In the current environment of global economic turbulence, investors may choose to invest in a more resilient portfolio comprising large cap Shariah-compliant companies listed on Bursa Securities.
Such a fund aims to achieve the objective of medium- to long-term capital growth through investments in a diversified portfolio of Shariah-compliant equity securities that offer good prospects. Public Islamic Select Enterprises Fund (PISEF) will invest 75% to 90% of its Net Asset Value (NAV) in the 50 largest Shariah-compliant stocks in terms of market capitalisation in the domestic market with the balance of its NAV invested in sukuk. Given the above investment strategy and objective, the fund is suitable for medium- to long-term investors with aggressive risk-reward temperaments.
Advantages of Investing in PISEF
By focusing on the 50 largest Shariah-compliant companies listed on Bursa Securities, the fund offers investors the opportunity to invest in companies that have established track records with relatively large market capitalisations. As at 11 August 2008, the 50 largest Shariah-compliant stocks have a combined market capitalisation of RM398 billion, which accounts for about 80% of the total market capitalisation of the FTSE Bursa Malaysia Emas Shariah (FBMS) Index. The remaining Shariah-compliant stocks account for the balance of 20% of the FBMS Index's market cap.
In general, the prospects for large corporations are expected to remain resilient as they are better positioned to withstand more challenging economic conditions due to their economies of scale, stronger financial resources, size and established market shares.
Larger companies are able to generate greater economies of scale as their costs of production and operating expenses are spread over a larger volume of units produced and sold. In addition, many large cap Shariah-compliant companies in Malaysia are well established companies with linkages to government agencies or established business groups. Consequently, these features enable large cap Shariah-compliant companies to obtain better access to financing and more competitive financing terms from the capital markets.
Given that foreign and local institutional investors generally focus on large and more liquid Shariah-compliant stocks, large cap Shariah-compliant stocks are expected to continue to figure prominently in their investment portfolios over the medium- to long-term. The earnings and share prices of large cap companies are also poised to recover ahead of their smaller counterparts in an economic up cycle.
Outlook for the Malaysian Economy
Despite uncertainties on the external front, Malaysia's gross domestic product (GDP) growth is projected at 5.0% in 2008. Our forecast assumes a moderation in private consumption growth to 6.5% in 2008 compared to 10.8% in 2007 while public spending is envisaged to grow at a sustained pace of 6% in 2008 versus 6.6% in 2007. Thus, sustained growth in private consumption and public spending will mitigate the anticipated slowdown in external demand for Malaysia's major export markets namely the U.S., Europe and Japan.
From the supply perspective, the Malaysian economy continues to be spearheaded by a resilient services sector. The services sector, which includes real estate, retail and financial services and accounts for 54% of the GDP, is expected to grow by 7.7% in 2008 compared to 9.7% registered in 2007.
In the mining sector, which comprises largely the oil and gas industry, growth is anticipated to gain pace to 6.0% in 2008 from 3.3% 2007 as the oil & gas industry has benefited from an environment of elevated crude oil prices.
The agricultural sector is projected to register a growth of 3.4% in 2008 compared to 2.2% in 2007 on the back of resilient demand for agricultural commodities. Meanwhile, growth in the construction sector is envisaged to rise to 5.5% in 2008 from 4.6% in 2007, supported by the rollout of the 9th Malaysia Plan.
The Benchmark's Track Record
An appropriate benchmark to be used to evaluate the performance of a Shariah-based Islamic fund such as PISEF is the FBMS Index as its component stocks comprise all Shariah-compliant stocks listed on the Main Board of Bursa Malaysia. This benchmark index has achieved commendable total returns of 25.22% (i.e. annualised growth of 7.8%) and 48.62% (i.e. annualised growth of 8.2%) respectively for the 3 and 5 year periods up to 8 August 2008.
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