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30th SEPTEMBER 2011 QUARTER END REPORT FALCOM ASSET MANAGEMENT
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30th SEPTEMBER 2011 QUARTER END REPORTFALCOM ASSET MANAGEMENT

REPO

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11

1

CONTENTS

FALCOM Saudi Equity Fund 2

FALCOM Saudi Equity ETF Fund (FALCOM F30 AB) 4

FALCOM PETROCHEMICAL ETF FUND (FPETRO AB) 5

FALCOM Saudi Riyal Murabaha Fund 6

FALCOM Multi-Asset Fund 8

FALCOM IPO Fund 10

FALCOM ARAB MARKET FUND 12

2

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FUND OBJECTIVES

GENERAL INFORMATION

PERFORMANCE RECORD TOP FIVE HOLDINGS

To provide long-term capital appreciation and growth. The Fund invests in listed equity securities that comply with Shariah-guidelines and form part of Tadawul All Share Index.FALCOM Asset Management team of investment professionals seeks to add value over the Benchmark through: 1) active sector allocation. 2) active security selection.

Period Fund TASISince 1 Month 4.78% 2.23%Since 3 Months -7.55% -7.05%Since 6 Months -1.04% -6.86%Since 9 Months -1.58% -7.68%Since 1 Year 5.22% -4.38%Since Inception 39.26% -17.28%2008 -37.26% -56.49%2009 40.37% 27.46%2010 13.65% 8.15%2011-YTD -1.58% -7.68%

Saudi Basic Industries Corp.ASLAKNational Industrialization CompanyAdvanced Petrochemical CompanyYanbu National Petrochemical Company

FALCOM SAUDI EQUITY FUND

RISK AND RETURN (DAILY)

From Fund Inception Fund TASIAverage Return 0.045% -0.003%Standard Deviation 1.72% 1.70%Return / Risk 0.026 -0.002

0.600.700.800.901.001.101.201.301.401.501.601.70 FSEF

TASI

0.50

May

-07

Jul-0

7Se

p-07

Nov

-07

Jan-

08M

ar-0

8M

ay-0

8Ju

l-08

Sep-

08N

ov-0

8Ja

n-09

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov

-09

Jan-

10M

ar-1

0M

ay-1

0Ju

l-10

Sep-

10N

ov-1

0Ja

n-11

Mar

-11

May

-11

Jul-1

1Se

p-11

Banks & Financial Services Sector

5.72%

Petrochemical Industries Sector

44.98%

Cement Sector

Industrial Investment Sector

14.42%

Building & Construction

Sector16.58%

Real Estate Development

Sector8.12%

Transport Sector 0.72%

2.60%

Retail Sector0.70%

Agriculture & Food Industries Sector

2.43%

Telecommunication Sector3.73%

PERFORMANCE vs BENCHMARKSECTOR ALLOCATION

The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any par-ticular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.

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FUND MANAGER’S COMMENTSFALCOM SAUDI EQUITY FUND

FALCOM Saudi Equity Fund (FSEF) slightly under performed the benchmark in 3Q2011 recording a negative return of 7.55% compared to the Tadawul All Share Index (TASI) which recorded a negative return on 7.05%. However, from a long term perspective, the fund has significantly out performed the TASI from the inception.

It was a challenging period for the fund managers in the region as the markets witnessed volatility amidst the geo-political issues in the region consequent to the Arab Spring and the fresh issues from the Euro zone. However, TASI traded between a wide range of 5,900 and 6,700 points during the quarter. The positive signs and calming down of the regional issues and the tension improved the investor sentiment towards the beginning of the quarter. However, the index plunged in early August with the influx of negative news from the global economic front. However, the high oil prices above USD 80 per barrel along with the high commodity prices helped the Saudi market to stabilize.

Outlook Positive factors The oil prices are expected to stabilize above USD 80-100 per barrel for 2011.

Minimum or negligible geo political issues of Saudi Arabia compared to its regional counter parts would keep the country’s risk profile lower.

Corporate profitability is expected to improve in major sectors

Petrochemicals – Improving oil and product prices, thus improving margins and new capacities on steam

Banking – Positive outlook with cleaner balance sheets

Real Estate, Building & Construction – Domestic demand to drive the growth

Retail sector – Enhanced buying power of Saudi consumers

Negative factorsRisk related to oil prices and the volatility of the same could affect the market, specifically to the petrochemical sector.

Although the global economic crisis is eased off, the fresh issues in the Euro Zone may affect the investor sentiment.

Source: Tadawul / FALCOM Database

4

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FUND OBJECTIVES

BASKET OF SECURITIES AS AT SEP. 30, 2011

FALCOM Saudi Equity ETF aims to provide investors with long term capital appreciation and growth. The Fund passively invests in the listed Saudi equities in order to achieve the results that correspond to the performance, before fees and expenses, of the Benchmark Index, namely FALCOM F30 Index.

SABIC (SABIC AB) 18.0% Saudi Kayan (KAYAN AB) 3.0% Al Marai (ALMARAI AB) 2.4% Sahara Petrochemical (SPC AB) 1.6% Makkah Construction (MCDCO AB) 1.3%

Al Rajhi Bank (RJHI AB) 16.3% YANSAB (YANSAB AB) 2.9% Ma'aden (MAADEN AB) 2.3% Jarir Marketing (JARIR AB) 1.8% Bank AlJazira (BJAZ AB) 1.0%

Etih d Eti l t (EEC AB) 6 4 % Al I B k (ALINMA AB) 2 8% J b l O (JOMAR AB) 1 6% P t R bi h (PETROR AB) 1 1%a sala . Al nmaa ank . . a al mar . e ro abig .

NIC (NIC AB) 5.7% Savola Group (SAVOLA AB) 2.8% Saudi Cement (SACCO AB) 2.5% Bank AlBilad (ALBI AB) 1.3% Southern Cement (SOCCO AB) 1.3%

SAFCO (SAFCO AB) 4.8% Saudi Electricity (SECO AB) 2.8% Dar AlArkan (ALARKAN AB) 1.2% Zain KSA (ZAINKSA AB) 1.2% National Shipping (NSCSA AB) 0.7%

Saudi Telecom (STC AB) 3.3% SIIG (SIIG AB) 2.3% Yamamah Cement (YAC CO AB) 2.2% Advanced Polypropy. Co (APC AB) 1.1% Qassim Cement (QACCO AB) 0.9%

SIPCHEM (SIPCHEM AB) 1 8 %

FALCOM SAUDI EQUITY ETF(Falcom30 AB)

RISK AND RETURN (DAILY) TRACKING ERROR

-1.0%

-0.5%

0.0%

0.5%

1.0%

29-M

ar

29-A

pr

29-M

ay

29-J

un

29-J

ul

29-A

ug

29-S

ep

29-O

ct

29-N

ov

29-D

ec

29-J

an

1-M

ar

1-A

pr

1-M

ay

1-Ju

n

1-Ju

l

1-A

ug

1-Se

p

Difference (Index vs NAV)

Tracking Error

Petrochemical 42.3%

Banks & Financial Services, 21.4%

TeleCommunication & IT, 10.9%

Agriculture & Food, 5.2%

Cement, 6.8%Real Estate , 4.0%

Energy &

Utilities, 2.8%

Industrial 2.3%

Retail, 1.8%Transport, 0.7% Cash, 1.6%

Investment,

PERFORMANCE vs BENCHMARKSECTOR ALLOCATION AS AT SEP 30, 2011

The Fact Sheet data is as of 30 SEP 2011. There is no guarantee that the Fund will continue to hold any particular securities or stay invested in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk. The information herein (other than disclosure information relating to FALCOM Financial Services and its affiliates) was obtained from various sources and we do not guarantee its accuracy. FALCOM Financial Services makes no representations or warran-ties whatsoever as to the data and information provided in any third party referenced source and shall have no liability or responsibility arising out of or in connection with any such referenced website.

GENERAL INFORMATION

PERFORMANCE RECORD UNIT PRICE

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5

FUND OBJECTIVES

GENERAL INFORMATION

BASKET OF SECURITIES AS AT SEP. 30, 2011

FALCOM Petrochemical ETF aims to provide investors with long term capital appreciation and growth. The Fund passively invests in the listed Saudi equities of the Petrochemical sector in order to achieve the results that correspond to the performance, before fees and expenses, of the Benchmark Index, namely FALCOM Petrochemical Index.

FALCOM PETROCHEMICAL ETF(FPETRO AB)

RISK AND RETURN (DAILY) TRACKING ERROR

90.00 95.00

100.00 105.00 110.00 115.00 120.00 125.00 130.00 135.00 140.00

Price

NAV

Index

-1.00%

-0.50%

0.00%

0.50%

1.00%

Difference (Index vs NAV)

Tracking Error

SABIC40.5%

NIC12.8%

SAFCO10.9%

Kayan6.8%

Yansab6.5%

SIIG5.2%

SIPCHEM4.1%

Sahara3.6%

Petro Rabigh2.5%

APPC2.6%

Cash1.5%

Petrochem1.1%

Nama0.8%

Alujain0.7%

Methanol0.5%

PERFORMANCE vs BENCHMARKSECTOR ALLOCATION AS AT SEP. 30, 2011

The Fact Sheet data is as of 30 SEP 2011. There is no guarantee that the Fund will continue to hold any particular securities or stay invested in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk. The information herein (other than disclosure information relating to FALCOM Financial Services and its affiliates) was obtained from various sources and we do not guarantee its accuracy. FALCOM Financial Services makes no representations or warran-ties whatsoever as to the data and information provided in any third party referenced source and shall have no liability or responsibility arising out of or in connection with any such referenced website.

PERFORMANCE RECORD UNIT PRICE

6

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FUND OBJECTIVES

GENERAL INFORMATION

PERFORMANCE RECORD YIELD AND RATE

To provide current income and liquidity consistent with short-term money market rates and to preserve the value of unit holder’s investments. The Fund provides investors with a Shariah Compliant investment solution that generates competitive market returns from short-term Murabaha investments with a high degree of capital preservation, superior liquidity and no foreign exchange risk.

RISK AND RETURN (DAILY)

4.50

Yield(%)

0.000.501.001.502.002.503.003.504.00

-07

-08

-08

-08

-08

-08

-09

-09

-09

-09

-09

-09

-10

-10

-10

-10

-10

-10

-11

-11

-11

-11

-11

SIBID 3Month

Dec

Mar

May Ju

lSe

pN

ov Jan

Mar

May Ju

lSe

pN

ov Jan

Mar

May Ju

lSe

pN

ov Jan

Mar

May Ju

lSe

p

FSMFLess than 1M th 3Monthson

4% -

7%

3 - 6Months33%

6 - 12Months56%

1

PERFORMANCEMATURITY PROFILE

The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.

FALCOM SAR MURABAHA FUND

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7

FUND MANAGER’S COMMENTSFALCOM SAR MURABAHA FUND

FALCOM Saudi Riyal Murabaha Fund’s yield was

0.75% as against the benchmark’s yield of 0.64%

(3m Saudi Interbank Bid rate) for 3Q2011.

The fund managers’ estimate on future interest

rates and locking funds for longer investment

periods have been the main reasons for the

outperformance, given the volatile scenario in the

market.

As Saudi Riyal is pegged to the US Dollar, the Saudi

Monetary Authorities have been following Fed’s

actions in the money market related matters.

Since Fed was very aggressively cutting down rates

to recover from the economic crisis, Saudi Arabian

Monetary Agency (SAMA) followed a similar move

by cutting Reverse Repo rate to 0.25% and Repo

rate to 2.0% during the crisis period and has been

maintaining that rate since then. The anomalies in

the interest rate differential of Saudi Riyal and USD

were minimized during the recent past.

The easing of monetary policy of SAMA led the

interbank rates to further decline in 2Q2009.

Subsequently, the interest rates have been almost

flat for the rest of the period until now. Further, the

rate difference between the short and long term

rates is maintained at a higher range compared to

the historical movement. Since inflation in Saudi

Arabia is primarily driven by the commodity prices

and housing rent, the increase in money supply

brought about by the lower interest rates would

have minimal impact on inflation.

As the fund managers strive to achieve the stated

objectives of the fund, the lowering money market

rates would have a negative impact on the return

in the short term. The returns are expected to

normalize with the recovery of the global economy

and improving credit market situation and the

corresponding actions of SAMA in the long run.

Outlook

Positive factors

The yield curve also signals the bottoming out of

interest rates.

Negative factors

As the European crisis is replaced for the Global

crisis, the possibility of improving interest rates

could be remote.

Source: Saudi Arabian Monetary Agency Reports

1M 3M 6M 12M1m Rate3m Rate6m Rate12m RateReverse Repo

Mon

ey m

arke

t rat

e (%

)

Rat

e D

iffer

entia

ls (%

)

8

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Q20

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FALCOM Multi-Asset Fund aims to diversify its investments over the short medium and long terms by allocating the majority of its assets to a broadly defined Shariah Compliant asset classes that comprise Murabaha transactions, Stocks, Sukuk, Structured-Products and Investment Funds. The fund will apply asset allocation techniques to optimize funds apportioning process in order to maximize returns commensurable with acceptable level of risk.

FALCOM MULTI ASSET FUND

FUND OBJECTIVES

GENERAL INFORMATION

PERFORMANCE RECORD UNIT PRICE

RISK AND RETURN (DAILY)

Cash1.63%

Murabaha1.94%

Equity96.43%

.

10.00

11.00

12.00

Multi Asset FundBenchmark

6.00

7.00

8.00

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

009

ASSET ALLOCATION PERFORMANCE

The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.

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9

FALCOM Multi Asset Fund recorded a negative

growth of -4.14% in 3Q 2011. There was no

change in the asset allocation of the fund during

the period under review. Allocation to Equities

has been increased to 96% whilst the remaining

is invested in cash/Murabaha. Since the funds

objective is to offer a long term return whilst

minimizing the risk, diversification of the assets

classes would help to achieve this objective.

An analysis of all the assets of all investment funds

in Saudi Arabia reveals that bulk of the assets

are in money market/Murabaha funds. This also

explains the appetite of the investors in light of

their risk return profile amidst the volatile market

conditions brought about by the global economic

crisis in 2008. However, there has been a gradual

recovery of the AUMs since 2009, though it was

relatively stagnant in 2010. The total AUMs have

been declining in 2011 on quarter on quarter basis.

This could be mostly due to the geo-political issues

in the regional and poor investor sentiment. The

investors have been risk averse of the last two

years and the Equity AUM saddles around SR 30

billion.

Outlook

Positive factors

The regional geo-political issues are being settled

and this would improve the investor sentiment.

High oil and petrochemical prices are expected to

enhance the profitability of Saudi companies.

Negative factors

Under the current low interest rate scenario, yield

on sukuk is expected to be at lower levels.

As the Saudi stock market is highly correlated

to crude oil price, any weakening of the oil prices

could affect the stock prices.

FALCOM MULTI ASSET FUNDFUND MANAGER’S COMMENTS

10

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11

FALCOM IPO Fund aims to invest its assets in the equities of public companies during their initial offering period and in the equities of early stage (two years) listed companies in Saudi Arabia, MENA region and other international markets. For the purpose of the Fund’s investments, all underlying companies that are targeted by the Fund will be Shariah compliant companies.

FUND OBJECTIVES

GENERAL INFORMATION

PERFORMANCE RECORD

FALCOM IPO FUND

From Fund Inception FundAverage Return 0.024%Standard Deviation 1.475%Return / Risk 0.016

RISK AND RETURN (DAILY)

Petrochemical Industries Sector

15.7%

Retail Sector0.5%

Real Estate Development

Cash24.4%

Building & Construction

Sector49.3%

Industrial Investment Sector

1.6%

8.4%Sector

850.00900.00950.00

1000.001050.001100.001150.00

650.00700.00750.00800.00

Jul-0

8Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-0

9Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-1

0Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-1

1Sep-11

ASSET ALLOCATION PERFORMANCE

UNIT PRICE

The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.

REPO

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11

FALCOM IPO Fund invests in Initial Public Offerings (IPOs) and the companies that were listed within two years in Saudi Arabia, MENA region and other international markets. As in the case of our Equity fund, our concentration is only on Shariah compliant companies. The fund managed to record a net asset value of SR 1,096.89 at the end of 3Q2011 compared to the opening NAV realizing some positive returns for the quarter. Further, most of the companies invested are yet to commence their commercial operations or to operate at decent activity levels in order to reflect the full potential of those companies and thereby the share price. The fund has so far invested only in Saudi IPOs and equities due to the fact that Saudi market played a dominant role in the IPO market, particularly in 2008 and 2009. However, we closely monitor the IPO opportunities in the regional markets and would participate in good opportunities.

According to Zawya, funds raised through IPOs during 3Q2011 by MENA companies was only USD 218.9 million which is a 66% decrease compared to that in 3Q2010. There were two IPOs, namely, United Wire Factories Co. and Hail Cement Co. in Saudi Arabia during the quarter under review. The geo-political issues in the region affected the investor sentiment which hit the regional stock markets badly. Thus, the issue managers faced with lot of challenges to value new issues with reasonable attractiveness to be successful IPOs. As the issues are being addressed and the

dust is being settled, we could witness some IPO activity in the regional markets during the rest of 2011. However, fresh issues emanating from some European economies may affect the global economic scenario again. OutlookPositive factorsThe IPO activities would gather momentum with improving investor appetite coupled with the recovery of regional markets, which were affected by the regional geo political issues.

According to Zawya, several IPOs including Saudi Aramco Total Refining and Petrochemical Co., Al Aqeeq Real Estate Development Co. and Arabian Oud Co are expected come into the market in 2011 which could have a major impact in the market.

Negative factorsLow price levels prevailing in the market and poor investor sentiments are major challenges faced by the new issuers as far as the valuations are concerned.

The recent political issues of some countries in the region have resulted in increasing the risk premium attached to the regional markets.

Recent economic issues in some European countries could affect the global economy.

FALCOM IPO FUND

3,000

2,500

2,000

1,500

1,000

500

-

6

5

4

3

2

1

02Q20091Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011

No. of IPOsAmt. Raised

2Q2011 3Q2011

5 5

3

2 2

1 1 1 1

0

2

No. of IPOs

FUND MANAGER’S COMMENTS

The investment objective of the Fund is long term capital appreciation and growth of invested capital. The fund would invest the money in sharia compliant listed equities in Arab Markets.

Period Fund Return Benchmark Date Fund

Since 1 Month 1.26% 0.20% Since One Month 9.374

Since 3 Months -5.56% -7.31% Since Three Months 10.051

Since 6 Months -3.90% -8.60% Since Six Months 9.878

Since 9 Months -7.71% -12.23% Since Nine Months 10.285

Inception (27-Nov-2010) -5.08% -8.54% Inception (27-Nov-2010) 10.000

2010 2.85% 4.20% 31-Dec-2010 10.285

2011 YTD -7.71% -12.23%

Type of Fund Shariah Compliant Management Fee (p.a.) 1.75% (of N.A.V.)

Inception Date 27-Nov-2010 Subscription Fees 1.5% of subscription amount

Fund Currency US Dollar Performance Fees 15% of the return above 10%

Inception Price 10.0000 Auditing Fees USD 6,800 annually

Current Price USD 9.4922 Valuation Day Bi-Weekly

Fund Net Asset Value USD 6,475,969.07 Shariah Advisory Fees 0.10% of NAV annually

Fund Manager FALCOM Financial Services Min. Entry for Individuals/Institutions USD 2,000 / USD 5,000

FUND OBJECTIVES

GENERAL INFORMATION

PERFORMANCE RECORD

FALCOM ARAB MARKET FUND

From Fund Inception Fund BenchmarkAverage Return -0.022% -0.038%Standard Deviation 0.754% 0.903%Return / Risk -0.029 -0.042

SABICKGL Logistic Co.SPIMACO DANA GASEmmar Properties

RISK AND RETURN (DAILY) TOP FIVE HOLDINGS

Saudi ArabiaOmanKuwait14.2%

Jordan1.9%

United Arab Emerates19.6%

Qatar15.6%

Eygpt2.7%

42.6%3.4%

10.50

11.00 Arab Market Fund

S&P Pan Arab Markets Shariah

8.50

9.00

9.50

Nov

-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-1

1

Aug-11

Sep-11

10.00

COUNTRY ALLOCATION PERFORMANCE

UNIT PRICE

The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.12

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“During the third quarter of 2011, GCC markets

showed remarkable resilience amidst a volatile and

negative international backdrop, due to heightened

concerns over contagion from Europe and fears of

an imminent slowdown in China.

The S&P Pan Arab Sharia Compliance Index was

down only -7.3%, vs. -17% for the MSCI World

Index and -22.46% for the S&P Emerging Markets

Index. We believe that this differentiation in

performance was mainly the result of the massive

spending undertaken by the GCC governments

as a reaction to the political instability, while

their international peers were overwhelmed

with managing their debt and cutting down their

expenses. Just to list few of the initiatives, the

government in Saudi Arabia distributed as a “Royal

Gift” 36 Billion US$ in unemployment and housing

benefits and committed to the construction of a

further 500 thousands residential units, while in

Qatar a salary increase of 60% was given to the

public sector and 120% to the army.

Despite the drop in liquidity typically seen in

the month of Ramadan, investors were well

positioned ahead of Q3 results, which saw a good

performance from the petrochemical and banking

sector in general. Egypt continued to be the worst

performing market in the region with the political

scene not yet clear, followed by Saudi which

was negatively hit by the strong drop in oil (WTI

dropped by 18%).

Qatar continued to be the star, closing the quarter

on a slight positive note (up 0.4%).

The Fund dropped by -5.56% during the quarter

outperforming its benchmark by -7.31%.

This outperformance has been the result of

a combination of an equities’ positioning into

domestically driven stock and an allocation of the

fund to cash of approximately 15%.

We strongly believe that the robust economic

fundamentals of the GCC are a key differentiator

relative to the rest of the world. This, coupled

with the improving fundamentals and attractive

valuations of a number of listed companies,

provides a strong foundation for sustainable

outperformance over the long term.”

FALCOM ARAB MARKET FUNDFUND MANAGER’S COMMENTS

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13

14

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30th SEPTEMBER 2011 QUARTER END REPORTFALCOM ASSET MANAGEMENT


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