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CONTENTS
FALCOM Saudi Equity Fund 2
FALCOM Saudi Equity ETF Fund (FALCOM F30 AB) 4
FALCOM PETROCHEMICAL ETF FUND (FPETRO AB) 5
FALCOM Saudi Riyal Murabaha Fund 6
FALCOM Multi-Asset Fund 8
FALCOM IPO Fund 10
FALCOM ARAB MARKET FUND 12
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FUND OBJECTIVES
GENERAL INFORMATION
PERFORMANCE RECORD TOP FIVE HOLDINGS
To provide long-term capital appreciation and growth. The Fund invests in listed equity securities that comply with Shariah-guidelines and form part of Tadawul All Share Index.FALCOM Asset Management team of investment professionals seeks to add value over the Benchmark through: 1) active sector allocation. 2) active security selection.
Period Fund TASISince 1 Month 4.78% 2.23%Since 3 Months -7.55% -7.05%Since 6 Months -1.04% -6.86%Since 9 Months -1.58% -7.68%Since 1 Year 5.22% -4.38%Since Inception 39.26% -17.28%2008 -37.26% -56.49%2009 40.37% 27.46%2010 13.65% 8.15%2011-YTD -1.58% -7.68%
Saudi Basic Industries Corp.ASLAKNational Industrialization CompanyAdvanced Petrochemical CompanyYanbu National Petrochemical Company
FALCOM SAUDI EQUITY FUND
RISK AND RETURN (DAILY)
From Fund Inception Fund TASIAverage Return 0.045% -0.003%Standard Deviation 1.72% 1.70%Return / Risk 0.026 -0.002
0.600.700.800.901.001.101.201.301.401.501.601.70 FSEF
TASI
0.50
May
-07
Jul-0
7Se
p-07
Nov
-07
Jan-
08M
ar-0
8M
ay-0
8Ju
l-08
Sep-
08N
ov-0
8Ja
n-09
Mar
-09
May
-09
Jul-0
9Se
p-09
Nov
-09
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep-
10N
ov-1
0Ja
n-11
Mar
-11
May
-11
Jul-1
1Se
p-11
Banks & Financial Services Sector
5.72%
Petrochemical Industries Sector
44.98%
Cement Sector
Industrial Investment Sector
14.42%
Building & Construction
Sector16.58%
Real Estate Development
Sector8.12%
Transport Sector 0.72%
2.60%
Retail Sector0.70%
Agriculture & Food Industries Sector
2.43%
Telecommunication Sector3.73%
PERFORMANCE vs BENCHMARKSECTOR ALLOCATION
The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any par-ticular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.
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FUND MANAGER’S COMMENTSFALCOM SAUDI EQUITY FUND
FALCOM Saudi Equity Fund (FSEF) slightly under performed the benchmark in 3Q2011 recording a negative return of 7.55% compared to the Tadawul All Share Index (TASI) which recorded a negative return on 7.05%. However, from a long term perspective, the fund has significantly out performed the TASI from the inception.
It was a challenging period for the fund managers in the region as the markets witnessed volatility amidst the geo-political issues in the region consequent to the Arab Spring and the fresh issues from the Euro zone. However, TASI traded between a wide range of 5,900 and 6,700 points during the quarter. The positive signs and calming down of the regional issues and the tension improved the investor sentiment towards the beginning of the quarter. However, the index plunged in early August with the influx of negative news from the global economic front. However, the high oil prices above USD 80 per barrel along with the high commodity prices helped the Saudi market to stabilize.
Outlook Positive factors The oil prices are expected to stabilize above USD 80-100 per barrel for 2011.
Minimum or negligible geo political issues of Saudi Arabia compared to its regional counter parts would keep the country’s risk profile lower.
Corporate profitability is expected to improve in major sectors
Petrochemicals – Improving oil and product prices, thus improving margins and new capacities on steam
Banking – Positive outlook with cleaner balance sheets
Real Estate, Building & Construction – Domestic demand to drive the growth
Retail sector – Enhanced buying power of Saudi consumers
Negative factorsRisk related to oil prices and the volatility of the same could affect the market, specifically to the petrochemical sector.
Although the global economic crisis is eased off, the fresh issues in the Euro Zone may affect the investor sentiment.
Source: Tadawul / FALCOM Database
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FUND OBJECTIVES
BASKET OF SECURITIES AS AT SEP. 30, 2011
FALCOM Saudi Equity ETF aims to provide investors with long term capital appreciation and growth. The Fund passively invests in the listed Saudi equities in order to achieve the results that correspond to the performance, before fees and expenses, of the Benchmark Index, namely FALCOM F30 Index.
SABIC (SABIC AB) 18.0% Saudi Kayan (KAYAN AB) 3.0% Al Marai (ALMARAI AB) 2.4% Sahara Petrochemical (SPC AB) 1.6% Makkah Construction (MCDCO AB) 1.3%
Al Rajhi Bank (RJHI AB) 16.3% YANSAB (YANSAB AB) 2.9% Ma'aden (MAADEN AB) 2.3% Jarir Marketing (JARIR AB) 1.8% Bank AlJazira (BJAZ AB) 1.0%
Etih d Eti l t (EEC AB) 6 4 % Al I B k (ALINMA AB) 2 8% J b l O (JOMAR AB) 1 6% P t R bi h (PETROR AB) 1 1%a sala . Al nmaa ank . . a al mar . e ro abig .
NIC (NIC AB) 5.7% Savola Group (SAVOLA AB) 2.8% Saudi Cement (SACCO AB) 2.5% Bank AlBilad (ALBI AB) 1.3% Southern Cement (SOCCO AB) 1.3%
SAFCO (SAFCO AB) 4.8% Saudi Electricity (SECO AB) 2.8% Dar AlArkan (ALARKAN AB) 1.2% Zain KSA (ZAINKSA AB) 1.2% National Shipping (NSCSA AB) 0.7%
Saudi Telecom (STC AB) 3.3% SIIG (SIIG AB) 2.3% Yamamah Cement (YAC CO AB) 2.2% Advanced Polypropy. Co (APC AB) 1.1% Qassim Cement (QACCO AB) 0.9%
SIPCHEM (SIPCHEM AB) 1 8 %
FALCOM SAUDI EQUITY ETF(Falcom30 AB)
RISK AND RETURN (DAILY) TRACKING ERROR
-1.0%
-0.5%
0.0%
0.5%
1.0%
29-M
ar
29-A
pr
29-M
ay
29-J
un
29-J
ul
29-A
ug
29-S
ep
29-O
ct
29-N
ov
29-D
ec
29-J
an
1-M
ar
1-A
pr
1-M
ay
1-Ju
n
1-Ju
l
1-A
ug
1-Se
p
Difference (Index vs NAV)
Tracking Error
Petrochemical 42.3%
Banks & Financial Services, 21.4%
TeleCommunication & IT, 10.9%
Agriculture & Food, 5.2%
Cement, 6.8%Real Estate , 4.0%
Energy &
Utilities, 2.8%
Industrial 2.3%
Retail, 1.8%Transport, 0.7% Cash, 1.6%
Investment,
PERFORMANCE vs BENCHMARKSECTOR ALLOCATION AS AT SEP 30, 2011
The Fact Sheet data is as of 30 SEP 2011. There is no guarantee that the Fund will continue to hold any particular securities or stay invested in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk. The information herein (other than disclosure information relating to FALCOM Financial Services and its affiliates) was obtained from various sources and we do not guarantee its accuracy. FALCOM Financial Services makes no representations or warran-ties whatsoever as to the data and information provided in any third party referenced source and shall have no liability or responsibility arising out of or in connection with any such referenced website.
GENERAL INFORMATION
PERFORMANCE RECORD UNIT PRICE
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FUND OBJECTIVES
GENERAL INFORMATION
BASKET OF SECURITIES AS AT SEP. 30, 2011
FALCOM Petrochemical ETF aims to provide investors with long term capital appreciation and growth. The Fund passively invests in the listed Saudi equities of the Petrochemical sector in order to achieve the results that correspond to the performance, before fees and expenses, of the Benchmark Index, namely FALCOM Petrochemical Index.
FALCOM PETROCHEMICAL ETF(FPETRO AB)
RISK AND RETURN (DAILY) TRACKING ERROR
90.00 95.00
100.00 105.00 110.00 115.00 120.00 125.00 130.00 135.00 140.00
Price
NAV
Index
-1.00%
-0.50%
0.00%
0.50%
1.00%
Difference (Index vs NAV)
Tracking Error
SABIC40.5%
NIC12.8%
SAFCO10.9%
Kayan6.8%
Yansab6.5%
SIIG5.2%
SIPCHEM4.1%
Sahara3.6%
Petro Rabigh2.5%
APPC2.6%
Cash1.5%
Petrochem1.1%
Nama0.8%
Alujain0.7%
Methanol0.5%
PERFORMANCE vs BENCHMARKSECTOR ALLOCATION AS AT SEP. 30, 2011
The Fact Sheet data is as of 30 SEP 2011. There is no guarantee that the Fund will continue to hold any particular securities or stay invested in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk. The information herein (other than disclosure information relating to FALCOM Financial Services and its affiliates) was obtained from various sources and we do not guarantee its accuracy. FALCOM Financial Services makes no representations or warran-ties whatsoever as to the data and information provided in any third party referenced source and shall have no liability or responsibility arising out of or in connection with any such referenced website.
PERFORMANCE RECORD UNIT PRICE
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FUND OBJECTIVES
GENERAL INFORMATION
PERFORMANCE RECORD YIELD AND RATE
To provide current income and liquidity consistent with short-term money market rates and to preserve the value of unit holder’s investments. The Fund provides investors with a Shariah Compliant investment solution that generates competitive market returns from short-term Murabaha investments with a high degree of capital preservation, superior liquidity and no foreign exchange risk.
RISK AND RETURN (DAILY)
4.50
Yield(%)
0.000.501.001.502.002.503.003.504.00
-07
-08
-08
-08
-08
-08
-09
-09
-09
-09
-09
-09
-10
-10
-10
-10
-10
-10
-11
-11
-11
-11
-11
SIBID 3Month
Dec
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
p
FSMFLess than 1M th 3Monthson
4% -
7%
3 - 6Months33%
6 - 12Months56%
1
PERFORMANCEMATURITY PROFILE
The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.
FALCOM SAR MURABAHA FUND
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FUND MANAGER’S COMMENTSFALCOM SAR MURABAHA FUND
FALCOM Saudi Riyal Murabaha Fund’s yield was
0.75% as against the benchmark’s yield of 0.64%
(3m Saudi Interbank Bid rate) for 3Q2011.
The fund managers’ estimate on future interest
rates and locking funds for longer investment
periods have been the main reasons for the
outperformance, given the volatile scenario in the
market.
As Saudi Riyal is pegged to the US Dollar, the Saudi
Monetary Authorities have been following Fed’s
actions in the money market related matters.
Since Fed was very aggressively cutting down rates
to recover from the economic crisis, Saudi Arabian
Monetary Agency (SAMA) followed a similar move
by cutting Reverse Repo rate to 0.25% and Repo
rate to 2.0% during the crisis period and has been
maintaining that rate since then. The anomalies in
the interest rate differential of Saudi Riyal and USD
were minimized during the recent past.
The easing of monetary policy of SAMA led the
interbank rates to further decline in 2Q2009.
Subsequently, the interest rates have been almost
flat for the rest of the period until now. Further, the
rate difference between the short and long term
rates is maintained at a higher range compared to
the historical movement. Since inflation in Saudi
Arabia is primarily driven by the commodity prices
and housing rent, the increase in money supply
brought about by the lower interest rates would
have minimal impact on inflation.
As the fund managers strive to achieve the stated
objectives of the fund, the lowering money market
rates would have a negative impact on the return
in the short term. The returns are expected to
normalize with the recovery of the global economy
and improving credit market situation and the
corresponding actions of SAMA in the long run.
Outlook
Positive factors
The yield curve also signals the bottoming out of
interest rates.
Negative factors
As the European crisis is replaced for the Global
crisis, the possibility of improving interest rates
could be remote.
Source: Saudi Arabian Monetary Agency Reports
1M 3M 6M 12M1m Rate3m Rate6m Rate12m RateReverse Repo
Mon
ey m
arke
t rat
e (%
)
Rat
e D
iffer
entia
ls (%
)
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FALCOM Multi-Asset Fund aims to diversify its investments over the short medium and long terms by allocating the majority of its assets to a broadly defined Shariah Compliant asset classes that comprise Murabaha transactions, Stocks, Sukuk, Structured-Products and Investment Funds. The fund will apply asset allocation techniques to optimize funds apportioning process in order to maximize returns commensurable with acceptable level of risk.
FALCOM MULTI ASSET FUND
FUND OBJECTIVES
GENERAL INFORMATION
PERFORMANCE RECORD UNIT PRICE
RISK AND RETURN (DAILY)
Cash1.63%
Murabaha1.94%
Equity96.43%
.
10.00
11.00
12.00
Multi Asset FundBenchmark
6.00
7.00
8.00
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
009
ASSET ALLOCATION PERFORMANCE
The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.
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FALCOM Multi Asset Fund recorded a negative
growth of -4.14% in 3Q 2011. There was no
change in the asset allocation of the fund during
the period under review. Allocation to Equities
has been increased to 96% whilst the remaining
is invested in cash/Murabaha. Since the funds
objective is to offer a long term return whilst
minimizing the risk, diversification of the assets
classes would help to achieve this objective.
An analysis of all the assets of all investment funds
in Saudi Arabia reveals that bulk of the assets
are in money market/Murabaha funds. This also
explains the appetite of the investors in light of
their risk return profile amidst the volatile market
conditions brought about by the global economic
crisis in 2008. However, there has been a gradual
recovery of the AUMs since 2009, though it was
relatively stagnant in 2010. The total AUMs have
been declining in 2011 on quarter on quarter basis.
This could be mostly due to the geo-political issues
in the regional and poor investor sentiment. The
investors have been risk averse of the last two
years and the Equity AUM saddles around SR 30
billion.
Outlook
Positive factors
The regional geo-political issues are being settled
and this would improve the investor sentiment.
High oil and petrochemical prices are expected to
enhance the profitability of Saudi companies.
Negative factors
Under the current low interest rate scenario, yield
on sukuk is expected to be at lower levels.
As the Saudi stock market is highly correlated
to crude oil price, any weakening of the oil prices
could affect the stock prices.
FALCOM MULTI ASSET FUNDFUND MANAGER’S COMMENTS
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FALCOM IPO Fund aims to invest its assets in the equities of public companies during their initial offering period and in the equities of early stage (two years) listed companies in Saudi Arabia, MENA region and other international markets. For the purpose of the Fund’s investments, all underlying companies that are targeted by the Fund will be Shariah compliant companies.
FUND OBJECTIVES
GENERAL INFORMATION
PERFORMANCE RECORD
FALCOM IPO FUND
From Fund Inception FundAverage Return 0.024%Standard Deviation 1.475%Return / Risk 0.016
RISK AND RETURN (DAILY)
Petrochemical Industries Sector
15.7%
Retail Sector0.5%
Real Estate Development
Cash24.4%
Building & Construction
Sector49.3%
Industrial Investment Sector
1.6%
8.4%Sector
850.00900.00950.00
1000.001050.001100.001150.00
650.00700.00750.00800.00
Jul-0
8Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-0
9Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-1
0Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-1
1Sep-11
ASSET ALLOCATION PERFORMANCE
UNIT PRICE
The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.
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FALCOM IPO Fund invests in Initial Public Offerings (IPOs) and the companies that were listed within two years in Saudi Arabia, MENA region and other international markets. As in the case of our Equity fund, our concentration is only on Shariah compliant companies. The fund managed to record a net asset value of SR 1,096.89 at the end of 3Q2011 compared to the opening NAV realizing some positive returns for the quarter. Further, most of the companies invested are yet to commence their commercial operations or to operate at decent activity levels in order to reflect the full potential of those companies and thereby the share price. The fund has so far invested only in Saudi IPOs and equities due to the fact that Saudi market played a dominant role in the IPO market, particularly in 2008 and 2009. However, we closely monitor the IPO opportunities in the regional markets and would participate in good opportunities.
According to Zawya, funds raised through IPOs during 3Q2011 by MENA companies was only USD 218.9 million which is a 66% decrease compared to that in 3Q2010. There were two IPOs, namely, United Wire Factories Co. and Hail Cement Co. in Saudi Arabia during the quarter under review. The geo-political issues in the region affected the investor sentiment which hit the regional stock markets badly. Thus, the issue managers faced with lot of challenges to value new issues with reasonable attractiveness to be successful IPOs. As the issues are being addressed and the
dust is being settled, we could witness some IPO activity in the regional markets during the rest of 2011. However, fresh issues emanating from some European economies may affect the global economic scenario again. OutlookPositive factorsThe IPO activities would gather momentum with improving investor appetite coupled with the recovery of regional markets, which were affected by the regional geo political issues.
According to Zawya, several IPOs including Saudi Aramco Total Refining and Petrochemical Co., Al Aqeeq Real Estate Development Co. and Arabian Oud Co are expected come into the market in 2011 which could have a major impact in the market.
Negative factorsLow price levels prevailing in the market and poor investor sentiments are major challenges faced by the new issuers as far as the valuations are concerned.
The recent political issues of some countries in the region have resulted in increasing the risk premium attached to the regional markets.
Recent economic issues in some European countries could affect the global economy.
FALCOM IPO FUND
3,000
2,500
2,000
1,500
1,000
500
-
6
5
4
3
2
1
02Q20091Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011
No. of IPOsAmt. Raised
2Q2011 3Q2011
5 5
3
2 2
1 1 1 1
0
2
No. of IPOs
FUND MANAGER’S COMMENTS
The investment objective of the Fund is long term capital appreciation and growth of invested capital. The fund would invest the money in sharia compliant listed equities in Arab Markets.
Period Fund Return Benchmark Date Fund
Since 1 Month 1.26% 0.20% Since One Month 9.374
Since 3 Months -5.56% -7.31% Since Three Months 10.051
Since 6 Months -3.90% -8.60% Since Six Months 9.878
Since 9 Months -7.71% -12.23% Since Nine Months 10.285
Inception (27-Nov-2010) -5.08% -8.54% Inception (27-Nov-2010) 10.000
2010 2.85% 4.20% 31-Dec-2010 10.285
2011 YTD -7.71% -12.23%
Type of Fund Shariah Compliant Management Fee (p.a.) 1.75% (of N.A.V.)
Inception Date 27-Nov-2010 Subscription Fees 1.5% of subscription amount
Fund Currency US Dollar Performance Fees 15% of the return above 10%
Inception Price 10.0000 Auditing Fees USD 6,800 annually
Current Price USD 9.4922 Valuation Day Bi-Weekly
Fund Net Asset Value USD 6,475,969.07 Shariah Advisory Fees 0.10% of NAV annually
Fund Manager FALCOM Financial Services Min. Entry for Individuals/Institutions USD 2,000 / USD 5,000
FUND OBJECTIVES
GENERAL INFORMATION
PERFORMANCE RECORD
FALCOM ARAB MARKET FUND
From Fund Inception Fund BenchmarkAverage Return -0.022% -0.038%Standard Deviation 0.754% 0.903%Return / Risk -0.029 -0.042
SABICKGL Logistic Co.SPIMACO DANA GASEmmar Properties
RISK AND RETURN (DAILY) TOP FIVE HOLDINGS
Saudi ArabiaOmanKuwait14.2%
Jordan1.9%
United Arab Emerates19.6%
Qatar15.6%
Eygpt2.7%
42.6%3.4%
10.50
11.00 Arab Market Fund
S&P Pan Arab Markets Shariah
8.50
9.00
9.50
Nov
-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-1
1
Aug-11
Sep-11
10.00
COUNTRY ALLOCATION PERFORMANCE
UNIT PRICE
The Fact Sheet data is as of 30/09/2011. There is no guarantee that the Fund will continue to hold any particular securities or continue investing in any particular sectors. Holdings are subject to change. Investing in the Fund is not a deposit in, or an obligation of, and is not guaranteed by the Investment Manager. Past performance does not guarantee future results and the Fund remains subject to investment risk.12
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“During the third quarter of 2011, GCC markets
showed remarkable resilience amidst a volatile and
negative international backdrop, due to heightened
concerns over contagion from Europe and fears of
an imminent slowdown in China.
The S&P Pan Arab Sharia Compliance Index was
down only -7.3%, vs. -17% for the MSCI World
Index and -22.46% for the S&P Emerging Markets
Index. We believe that this differentiation in
performance was mainly the result of the massive
spending undertaken by the GCC governments
as a reaction to the political instability, while
their international peers were overwhelmed
with managing their debt and cutting down their
expenses. Just to list few of the initiatives, the
government in Saudi Arabia distributed as a “Royal
Gift” 36 Billion US$ in unemployment and housing
benefits and committed to the construction of a
further 500 thousands residential units, while in
Qatar a salary increase of 60% was given to the
public sector and 120% to the army.
Despite the drop in liquidity typically seen in
the month of Ramadan, investors were well
positioned ahead of Q3 results, which saw a good
performance from the petrochemical and banking
sector in general. Egypt continued to be the worst
performing market in the region with the political
scene not yet clear, followed by Saudi which
was negatively hit by the strong drop in oil (WTI
dropped by 18%).
Qatar continued to be the star, closing the quarter
on a slight positive note (up 0.4%).
The Fund dropped by -5.56% during the quarter
outperforming its benchmark by -7.31%.
This outperformance has been the result of
a combination of an equities’ positioning into
domestically driven stock and an allocation of the
fund to cash of approximately 15%.
We strongly believe that the robust economic
fundamentals of the GCC are a key differentiator
relative to the rest of the world. This, coupled
with the improving fundamentals and attractive
valuations of a number of listed companies,
provides a strong foundation for sustainable
outperformance over the long term.”
FALCOM ARAB MARKET FUNDFUND MANAGER’S COMMENTS
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