Rohit Kumar, CFA Equity Research Analyst, Financials
Rahul Shah Head of Financials Equity Research
Aug 08 2019
GULF INVESTMENT FUND
Q2 19: Outperformance continues. Saudi exposure reduced, cash weighting raised
The fund outperformed its reference index in Q2 19, with NAV rising 4.1%, higher than the reference S&P GCC Composite index’s return of 1.0% during the quarter. We attribute this to good stock selection by the investment adviser. The top 5 holdings, particularly Emirates NBD, Commercial Bank of Qatar and Gulf International Services, performed well during the quarter. In addition, the fund was underweight in Saudi Arabia (flat during the quarter) and was overweight in Qatar (up 3.4% qoq), which also contributed to the outperformance.
Significant reduction in exposure to Saudi Arabia. Saudi Arabia is now 27.6% of total NAV compared to 41.5% in Mar-19 and 44.0% in Dec-18. We believe the reduction in exposure is due to the investment manager’s concerns of expensive valuations following strong index-related flows over the past couple of years.
GIF’s share price is currently trading at a 10% discount to NAV, compared to an average discount of 16% in 2018 and 15% since inception. We think there is scope for this discount to close as: i) the fund’s strong performance track record is continuing; and ii) the Board is committed to launching a tender offer equal to 100% of share capital in 2020, subject to shareholder approval.
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