NBAD Sukuk Income Fund

February 2016
FUND OBJECTIVE

The Fund aims to provide attractive levels of income with some prospect of capital gains over the medium term through actively investing in a mix of corporate and sovereign sukuk
and other Islamic money market instruments, including but not limited to the following Islamic instruments: money market instruments, certificates of deposits, collateralised
murabaha, convertible sukuk, murabaha deposits, ijarah and investments in other Islamic collective investment schemes (investment funds) with objectives that the Investment
Manager believes are appropriate in light of the Funds objectives.
PERFORMANCE

TOP 5 HOLDINGS

Period

Fund

3M EIBOR

MEDJOOL LTD

10.15%

1 Month

1.59%

0.11%

1.48%

AL SHINDAGHA SUKUK LTD

10.03%

3 Month

0.17%

0.36%

-0.18%

DAR AL-ARKAN SUKUK CO LT

7.68%

1 Year

-0.68%

1.17%

-1.85%

PERUSAHAAN PENERBIT SBSN

6.90%

Year to Date

0.07%

0.22%

-0.15%

DIP SUKUK LTD

6.49%

Relative

The performance is calculated based on the valuation point of 24-Feb-16

The above percentages are based on total asset of the Fund

MARKET COMMENTARY

February was a dramatic month in the regional bond and Sukuk markets; good returns, credit ratings news, rising oil prices, companies' earnings announcements, policy changes. To describe
February as the opposite of January in terms of economics or markets would be an exaggeration but for MENA bonds and Sukuk returns it was the exact opposite. There were arguably two triggers
for the very positive returns over the month: rising oil (and commodity) prices and a reaction to the significant rise of credit spreads seen in January. Thus the buying that many had expected to see
in the bond and Sukuk markets at the start of the year turned up in February. Not surprisingly, most of the buying has been by local investors but international investors also returned to the region.
There were no significant changes in the fundamentals of the region but investors were apparently looking for yield especially as the market has not been engulfed by the wave of new issues that
had been feared. There wasn't any material improvement to the economic outlook in the GCC, MENA or globally, with 2016 GDP growth forecasts for the GCC remaining in the 1% to 3% area
depending on the country. What became clearer over the month was that oil and commodity prices were moving higher on either the reality or expectation of a supply-side change, in other words
production cuts. The ongoing discussions between Saudi Arabia and Russia (plus others) about a production freeze of oil, and the Chinese commitment to reducing coal and steel supply being
notable examples. The economic data in the GCC continues to be soft as we should expect with lower oil prices and fiscal tightening.
The bottom line is that we remain comfortable with MENA bonds and sukuk even as we pay close attention to the data. On the bright side, economic surprise indicators in the US continue to hold
up signaling that although the data is soft it is in line with expectations, the Indian budget was positive, the Chinese policy statement at the National Peoples Congress underlined their commitment
to support growth and policy changes in Argentina and Brazil have lit up Latin America. Conversely the bad news continues to come from Europe where growth and other indicators have fallen off
a cliff. This all suggests that Central Bank will continue to be supportive of economic activity.
In the region, there was a lot of credit ratings news. S&P downgraded Oman, Bahrain and Saudi Arabia's sovereign credit ratings as part of a larger downgrade of oil producing countries that also
included Brazil and Kazakhstan. Saudi Arabia was downgraded two steps from A+ to A- and Oman was cut from BBB+ to BBB-. Bahrain was lowered from BBB- to BB, the first time a Gulf state
has been rated below investment grade since 1999. Moodys also reduced Omans by two levels to A3, Moodys first downgrade of the nation since issuing its initial rating in 1999. In the UAE, Fitch
affirmed ratings of First Gulf Bank, Abu Dhabi Commercial Bank, Union National Bank and National Bank of Abu Dhabi. S&P affirmed Qatars rating at AA with a stable outlook, affirmed Kuwait
at AA/stable rating and Abu Dhabi at AA rating with a stable outlook due to strong net asset positions.
SAMA in Saudi Arabia loosened their mortgage rules for banks allowing them to lend as much as 85% of the value of a home versus an earlier maximum of 70%. This is a measure that should
support real estate companies and their issues. The reporting season for results was busy in GCC countries during February and overall, despite lower oil prices and sluggish growth, there
continued to be constructive results announced. Not surprisingly there were some weaker results but not that many and importantly the banks results were encouraging and suggest that their
balance sheets remain robust even as liquidity continues to need attention.
There are still concerns that there is a potentially heavy pipeline of new issues with some estimates that GCC issuers need to the refinance USD 52 billion in bonds and USD 42 billion in syndicated
loans over 2016 and 2017. However, we would point out that studies about the effects of refinancing on market pricing show little evidence of any performance effects. We remain very confident
about the repayment capacity of GCC issuers.
Given either their overall importance or relevance to some of the bond or Sukuk investments in the funds and portfolios, there were material developments in Asia and the US during February. The
People's Bank of China strengthened the renminbi during the month, using the window opened by a weaker US dollar/ stronger yen, in a significant move that opens the way for more stable
markets. Chair Yellen's mixed comments also supported the market's view that the Fed isn't hiking again anytime soon. However, we still need to pay close attention to economic data in these
important countries in forming ongoing judgements about policy.
A softer US dollar has made life a bit easier for some emerging market central banks. Although recent currency pressures had prompted some to respond with jawboning (e.g. warnings from the
Bank of Russia that rate hikes may be needed if inflation risks rise) or actual rate hikes (e.g. Mexico raised policy rates by 50bps to 3.75%), for others such as Indonesia rate cuts have been possible.
The yields and profit rates available for MENA bonds and Sukuk remain attractive in the 4 to 5% area for investment grade portfolios and these should support further attractive returns in the
coming months.

CREDIT RATING BREAKDOWN

GROWTH SINCE INCEPTION

BBB
29.5%

COUNTRY ALLOCATION

Columbia
2.3%

Indonesia
13.0%
Mongolia
5.1%
United Arab
Emirates
64.8%

Saudi Arabia
9.3%

Open ended

Average Credit rating

BBB

Average Yield to Maturity

4.4865

Average Duration of constituents

Fund Size (million)

3.51
USD 27.24

Price

USD 4.80

Inception date

6/7/2012

Currency :

USD

Minimum investment:

USD 500

Dealing Frequency:

Weekly

Bloomberg Ticker:

NBADSIF UH

ISIN

AEN000130023

Fund Charges:

Subscription fee: up to 2%

Jan-16

Feb-16

Oct-15

Dec-15

Nov-15

Jul-15

Sep-15

Jun-15

Aug-15

Apr-15

May-15

Jan-15

Feb-15

FUND DETAILS
Fund Type

Mar-15

Oct-14

Dec-14

Nov-14

Jul-14

Sep-14

Jun-14

Aug-14

Apr-14

May-14

Jan-14

Feb-14

Mar-14

Oct-13

Dec-13

Nov-13

Jul-13

Sep-13

Jun-13

Aug-13

Apr-13

May-13

Jan-13

AA
9.5%

Feb-13

A
23.8%
BB
37.2%

Mar-13

116
114
112
110
108
106
104
102
100

Management fee: 1.00% p.a.

Qatar
3.4%
Cash
2.0%

Investment Manager
Custodian

NBAD Global Asset Management

Deutsche Bank Securities and Services

Administrator

Deutsche Bank Securities and Services

Registrar

NBAD Securities and Fund Administration Services

Auditor

KPMG

Fund Legal Name

NBAD Sukuk Income Fund

Fund Manager:

Ian Clarke
Ali Soner Guney, CFA
Anne Durand, CFA

For inquiries

Ahoud Ali Obaid

Abu Dhabi, UAE: +971 2 4105 566/417
Geneva, Switzerland: +41 22 707 52 65
or visit our website: www.nbad.com

Disclaimer: A collective investment fund authorized by the Securities & Commodities Authority of the UAE. This report is provided for information purposes only. The report is based on available information and is deemed reliable, but no assurance is given as to its accuracy, or
completeness. National Bank of Abu Dhabi is not accountable for any decision based on the contents of this report. Neither the information, nor the opinions contained herein are to be construed as an offer to buy and/or sell securities mentioned above. NBAD is licensed by the UAE
Central Bank.