In Turkey, Kronfol highlights how the portfolio has exposure to a couple of Turkish banks, one of which is a special situation his team has been involved in for a while. As for Saudi Arabia and the wider GCC, he feels this is a part of the world that still has some of the strongest credit metrics anywhere.
Strong credentials
“Notwithstanding the fact that oil prices are low and that some GCC countries are now beginning to run budget deficits, if you look just at their financial positions, in absolute terms as well as relative terms, they would still stand out in the world in terms of the strengths of their resources.
“Despite the fact we are now entering a period where credit will deteriorate, there is still value in many of the GCC names.”
Turning to south-east Asia, countries such as Malaysia and Indonesia have suffered a great deal over the past year, especially in terms of their local currencies, he says. But he argues the sukuk market in general is well positioned in the global fixed-income market and the fund’s exposure to investment-grade Sukuk have an average duration of four years, which is significantly lower than other fixed-income sectors.
“In the recent past or even the past decade, this is a market that has delivered competitive returns with fairly level volatility and low correlation to other sectors.”
Those characteristics are probably going to persist because of the low duration, he says, but also the good investor risk profile in the sukuk markets, which has been an important anchor in volatile markets.
Kronfol says Islamic financial banks and institutions continue to grow and gather deposits, and that the demand for sukuk continues to rise as fast if not faster than the supply coming to the market.
The top holding in the global fund is GEMS MEA Sukuk, which he says is interesting because it is not involved in the usual sort of area that the portfolio is exposed to, namely as a key education provider for more than 90,000 students.
Rising demand
“It came to the market with this deeply subordinate transaction, almost an equity-like instrument. At the time, it had a fairly high coupon and the company was leveraged, which needed some restructuring that we were aware of.
“Since then, it has delivered and it has had an increase in capital.”
