Derayah, a leading investment fund in Saudi Arabia, has posted a growth rate of 8 per cent in its assets over the past five years from SR60 billion ($16 billion) to SR89 billion.

However, the stock market index has dropped during the same period from 8,200 to 5,600 at an average annual decline rate of 7.4 per cent, said the fund’s managing director Mohamed El-Kuwaiz at the recently concluded Middle East Fund Forum 2009 in Bahrain.

"Based on our analysis of performance over various periods of time, Saudi equity funds managed, as a group, to outperform the index as a whole,” El-Kuwaiz said.

“This is somehow expected due to the expertise, resources and information available to the investment funds compared to individual investors,” he added.

El- Kuwaiz presented a worksheet entitled "Overcoming the Global Crisis: the individual investor's perspective" in which he highlighted that the market for mutual funds in Saudi Arabia is still small compared to its peers around the world, as investment funds form less than 2 per cent of the total local market capitalization, whereas this reaches 9 per cent in other developing countries and 20 per cent in developed ones.

He also mentioned that 80 per cent of the investors in Saudi Arabia invest less that 5 per cent of their savings in investment funds, whereas 40 per cent of investors do not currently invest in investment funds.

"After the global economic crisis, there was disappointment with mutual funds just as with other markets and investments,” El-Kuwaiz said.

El-Kuwaiz attributed such disappointment to many investors’ lack of understanding of the fact that the performance of mutual funds, whether positive or negative, is still confined to the limits of the markets they invest in.

Many individuals invested in mutual funds thinking that they will make profits in the up years but will not suffer any losses in the down years, in other words they treated their equity investments as if they were guaranteed, he pointed out.

There has been also absence of independent advice , as most investment companies focused on selling the products most in-demand without taking into consideration to what extent these products suit the investor's needs and their ability to tolerate risks.

He added: "After the global economic crisis, investors are focusing on four elements: first is the focus on achieving stable returns over a long period of time instead of seeking very high returns which could lead many investors to lose their savings seeking imaginary profits.”

“The second element is the focus on diversification in various markets and various asset classes to reduce risks,” El-Kuwaiz continued.

“The third element is turning to professional and institutional management, especially in markets and asset classes in which the investor has no sufficient experience such as international equities, Murabaha and Sukuk.

“The fourth and last element is focusing on the evaluation of different fund managers, particularly on qualitative metrics, most important of which is the alignment of interests and limiting the potential for conflict of interests."

El-Kuwaiz stressed that the formation of Derayah came as a natural result of the global crisis and the severe losses the individual investors suffered due to lack of diversification and insufficient independent advice.

He also said that Derayah focuses on serving the individual investor as a priority, which was apparent through its recent launch of the first online mutual fund supermarket in the Middle East, which enables investors to diversify their investments in various funds across different markets, which are managed by different investments companies. – TradeArabia News Service