What used to be known as the Qatar Investment Fund and is now called the Gulf Investment Fund has long been on my radar. Last year it had something of a rough patch as the GCC states picked a fight with the Qataris, forcing the fund to expand its remit to the wider Gulf region. That restructuring is a work in progress (the fund is still 37% invested in Qatar) but it seems that the diversification has come at an opportune time. The GCC markets look in much better shape than wider emerging markets, helped along by a surging oil price and the economic liberalization of the House of Al Saud. The planned “privatization” of Aramco will, no doubt, stir more interest in the region as will the decision to include Saudi Arabia in the MSCI EM index. It’s been reported that US$3.4 billion in equity inflows have already moved into Saudi in anticipation of MSCI and FTSE inclusion.
So, how’s GIF performed over the last few months? In its 2nd quarter report, the fund announced an increase in NAV of 5.4% against a benchmark return (S&P GCC Composite index (S&P GCC)) of +3.6 percent. Over the first half of 2018 the fund’s NAV is up 12.3 percent whilst the S&P GCC index rose 9.8 per cent. According to the fund “since the investment policy widened from Qatar focused to Gulf Cooperation Council (GCC) focused in December, GIF’s NAV is 21.7 per cent higher and the S&P GCC 13.0 percent higher.”
The fund reports that Saudi was the best performing market over the quarter, while Dubai lagged the region, amid concerns about its Real Estate & Construction sector. Other GCC Markets had mixed performance.
Top 5 Holdings
|Company Name||Country||Sector||% share of NAV|
|Commercial Bank of Qatar||Qatar||Financials||9.7%|
|Qatar Gas Transport||Qatar||Energy||8.4%|
|Qatar Electricity & Water Co||Qatar||Utilities||7.8%|
|Al Rajhi Bank||Saudi Arabia||Financials||5.1%|
|National Bank of Kuwait||Kuwait||Financials||4.1%|
According to GIF, holdings in Saudi, Kuwaiti and the Emirati companies were 39.2 per cent, 10 per cent and 9.6 per cent of the fund, respectively. Reflecting the portfolio rebalancing, 4.5 per cent of the fund was in cash as at 30th June (1Q18: 10.3 per cent). Not unsurprisingly the fund managers are optimistic about the region –
“The GCC nations are adapting to changing global economic conditions, but challenges remain, including relatively high local unemployment in certain states, a heavy reliance on expatriate workers, and the ongoing dependency on the government sector to drive growth. Diversification and reducing the budget deficits are positive developments. If GCC companies can weather the near-term impacts of the many government reforms that are underway, they could outperform global peers in the near to medium term.”
It all sounds positive and I’d still be long the GCC countries vs mainstream EM. But the discount on the fund remains stubbornly high – its currently running at around 15% which strikes me as a tad excessive. With dividends running at around 3%, the discount should be closer to 10% IMHO.