Factors that make Saudi Arabia largest mutual funds market in MENA

The mutual fund market in Saudi Arabia remains the largest in the Middle East and North Africa (MENA) region, with funds displaying considerable potential to deliver substantial returns to investors, experts tell Argaam.

In a recent report, Argaam tracked the performance of 28 out of almost 251 Saudi mutual funds, with net assets of more than SAR 100 million, for 2020.

AlAhli Saudi Small and Mid-Cap Equity Fund, managed by NCB Capital, was the top performer, with a return of 22%. It was followed by SAIB Saudi Companies Fund, managed by Alistithmar Capital, with a return of 21%.

“Saudi Arabia is currently at the forefront among its GCC peers on the back of the financial instruments and assets under management (AUM). Mutual funds contributed significantly to this development with new products that covered most asset classes,” Faris Hammouda, senior manager – asset management at ANB Invest, said.

According to Junaid Ansari, head of Investment Strategy & Research at KAMCO Invest, the Saudi Stock Exchange (Tadawul) has ample stocks to offer sector-level exposure to all kinds of investors. “The Kingdom has elaborate plans to expand the exchange in terms of both new listings as well as the kind of products being offered,” he added.

Equity versus debt

Experts say that while mutual funds are considered safe investment tools, first-time investors with a high-risk appetite should contemplate having a healthy mix of equity and debt funds in their portfolio.

“If the investor appetite is for high risk, then mutual funds will be able to position them for equity, real estate and other assets classes, offering a strong return in the medium to long-term,” Ahmad Al-Shabanah, head of asset management at FALCOM Financial Services, said.

He further noted that private and government institutions in Saudi Arabia have considerable exposure towards debt mutual funds, which currently hold higher AUM than equity mutual funds.

Meanwhile, Ansari pointed out that the debt market is still at a nascent stage in the Kingdom. “However, things are changing quickly, with the slew of bonds issued by the government and establishing a robust yield curve at different maturities.”

Offering diversification

COVID-19 has not just impacted the appetite for investment but also radically changed the spending preference of investors, whereby safe returns and wealth preservation have become the most sought after options.

“We have witnessed a shift among investors to move to income and capital growth assets from the previous high concentration for demand deposits. In such an environment, mutual funds play a key role, as they cater to all different investor types,” Al-Shabanah said.

He further clarified that in the fixed income space, mutual funds possess the ability to offer structured products that will enhance returns even under the current volatile interest environment.

With majority being retail investors, diversification achieved through mutual fund investments resulted in higher returns across the Saudi market. “Investment companies in Saudi Arabia offer a broad range of mutual funds products to improve savings rate among retail investors,” Ansari stated.

Meanwhile, it is also important for investors to maintain longevity of portfolio and wealth creation. Hammouda emphasizes the importance of investing in the right category of mutual funds based on the situation.

“With many opportunities available, investors should be aware about the type of mutual funds that are compatible with their objectives and their ability to take risks,” he concluded.

Disclaimer: The views and opinions expressed in this article are for informational purposes only, and should not be viewed as investment advice.

Write to Paromita Dey at paromita.d@argaam.com