The NBAD MENA Bond Fund is a Ucits IV clone of the firm’s existing Cautious Income Fund and part of a $700m strategy the firm launched nearly three years ago. The latest version was launched into the UK, Europe and Switzerland on 19 March this year.
Dispelling a popular misconception, Mark Watts, head of fixed income at the asset management group, explained that rather than the bank seeding the fund it quickly raised $110m in assets under management, largely from five or six European investors, and continues to attract inflows of around $1m per day.
This NBAD AM proposition offers exposure to a combination of government bonds, corporate bonds and, as Watts calls them, “quasi-govvies”.
“An example would be Ipic,” he explained, “a corporate that is 100% owned by the Abu Dhabi government.”
Partly because of the relative youth of the MENA bond market, there is little choice for investors who want a specific allocation to the Middle East and North African bond markets. Looking at some of the larger or more established global emerging market bond funds, very little is allocated specifically to MENA countries.
Aberdeen Asset Management – keen to raise the profile of its EM debt proposition given it is not encouraging new EM equity fund flows – has a £77.4m EM debt fund, launched in March 2011, with 37% in ‘other’ countries but none specifically in MENA; at the other end of the AUM spectrum, the Templeton Global Total Return Fund is a £15bn strategy that also has a high allocation to ‘other’ geographies with zero specifically in MENA.
The contrarian view
One exception is First State’s Emerging Markets Bond Fund, launched in October 2011 and run by the much respected Helene Williamson, that has 10% in the Middle East and 7.7% throughout Africa.
Watts uses the New Capital Wealthy Nations Bond Fund as a comparison, a fund that has recently upped its holdings to the region, adding to its Emirates NBD 4.625% 2017, for example.
The NBAD MENA Fund’s current regional allocation is very focussed, centred on the United Arab Emirates (81.7%) with the rest investing in Saudi Arabia, Turkey and Oman, with just under 6% in cash.
In terms of its credit breakdown, 29.3% is in A-rated bonds, 28.3% in BB, 17.9% in B, 12.4% in BBB and the balance, 12.1%, in AA-rated securities.There are still risks attached with any MENA investment with Watts listing volatility, choppy markets, social and political problems and a possible currency crisis brewing for avoiding investment in certain countries, naming Egypt as one of them.
“We favour Abu Dhabi and Qatar because of their quality, Dubai because of its mis-priced bonds and Saudi as a market. We are more cautious on Bahrain and Kuwait,” Watts added.