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Sukuk fund outlook from Rasmala.

The predominant tone in October was one of "risk on" with fluctuations in $ interest rates having little bearing on Sukuk pricing in the region. Nervousness in the international market merely resulted in the local market pausing for breath before soldiering on once positive sentiment returned.

Against this backdrop, the hunt for yield continued apace and this was reflected in the strong performance of some previously unloved but higher yielding names in the conventional space i.e. Dubai Holdings 14s and 17s which increased by more than two per cent and three per cent respectively on the month. In the Sukuk high grade space, DP World 17s and Dubai Government 22s were two standout performers increasing 2.4 per cent and 2.3 per cent respectively on the month.

As expected, issuance from the financial sector in Qatar dominated the Sukuk primary market issuance. A rated Qatar Islamic Bank closed a very successful $750 million five year issue at 2.5 per cent (1.36 per cent inside their previous foray into the Sukuk market in 2010) and A- rated Qatar International Islamic Bank closing a $700 million debut five year issue at a very respectable 2.69 per cent. Both issues were very tightly priced on the back of overwhelming demand and have subsequently traded marginally above par.

The Rasmala Global Sukuk Fund participated in both new Qatari issues which resulted in the geographic allocation to Qatar increasing from 18.4 per cent to 23.1 per cent, the largest exposure in the fund by geography, followed by Dubai with 18.8 per cent and Saudi, Abu Dhabi, Bahrain and Turkey all around 10 per cent.

The fund remains relatively defensively positioned with the weighted average credit rating remaining unchanged at A3 and a modified duration of 3.97 years (September 3.87 years). The Fund returned 0.88% in the month of October, lifting the net return since inception (30 April 2012) to 4.74 per cent. The y-t-m of the fund remains broadly unchanged at 2.59 per cent (September 2.57 per cent).

The technical position in the region remains constructive and this is expected to remain the status quo whilst $ interest rate expectations are low and the global economic backdrop challenging.

The Rasmala Global Sukuk Fund invests in a portfolio of Shari'ah-compliant assets comprised primarily of investment grade government, government related and corporate Sukuk and other similar financial instruments diversified by issuer, sector, geography and duration. The fund is dynamically managed and targets both income and capital appreciation. The fund expects to distribute semi-annual dividends on the 30 June and 31 December.

2012 CPI Financial. All rights reserved.

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Publication:CPI Financial
Date:Nov 18, 2012
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