This is a good example, he says, of a number of very high-quality companies in the region that are competing not just at a local but also international level, allowing the portfolio to offer exposure not just to sovereign issuers, such as Qatar or Saudi Arabia, but securities in sectors such as airlines (Emirates), telecomm companies or banks.
“The GCC is a part of the world that few people cover. For lack of a better word it has been orphaned. It is not large or liquid enough for the developed bond market investors to look at.
“We really feel GCC debts will continue to grow and will become a more significant part of the global fixed-income market because this region is growing. It has massive infrastructure needs and bond issuance is only going to pick up.”
As for the shariah board for the funds, made up of scholars from Islamic traditions, how important does he think that is in determining its position as a quality fund provider in this space? Kronfol says the entire shariah governance framework is very important, particularly for international brands not necessarily known for giving out advice on shariah principles.
“We’ve taken a strategic decision not to go with individual scholars but an institution able to deliver quality shariah advisory services, Amanie Advisors, with which we have a partnership.”
Company principles
This shariah advisory company will sit on the fund group’s boards in Luxembourg and a subsidiary in Malaysia, as well as having an office in Dubai where it advises and interacts with us on a daily basis.
“Whenever we want to buy new security, we need to run that by Amanie, and it needs to get back to us in a timely fashion so we can make the purchase.”
He adds that Amanie issues fatwas, which typically contain the details of the scholar’s reasoning, each quarter. “We feel that when we came to the market with this suite of retail products, we set standards in the markets for shariah governance.
“Even today, we are trying as much as possible to be at the forefront of the industry, in terms of the transparency that we provide for our investors, and the governance framework, so that no one would ever question the shariah compliancy of Franklin investment products.”
Looking ahead, he says the combined effect of financial markets developing in the Middle East and the region’s specific strategy to develop Islamic finance, will see it continuing to have a high profile and market share of issuance.
“It will continue to be a region that is very much involved in the development of the sukuk market and Islamic finance generally. On the performance front, going forward, the market has an underlying development story that is exciting.”
