This Luxembourg-domiciled SICAV seeks to achieve long-term capital appreciation by investing in a concentrated portfolio across all sectors and market capitalisation ranges in the Middle East and North Africa (MENA) region.

The MENA region includes, but is not limited to, Saudi Arabia, UAE, Kuwait, Qatar, Bahrain, Oman, Egypt, Jordan and Morocco.

Currently, exposure to the Saudi Arabian market is only available through Saudi Arabian-domiciled mutual funds. Given these restrictions, the Franklin Templeton MENA fund will access the market by investing ten per cent into one or more locally registered equity funds.

The fund is managed by Franklin Advisers Inc, and Dubai-based asset manager Algebra Capital is acting as sub-adviser.

Min. investment: US$5,000
Initial charge: 5%
Annual mngmt fee: 2%
Contact: www.franklintempleton.co.uk

Andrew Merricks says:
The Middle East and North Africa (MENA) region is the latest area to see a rush of fund launches, which in itself makes me tread cautiously. Whenever companies trumpet a ‘new’ area of investment it tends to signal an impending correction in that sector (take the clutch of property funds in 2007 as an example!).

However, the argument to invest in the region does make sense, particularly if you expect the recent oil price fall to be a blip along a longer-term trend of rising prices. It is no coincidence that MENA funds have come to the fore so soon after oil hit new peaks in early summer.

Investing in the regions that are exporting inflationary commodities, rather than in those that are receiving them, is a strategy that has validity, but one cannot ignore the political volatility that exists in the Middle East, and any investor in the region has to accept a relatively high level of risk.

However, there is no doubt that the potential is there. A rival fund manager enthused recently that ‘the waves of change sweeping the region are generating a long-lasting, once-in-a-lifetime investment opportunity. This is the next great frontier in emerging markets.’        

How will Franklin Templeton fare? They have teamed up with Algebra Capital, a company based in the region, as it is difficult for overseas investors to enter the MENA markets directly. They aim to run a focused portfolio of  40 to 60 stocks, although I don’t think that a 60-stock portfolio is particularly focused for such immature markets.

Franklin Templeton has a good reputation in emerging markets, and I wouldn’t have any reservations about using them if taking exposure to this market. I would worry that charges may creep up if more than one manager is being used, but all in all, I would rate highly their offering in terms of value for money, their decision to put a small part of their portfolio in India, and their being prepared to take a long-term view.

However, they must bear in mind that the strong returns of the past five years may not be achieved over the next five.

Investors should also note that, because this fund invests in stocks from a single geographic region, this can lead to more volatility. Even so, volatility is usually diluted over time.

4 Stars