Last month the research division of investment company Kuwait Financial Centre, better known as Markaz, released a report on the current climate of the asset management industry in the GCC. It highlights that the assets under management derived from 325 funds in the region – both conventional and Islamic – stood at US$28.9 million as at the 31st March 2011.
Markaz also notes that while conventional funds still dominate the asset management industry in the GCC (176 funds as opposed to 149 Islamic funds), assets under management (AUM) of these Islamic funds constitute 61% or US$17.6 billion of the total funds landscape.
The figures differ from those of research firm Cerulli Associates in its third quarter Asia Pacific report released last week, which place the number of Islamic funds in five GCC countries (Saudi Arabia, Kuwait Bahrain, UAE and Qatar) at 247 with total AUM of US$21.36 billion.
However, both reports agree on the increasing popularity of fixed income funds in the region. Cerulli states that in 2010, Islamic fixed income funds constituted 41.2% of the market, trailing only slightly behind equity funds which held 42.1% of total asset classes. Cerulli believes that GCC investors (both men and women) have over the years developed a strong preference for investing in this asset class. It adds that even during the bull market of 2007, 29% of investments were placed in fixed income funds.
According to the Markaz report, fixed income and money market funds provided better returns than equity funds in the GCC in the first quarter of 2011. Islamic fixed income funds were the top performers in the GCC (+1.4%) and Saudi Arabia (+0.2%).
It suggests that the poor performance of these equity funds, with the majority posting negative returns, could be attributed to the plunge in the stock markets across the GCC region during the first quarter of 2011.
However, the market has begun to pick up in the region with issuances mainly in the UAE and Saudi Arabia. Data provided by Dealogic reveals that during the first half of 2011, five Sukuk were issued out of the Middle East worth US$2.4 billion. These issuances (from the UAE and Saudi Arabia) formed 18.6% of total global Sukuk issuances. HSBC Amanah is also optimistic about the Sukuk market this year, forecasting more issuances out of Europe, Middle East and Asia.
As long as the global markets remain volatile, investors – retail or institutional – will continue to diversify their investments into safer assets and are thus likely to place a higher proportion into fixed income funds. With a rosy picture painted for the Sukuk market, asset managers handling Islamic fixed income portfolios will have a good variety of issuances to pick up and generate alpha for their funds.