JEDDAH, 23 June 2003 — Five years ago the idea of an equity fund in Saudi Arabia operating Shariah compliant principles was greeted outside the Kingdom with some skepticism. Since its inception in June 1998, the AlAhli Saudi Trading Equity Fund (STEF) has successfully confounded its critics with outstanding returns. “If you subscribed a year ago, by now you would have had a growth of 21 percent,” said Business Development and Marketing Manager for Investment Services of the National Commercial Bank (NCB) Rajeh A. AlHarithi. “Over the last three years the yield would have been 92.3 percent.” Conforming strictly to Shariah investment principles and choosing large capital stocks with attractive financial ratios and an above average expected growth in profits, the fund has prospered. The fund manager avoids “speculative stocks” and follows a “buy and hold” policy. “The fund was designed to invest in Saudi equities,” AlHarithi said.
“The objective is to generate long-term capital growth through investing in Saudi companies on the Saudi stock market.” Shariah investment parameters have proved to be no restriction on delivery of high returns. “NCB has been very successful building Shariah compliant funds,” AlHarithi said. “Today we have 14 Shariah compliant funds under our umbrella, of which one is the Saudi Trading Equity fund.” That narrow range of investment has proved worthwhile. It is now the top-performing mutual fund among all the 128-plus funds available in the Kingdom. They spread their investment globally to a greater or lesser extent; however STEF restricts its portfolio exclusively to Saudi companies. Currently, 21 percent of the fund is invested in Saudi Telecom, the largest stock on the stock-market. STC is expected to show strong growth in profits — more than 150 percent — for 2003, especially as it continues to benefit from its monopoly on fixed and mobile telephone lines in the Kingdom.
Supported by the environment of economic reform in the Kingdom, current high oil prices — the WTI average since the beginning of 2003 is $31.60 per barrel, the highest since 1982 — and high levels of liquidity, most companies are showing very positive results.
“This is a long term fund,” AlHarithi explained. “Our investment is intended for a number of years, usually a minimum of five years. Of course, earlier withdrawal is possible since the fund offers twice weekly liquidity.”
Compared with other funds around the world, STEF matches up very favorably. “When you compare the US equities with Saudi equities, Saudi equities have outperformed them quite significantly.”
STEF appeals to small investors. With a low entry level of commitment (SR5,000) and a long-term policy, small and individual investors make up around 40 percent of the total investor base. Business investors tend, AlHarithi said, to prefer the flexibility of short-term returns and redirection of investment capital.