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PSX boom leading more investors toward mutual funds

Interview with Ms Umber Tanya Ansari – Head of Marketing and Distribution, UBL Fund Managers

PAGE: IN YOUR OPINION, WHAT IS THE IMPACT OF THE ASSET MANAGEMENT INDUSTRY ON THE OVERALL ECONOMY OF PAKISTAN?

UMBER TANYA ANSARI: Globally, in both developing and developed countries, mutual funds are the first option that people look to for saving and investing. However, in Pakistan, to say that the asset management industry currently displays substantial room for growth, is a considerable understatement! In the last five years, the total assets under management of asset management companies have grown more than 400 billion Pak rupees. This is because of the lucrative returns that mutual funds are churning out, and an increase in investments being made by clients because of those returns.

PAGE: WHAT ARE YOUR VIEWS ABOUT THE RECENT PERFORMANCE OF THE PAKISTAN STOCK EXCHANGE (PSX)?WHAT IS THE IMPACT ON THE MUTUAL FUNDS INDUSTRY?

UMBER TANYA ANSARI: The Pakistan Stock Market has shown tremendous performance in 2016 – posting a gain of 46%.Not only did this pin us as the best performing stock market in Asia for the year, but also as number 5 in the world! The integration of the local bourses — Karachi Stock Exchange, Islamabad Stock Exchange, and Lahore Stock Exchange – into one was a bold step toward attracting foreign investors, and provides an efficient and transparent market.

In part, we can also attribute market growth to PSX’s inclusion in the emerging markets category by MSCI – another boon for foreign investors. The rapid growth of the market can be analyzed through the massive inflow in investments and PSX touching the historical high of 50,000 points. Not only has foreign interest risen in the PSX, but local investors’ confidence in the market has also increased – highly evident in the fact there has actually been net foreign outflow and the market still continued its upward trend! It’s exciting and phenomenal.

As far as the mutual funds industry being impacted – well, I’m quite elated to report that, not only is our industry impacted by the market growth and boom, but it is also now large enough to be impacting the growth itself! If you look at the size of pure equity and equity-based funds, they have now, especially on a combined basis, become large enough to move the market – this is great and it very clearly reflects an increase in confidence of investment through mutual funds. I think people want a piece of the market return, but don’t know how to invest directly and manage stocks, so they’re turning more and more to us for our expertise, and trusting that we will get them a piece of the pie.

PAGE: WHAT ARE YOUR VIEWS ON THE ACQUISITION IN PSX BY CHINESE INVESTORS AND HAS THIS EXPANDED THE ROLE OF BROKERAGE HOUSES AS WELL AS FUND MANAGERS?

UMBER TANYA ANSARI: There has actually been a tremendous amount of skepticism surrounding Chinese entry into the stock exchange. I can understand being skittish to foreign investment in the country’s very own economic powerhouse, but this shouldn’t be viewed negatively. The consortium will benefit PSX by presenting new opportunities intechnological advancement, strategic partnerships, fresh products, market outreach, and maybe even cross-border listings. This will not only increase the customer base, but foreign investments as well.

About 20% shares of PSX are to be offered to the public as well,which is a very interesting move and could further strengthen the capital market. PSX brokers hold 40% of the shares whereas, earlier, they had 100% ownership of the market – a conflict of business interests. But the reduction will help strengthen the brokerage firms because their credibility will increase as a result of their competency as industry players. Essentially, all this should promote transparency at a higher level.

As far as fund managers like us are concerned, we have already become key players in the market, as previously mentioned. Chinese investments in PSX has already attracted the attention of local and foreign investors, and this will lead investors and the general public to explore more avenues in the financial markets.

Mutual funds provide a wide range of products from conventional funds to Shariah-compliant products, and I believe keen investors with minimum knowledge of the financial industry will opt for these funds to enjoy hassle-free returns on their investments.

Furthermore, this acquisition can play a vital role in developing saving and investment habits in our society. Pakistanis, in general, do not have a habit of saving, and this is due to a lack of opportunities and limited exposure to the market. This will not be the case now, and I think we have to act more responsibly as well because we don’t have to just plan to manage more funds, but to ensure effective awareness through our communications to boost the savings culture.

PAGE: HOW DO YOU SEE THE INVESTMENT TREND IN MUTUAL FUNDS COMPARED TO LOW INTEREST RATES?

UMBER TANYA ANSARI: Banking spreads right now are pretty low, considering that interest rates are as well. Investors who had earlier invested in just banks are now searching for new investment avenues to increase their returns on investment. The result is greater inclination of investors toward mutual funds due to their competitive returns through exposure in bonds, equities, government securities, etc.

In fact, the trend used to be of institutional investors placing money with mutual funds because individuals didn’t realize how accessible they were. Now, we are witnessing a large number of individuals investing in mutual funds with a better understanding of the benefits they offer, as well as theirinherent diversification and product offerings, such as retirement planning funds.

The low interest rates, higher GDP growth, and strong corporate earnings growth are expected to fuel the equity market over the long-term. The fundamentals of the stock market are intact and KSE-100 is trading at a significant discount as compared to the regional peers. Thus, any corrections in the stock market should be viewed by long-term investors as opportunities to build stock market exposure. Low yields on fixed income securities and the positive outlook of the country’s economy make it all the more important for investors to allocate a portion of their portfolios to equity. People know now, more than before, that equity mutual funds are the simplest way to do this!

PAGE: HOW WOULD YOU DEFINE THE GROWTH TREND IN INVESTMENT IN SHARIAH-COMPLIANT FUNDS?

UMBER TANYA ANSARI: Shariah-compliant mutual funds in Pakistan cater to a larger audience. For example, Islamic investors might not invest in conventional funds, but all kinds of investors will place money in Shariah-compliant funds. From a business point of view, in fact, Shariah-compliant products offer higher returns, hence majority of investors are interested in these funds.

People are now more inclined towards the Islamic financial system, in general, and we have observed that a number of key players in the banking industry are also shifting their focus from conventional to Islamic banking. Similarly, investors are more aware of market dynamics, and Shariah-compliant products – our Al-Ameen Islamic Funds suite – are the most invested-in funds by our customers.

PAGE: WHAT DO YOU SEE GOING FORWARD – ADVICE TO INVESTORS?

UMBER TANYA ANSARI: Despite intermittent short-term volatility, we maintain a positive outlook on the local equity market in medium-term. UBL Fund Managers offers the opportunity to invest in stocks through a variety of products, including the UBL Stock Advantage Fund and Al-Ameen Shariah Stock Fund – both of which doubled investors’ money in the last three years, and UBL Asset Allocation Fund and Al-Ameen Islamic Asset Allocation Fund – these also churned out about 20% for their investors in 2016 alone! Investment in equity funds should be based on your risk tolerance and time horizon.

My #1 piece of advice to people is to start saving and investing. I can talk about it all I want, and I will continue to do so, but until you actually get started, you won’t really know if my advice is any good. So go on and take the first step – call an investment advisor and find out what you have to do! Five years from now, you’ll realize it’s the best decision you’ve made with your money!

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