EEF pursues both income and capital growth

The well-established Emirates Equity Fund remains focused on capital appreciation but has added income distribution as a new sub-objective. This inclusion of an income stream reflects changing preferences of investors, says Emirates Financial Services General Manager Suresh Kumar.

The EEF is the largest domestic mutual fund in the UAE and is managed by Emirates Financial Services, a wholly-owned subsidiary of Emirates Bank International. Since mid-2002 investors have been paid almost 14% in income distribution. In the same period there was a 15% growth in the capital value of the Fund.

'Investors do feel comforted that there is a regular income distribution, even if they may not need the liquidity,' says Mr. Kumar.

'In the late 1990s, many investors sought multiple-digit growth rates on their investments fuelled by the spectacular 'dot com' valuations. However, the priority has now clearly shifted to capital protection as well as some reasonable return with income on investments that is higher than the low interest rates available on bank deposits.'

For a limited period EFS is offering a reduced front-end fee of 0.5% for all subscriptions above Dhs100,000 ($27,225). Otherwise, the minimum investment in EEF is as low as Dhs10,000 or $2,722.

This fund's performance certainly stands out as positive compared with the dismal performance in some of the global equity markets. Besides, the EEF has been a far more stable and consistent performer in the last few years.

The EEF allows for subscriptions on a weekly basis and redemptions on a monthly basis. It is quoted in the Dubai Financial Market. An this is one of the few domestic funds available to both UAE nationals and foreigners who wish to participate in the UAE bourse by way of a local institution with excellent credentials.

Mr. Kumar adds that he expects EEF to continue to perform well. The objective will be to achieve atleast a low double-digit return per annum. He notes that the UAE economy is in a strong growth phase. And not being a mature economy, it does not have the burden of unfunded social security overhang or unemployment issues.

He feels that the outlook of the financial sector in the UAE remains positive and that risk management is a lot more robust in the system than in the past. In his view, the telecom sector will also continue to generate large cash surpluses and profitability will remain strong.

The UAE market is trading, on an average, at a price/earnings ratio of 14.5. 'Therefore, it is still attractively priced; especially if one were to take into account, the projected forward P/E. Corporate earnings of listed companies remain in a good growth trajectory. New ideas, concepts and initiatives are well rewarded, says Mr. Kumar.

However, Mr. Kumar does not anticipate the kind of 140% surge in share prices witnessed during 1997-98. Nor does he expect the UAE to emulate the upsurge in the Saudi Arabian and Kuwait stock exchanges seen in recent months.

He says that what we are witnessing in the UAE is a sensible upswing. Investors are not getting carried away, because of past experience. 'Some are being opportunistic and are trading actively but others limit themselves to blue-chip local stocks only,' he points out.

'All emerging markets are prone to bouts of irrational exuberance but the steps taken to strengthen the markets and regulation, will minimize such market manipulative mechanizations.'

If and when the UAE experiences another surge in share prices, the EEF would appear to be a sensible and liquid opportunity for investors to sit and wait for such short term gains. Meantime, during the waiting period, there is the benefit of a regular income stream in a fund like the EEF.