either shrinking or flat,” he added.
Despite market volatility in the fourth quarter, the SICO Asset Management team did not alter their strategy but stayed disciplined to their core investment thesis, which helped preserve the Fund’s strong returns. The team’s ability to identify companies and sectors that are resilient to market forces has been key to the Kingdom Equity Fund’s consistently strong results. Over the last three years, the Fund is up 33% despite an economic slowdown in Saudi Arabia. In the last five years, it has appreciated by 37% versus an 8% decline in the overall market.
Going forward, the team will keep a sharp eye on how the market reacts to a series of passive inflows expected during the course of 2019. The flow commenced in March 2019 and extend for a 9-month period ending in December 2019 during which an anticipated US$ 15 billion is expected to enter the market due to the emerging market index inclusion.
“In 2019 we expect the overall index to remain range bound given the market trades at 17x earnings and volatility can be expected around the period when passive flows enter the market. However, we are confident that we will be able to generate a decent return for our investors,” said Sarwar.
“We intend to maintain a similar investment strategy and are bullish on the prospects of the Saudi banking sector despite the recent run up. We expect earnings growth of around 10% that would primarily stem from an anticipated recovery in loan growth and full year impact of the margin improvement owing to the global rise in interest rates. Additionally, the increase in dividends, which on an overall basis have essentially doubled from 2016 levels, will attract additional investors to the sector. Progress on the recently-announced mergers in the banking sector will also be a key theme for the year,” he added.
Commenting on the prospects of the petrochemicals sector in 2019, the asset management team remains cautious given the expectation that earnings peaked in 2018 and most companies will be reporting declines in profits. Some companies however are expected to increase their dividend payouts which should provide some upside potential. Regarding the consumer sector, the Asset Management team expects the organized retailers to continue benefiting from consolidation and lower than previously indicated employee related expenses.
The SICO Kingdom Equity Fund focuses on securities listed in Saudi Arabia, allowing investors to benefit from the Kingdom’s growing equity market. The primary objective of the Fund is to seek long-term capital appreciation. The Fund distributes annual dividend. Since its inception the SICO Kingdom Equity Fund has been one of the top performing funds in the region. It utilizes a bottom-up investment approach backed by a research-intensive investment process.
SICO is a leading regional asset manager, broker, and investment bank, with USD 1.9 bn in assets under management (AUM). Today SICO operates under a wholesale banking licence from the Central Bank of Bahrain and also oversees two wholly owned subsidiaries: an Abu Dhabi-based brokerage firm, SICO Financial Brokerage and a specialised regional custody house, SICO Fund Services Company (SFS). Headquartered in the Kingdom of Bahrain with a growing regional and international presence, SICO has a well-established track record as a trusted regional bank offering a comprehensive suite of financial solutions, including asset management, brokerage, investment banking, and market making, backed by a robust and experienced research team that provides regional insight and analysis of more than 90 percent of the region’s major equities. Since inception in 1995, SICO has consistently outperformed the market and developed a solid base of institutional clients. Going forward, the bank’s continued growth will be guided by its commitments to strong corporate governance and developing trusting relationships with its clients. The bank will also continue to invest in its information technology capabilities and the human capital of its 100 exceptional employees.© Press Release 2019
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