The promotion of UAE and Qatar to emerging market status has led leading frontier market equity manager Timothy Drinkall to adjust a plethora of positions in his $141 million fund.
In his latest market update, the Morgan Stanley manager highlighted several changes over the past two months.
UAE and Qatar saw their status increased by index provider MSCI at the start of June, which led many managers to reappraise their positions.
Drinkall, for instance, has considerably reduced his bets on both markets, while bolstering allocations to Nigeria, Kuwait and Pakistan in the Morgan Stanley Galaxy Fund Frontier Emerging Markets fund.
At the forefront of the changes was a decision to sell out of many names tied to the UAE and Qatar, such as those in neighbouring Saudi Arabia.
‘This month we repositioned a number of names in the portfolio on the back of the MSCI rebalance,’ the New York-based manager said.
‘Following recent management meetings, we sold our long held position in Mobily, a telecom company in Saudi Arabia, due to the increased competitive pressure in voice and data.
‘Mobily is shifting to a lower growth phase as the market reaches maturity, and management will be more focused on increasing dividends to shareholders going forward.’
In addition, Drinkall sold out of Dubai-based logistics company Aramex and cut back on Emaar, a property development company based in the UAE.
Overall, exposure to the UAE fell from 17.7% at the end of April, which was the largest geographic exposure at that time, to 13.6% in the most recent factsheet. Meanwhile, Saudi Arabia was reduced to 7% from 9.1%.
This capital was reinvested in Nigeria, which was increased from 11.3% to 14.1% over the same period. The main beneficiary was Nigerian Breweries, which rose from 2.6% to a 4% position in the fund.
‘We increased the overall weight in Nigeria, specifically to Nigerian Breweries and Guaranty Trust Bank, we added to Kenya, more specifically to our current position in Kenya Commercial Bank and Safaricom. We also increased our position in Kuwait through an increased position in National Bank of Kuwait.’
The Morgan Stanley Galaxy Fd Frontier EM Mkts A USD fund returned 47.1% in US dollar terms over the three years to the end of June 2014. This compares with a rise of 43.5% by its benchmark, the MSCI Frontier Markets TR USD, over the same period.