Higher risk, higher return: ABL Asset Management to set up Islamic equity fund

Aims to increase share of Islamic funds to 50% of its retail business.

KARACHI:

The biggest asset management company of Pakistan – ABL Asset Management – is setting up an Islamic equity fund to tap the growing market of investors, who want to put money in stocks of Shariah-compliant companies only.

The upcoming Islamic equity fund will entail higher levels of risk and return as opposed to the Islamic Income Fund, which is the only Shariah-compliant fund that ABL Asset Management currently offers with a relatively lower level of risk and limited returns.

“I can’t state the exact date of its launch, but we’re going to set it up sooner rather than later. All I can say right now is that it should be up and running in 2013,” ABL Asset Management CEO Farid Ahmed Khan told The Express Tribune in an exclusive interview on Thursday.

By the end of October, assets managed by ABL Asset Management were Rs83 billion, which translates into a share of more than 20% in the industry’s total assets of Rs407 billion.

“We want to expand the range of our Islamic funds. Next, we’re going to set up Shariah-compliant pension and commodity funds,” he says, adding the company aims to increase the share of Islamic funds to 50% of its total retail business.

Risk averse?

Khan says most investors in Pakistan shy away from high-risk equity funds. One of the many reasons behind their risk aversion is the 2008 stock market crash. For example, the share of equity funds in net assets of all open-end funds at the end of fiscal 2008 was almost 36%. However, at the end of the first quarter of fiscal year 2013, the corresponding figure was only 17%.



On the contrary, assets in money market funds increased phenomenally from just Rs114 million to Rs127.3 billion over the same period. “Money market funds were introduced after the 2008 stock market crisis primarily because people wanted a less risky class of funds that promised relatively stable returns,” he says.

Interestingly, while assets in conventional equity funds decreased by half between June 2008 and September 2012, mainly because of the stock market crash, assets in Islamic equity funds of the industry rose by 31% from Rs7.4 billion to Rs9.7 billion. It suggests that people are still willing to invest in aggressive equity funds provided they deal in Shariah-compliant stocks.

An overwhelming majority of ABL Asset Management clients tend to go for fixed-income funds, according to Khan, a pattern that holds true for the entire industry as well.

“Out of the total Rs407 billion, I’d say over 80% belong to institutional investors. They generally don’t go for equity funds. As for the remaining 20% assets owned by retail investors, I believe half of them are invested in equity and the rest are put in fixed-income funds,” he notes.

Retail investors

Most retail investors of ABL Asset Management are 35-50 years old, according to Khan. Most of them have at least high school certificates and tend to be self-employed.



“About 20% of our retail investors can be described as white-collar, urban professionals working in the services sector,” he says. The average ticket size – or the investment volume per investor – is Rs300,000, he adds.

Up to 70% of the retail business of ABL Asset Management comes from Karachi, Lahore and Islamabad, while the remaining 30% business is generated from the rest of Pakistan.

“I don’t know the precise figure, but I believe that the total number of retail investors in Pakistan’s mutual fund industry is less than 250,000. Many retail investors also maintain multiple accounts at different AMCs,” he says.

Khan says the mutual fund industry should gradually and collectively move towards electronic distribution channels to develop a stronger retail footprint all over Pakistan.



“Mobile and the internet can help tremendously in expanding the retail base of the mutual fund industry. It’s necessary because individual companies don’t have resources to establish distribution centres in every corner of the country,” he says.

Published in The Express Tribune, December 7^th, 2012.