The fund will be benchmarked against the MSCI Arabian Markets excluding Saudi Arabian index, which includes the United Arab Emirates, Kuwait, Qatar, Bahrain, Oman, Egypt, Jordan, Morocco and Tunisia. However, what evidence is there that funds invested in MENA assets are providing a reasonable return against risk taken through this or any other fund available?
One hurdle is immediately identifiable: the lack of funds with exposure to all constituents in the MSCI index mentioned.
Financial Express data suggests there is but one other fund currently offering exposure to all nine countries – although other funds may offer exposure to a lesser number of constituent markets in the index. This is the Luxembourg domiciled Silk Arab Falcons Fund, which launched in March 2009. Over a six month period the fund returned 5.74 per cent and 12.36 per cent over a three month period. Other funds, such as those in the chart below, offer varied exposure to MENA.
Performance of MENA funds over 1-yr
Source: Financial Express Analytics
The lack of a larger number of retail funds invested in all markets represented by the MSCI Arabian Markets ex Saudi Arabia index makes it difficult to draw firm conclusions on performance and volatility.
Further analysis identifies 993 funds with some exposure to the Middle East – but not North Africa. Of these, 38 have a 60 per cent or more weighting to the region. None are UK retail UT and OEIC funds.
Given that the search extended to both open and closed ended funds, it should be noted that of the 38 funds with the higher weighting, the best performer a listed investment company: Epicure Qatar Equity Opportunities Fund plc. The Isle of Man domiciled vehicle has a 98.70 per cent exposure to the Middle East. Over a one-year period to 8 March 2010, the fund returned 87.82 per cent, against risk of 36.68 per cent.
Looking beyond the MSCI index that will be used by the Barings fund, it is worth noting funds exposed to Egypt and Turkey. Both have young and growing populations - combined it is over 150 million – and both represent diversified economies less reliant on a single commodity such as oil.
Filtering by a 5 per cent weighting to each of these two countries throws up 19 offshore and life and pension funds. Luxembourg domiciled Franklin Templeton Emerging Markets Smaller Companies Fund was the best performer of these returning 124.74 per cent over one year against a risk score of 18.78 per cent - among the lowest of the 19. Its country weighting is 5.36 per cent to Egypt and 7.83 per cent to Turkey.
Looking to IMA sectors, the data suggests there are 12 funds with a 5 per cent exposure to either Egypt or Turkey, but not both simultaneously. These include the Aberdeen European Frontiers Fund, the Jupiter Emerging European Opportunities Fund, and Investec’s Africa and Middle East Fund.
Barings' Ghadir Abu Leil-Cooper, who is to manage the provider's MENA fund being launched says valuations in the Middle East and North Africa (MENA) region are good.
While it is true a number of MENA countries are oil-rich, there are efforts to diversify away from oil, to generate other opportunities once production of that commodity runs out.
Expectations are that the MENA region population will grow by 40 per cent in the next two decades, providing long-term consumer growth potential.
"A young and growing population ensures that oil and gas are not the whole story. Areas such as financial services and tourism have also experienced strong growth, while governments have made significant commitments to develop world-class infrastructure across the region, providing a source of economic stimulus," she says.