The mutual funds industry of Saudi Arabia has received vast amount of attention. This industry has shown a remarkable growth over the last few years. It maintains the largest position in Middle East North Africa (MENA) region in terms of asset under management.

Saudi mutual fund domain witnesses a change in the dynamics, with a significant increase in the number of Shariah-compliant funds. This change indicates an increase in demand for Islamic investment opportunities primarily due to majority of Muslim investors in the region. The industry is divided into Shariah and conventional types, where 160 funds are Shariah-compliant and 80 funds are conventional.

Of these, 160 Shariah-based funds are managed by 25 fund managers, 78 funds are globally focused and the remaining 82 funds are locally focused. Saudi Shariah-compliant funds are further divided into 14 categories, where the trade finance local funds category with 19 funds under management dominates a market share of 62 percent. Local stock covers 17 percent of the total Shariah-based funds with 39 funds.

Year-to-date (till Nov. 14, 2013), performance of Shariah-compliant funds remains positive, where 143 Islamic funds reflect an appreciation and 14 funds show a decline while 3 funds remain unchanged. Maximum gain records 44.78 percent and maximum decline logs 14.03 percent.

HSBC Saudi Freestyle Equity Fund turns in a splendid performance among all Islamic funds, achieving this maximum gain of 44.78 percent. HSBC GCC Equity Fund and Jadwa Saudi Equity Fund follow it, marking YTD gains of 44.19 percent and 38.29 percent respectively. Top six players are dominating a total market share of 88 percent with regards to Islamic funds' assets under management.

NCB Capital is the largest asset manager in Saudi Arabia, controlling assets under management amounting to SR31.5 billion. It captures 37.62 percent market share with regards to assets under management and 15 percent in terms of the number of Islamic funds.

Samba Capital and Riyad Capital appear to be other key players, holding a market share of 15.9 percent and 15 percent, respectively.

Year-to-date performance of Saudi conventional funds also remains positive, where 69 conventional funds reflect an increase and 11 funds show a decrease. The highest gain in conventional funds has been seen in Bakheet IPO Fund with YTD change of 47.99 percent. It is followed by Morgan Stanley Saudi Equity Fund and HSBC Saudi Equity Fund. The unit price of both increases by 40.37 percent and 40.24 percent, respectively.

According to the Saudi Arabian Monetary Agency (SAMA) data for recent quarter of 2013, industry's assets under management value appreciated to SR103.4 billion, an increase of 17.36 percent from the year end 2012 level. Domestic assets are SR79.2 billion, a 76.7 percent of the total Saudi domiciled funds' assets. Whereas, foreign assets are SR24.1 billion, an increase of 32 percent over the year ends 2012 value.

Assets of investment funds fall under 9 types, where domestic money market instruments contribute a major portion over SR47 billion or 45.5 percent to the aggregated value of assets. Domestic shares type assets achieve a share of 22.2 percent and increased by 19.52 percent on year-to-date basis ending third quarter of 2013.

The total mutual funds in Saudi Arabia increased to 243 by the end of third quarter 2013. 233 Saudi funds are listed as open-ended while only 10 funds are listed as close-ended. However, the number of subscribers is reduced to 261,544, a five percent decrease from the year end 2012 level. The highest reported subscribers were 568,284 at the end of 2005. Later, subscribers' number reduced in a consecutive manner.

In terms of objectives, Saudi Investment funds are classified under four classes namely growth, capital growth, capital preservation and income. Break down by fund assets shows that growth classified funds dominate the market with a share of 48 percent for assets under management at end of the third quarter of 2013. Income classified funds represent a share of 31.42 percent of the total AUM, while capital preservation funds' assets a share of 17.8 percent only.

— Mushtaq Ahmed is senior financial analyst at Zughaibi & Kabbani Financial Consultants