Bad news flowing from lower oil prices has been priced into the GCC (Gulf Corporation Council) and there is relative value in the region, according to Franklin Templeton's Mohieddine Kronfol.
Speaking to Citywire Selector, A-rated Kronfol, who runs the Franklin Global Sukuk fund alongside A-rated Stephen Dover, said he is seeking to unlock opportunities through the UAE (United Arab Emirates), which is a 39.34% allocation in the fund.
‘Within the GCC we have a clear bias towards the UAE, because we think it is more resilient to lower oil prices. We are finding it's doing fairly well and many issuers from Dubai and the UAE are getting upgrades in contrast to other issuers in the region.’
‘We have a structural reform story coupled with a market development story that we see unfolding and it’s an allocation you generally don’t find in emerging market or global bond funds, so we think allocations to the GCC are unique to the product and an important source of value.’
Capitalising on currency
Kronfol said, after the massive US dollar rally seen at the beginning of last year, currency markets had run further than they should and has since positioned the fund for some dollar weakness.
Kronfol currently has a 88.75% US dollar currency exposure followed by Malaysian ringgit 8.04%, British pound 1.52%, United Arab Emirates Dirham 1.51% and Singapore dollar 0.18%.
‘We have also reduced our Asian currency positions to take some profits, but we still maintain significant allocations to the Malaysian Ringgit where we have a constructive view over the next few quarters.’
‘We invested in currencies from Southeast Asia, many of which did well for us at the beginning of this year.’
Kronfol said he is focused on the sovereign and local currency in Malaysia, of which he currently holds 13.94%, and the Southeast Asian country is something he is excited about within the portfolio.
‘Malaysia is the largest issuer of Sukuk around the globe and is a pioneer in the development of the market. As a consequence, it represents a meaningful part of the fund.’
‘The government has done a good job with fiscal consolidation and addressing the lower oil price environment. We think they have struck a good balance between addressing fiscal issues, but also maintaining growth.’
Now the oil prices have somewhat stabilised, Kronfol believes currency, in particular, looks undervalued and represents significant upside.
The Franklin Global Sukuk fund returned 10.77% in US dollar terms over the three years to the end of August 2016. This compares to a 5.70% return by its Citywire-assigned benchmark, the Dow Jones Sukuk CR, over the same time frame.