Interactive Investor

Ian Cowie: the investment trust I’ve bought you’ve probably not heard of

31st March 2022 08:59

Ian Cowie from interactive investor

Our columnist explains why the dynamic economic growth of this emerging market country is being overlooked.

Can you name the wealthiest country in the world, per head of population? Few British investors have any direct exposure to it - which makes it an interesting candidate for diversification - while many people have never heard of it and most might struggle to find it on the map.

Now heres a clue: it is the worlds third-largest source of an increasingly valuable commodity, a cleaner form of energy than oil, and will be all over the TV next November when it will be the venue for the FIFA World Cup 2022.

Yes, thats right. Qatar. Before you roll your eyes, let me explain why I have bought shares in an investment trust focused there; the Gulf Investment Fund (LSE:GIF).

For starters, it is the top performer in the Association of Investment Companies (AIC) ‘Global Emerging Markets’ sector over the last decade, five and one-year periods. To be precise, its total returns over those periods were 207%, 125% and 49% respectively.

That’s an impressive hat-trick. Better still, GIF pays 2.4% dividend income - an increasingly important factor, with inflation and interest rates rising, causing ‘jam tomorrow’ stocks that pay low or no income to fall from favour.

​​​​​​By contrast, Qatar might attract more attention because of its growing importance in the global energy market; especially after Russia’s invasion of Ukraine. Russia is the world’s biggest source of liquified natural gas (LNG), followed by Iran, but both countries are subject to sanctions by America and Britain, among others.

By necessity, and a process of geo-political elimination, that leaves Qatar, which already supplies 48% of Britain’s LNG. Earlier this month, Germany’s economy minister Robert Habeck visited Doha, the capital of Qatar, to sign a new LNG supply deal, which he said would be a “door-opener” for the country’s economy.

This would be a good point to emphasise that GIF is not just about energy or Qatar. About 42% of GIF’s assets are allocated to Qatar, followed by 33% in Saudi Arabia and 19% in the United Arab Emirates (UAE).

That demonstrates active stock selection - as opposed to passive index-tracking - because the Standard & Poor’s Gulf Co-operation Council (GCC) Composite Index is comprised 62% Saudi Arabia, 16% UAE and 11% Qatar.

To be candid, GIF’s dramatic divergence from the GCC index, almost an inverse correlation, is doubly attractive to this investor because it reduces the fund’s exposure to Saudi and its shocking human rights abuses. For many folk, mass executions - including 81 unfortunate souls in a single day, earlier this month - the murder of an American journalist and institutionalised maltreatment of women, as well as migrant labourers, make Saudi utterly un-investable.

Against all that, Saudi is not the only sovereign state around the Persian Gulf and it is sloppy thinking to suppose all Arab countries are the same. One of the most outspoken feminists I know happens to live in Doha and seems perfectly happy there. That city is also home to Al Jazeera, a Middle Eastern media giant, for whom I have written a couple of articles.

Returning to GIF’s investment attractions, it is important to understand that this investment trust is not solely about energy. It also has exposure to industrials (16%), financial services (15%), basic materials (6%) and consumer goods (5%).

GIF’s strategy is to gain diversified exposure to a region with growing wealth and some of the most ambitious infrastructure projects in the world. Bijoy Joy, GIF’s fund manager, told me: “Elevated energy prices and higher production than in 2021 will provide GCC governments with greater fiscal capacity to support economic growth and diversification efforts, and more time to implement fiscal reforms.

“Trends in non-energy economic activity are typically linked to trends in government or wider public-sector spending. Higher oil and gas prices will help government-related entities and sovereign wealth funds to press ahead with investment plans.”

Matters are somewhat complicated by a twice-yearly tender offer to buy back GIF shares, agreed by its board last December, which is currently open. This is unlikely to prove popular with shareholders because those taking up the offer must bear its administrative costs and the shares trade at or near net asset value (NAV), so there is negligible discount to close.

A bigger problem could be the small size of this fund, with total assets of £96 million. That might mean it falls below the minimum for consideration by many wealth managers - but not City of London Investment Management, Abrdn Asset Management or Sarasin & Partners, who are listed among the top 10 holders of GIF.

Passing from the sublime to the ridiculous, at the other end of the size spectrum, this small DIY investor paid $1.86 per share in February, before topping up at $2.04 earlier this month, to bring GIF to about 2% of my ‘forever fund’. The shares cost $2.12 this week.

After getting rid of all my exposure to China and Russia years ago, for reasons discussed here before, my choice of emerging markets for higher rewards and risks is somewhat restricted. Here and now, I believe dynamic economic growth around the Persian Gulf is overlooked and undervalued by most investors but that might change next November.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Gulf Investment Fund (GIF) as part of a globally diversified portfolio of investment trusts and other shares.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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