Adventurous souls looking for new growth horizons could consider looking towards the Middle East & North Africa (MENA) region for opportunities. A falling oil price may have sent shockwaves across the MENA region and geopolitical risk remains, yet investors would be foolhardy to dismiss this region out of hand.

Prospective investors are probably best served by a professional fund manager with a local presence and one such vehicle is offered by Duet Asset Management, whose Duet MENA Horizon Fund (LU0651840448) has consistently outperformed the S&P Pan Arab Mid/Large Cap index and proven its ability to weather market downturns.

A long-only equity fund seeking to generate superior returns on an absolute and risk adjusted basis relative to MENA stock markets, the portfolio is run by Ali Al Nasser out of Duet’s offices in Dubai. Al Nasser has managed the fund since the summer of 2010; originally available as a specialist investment fund, Duet MENA Horizon became UCITS-compliant in February 2015.

Idiosyncratic opportunities

Duet MENA Horizon seeks to make money via a combination of thematic and bottom-up fundamental analysis that creates a high conviction portfolio of the team’s best ideas across the MENA region, where oil price weakness has thrown up compelling value opportunities.

‘We look at the Arabic speaking markets,’ says Al Nasser, who describes the fund as ‘a portfolio of 20-30 companies that I call idiosyncratic opportunities in those areas of the market where informational inefficiencies are at their highest. We’re trading in 13 different markets and the one privilege of working here is all the guys speak and report in the same language. These markets tend to dislocate more frequently than not and we’ve been successful in preserving downside in negative markets. It is very easy to lose money here, as it is in other emerging markets.’

‘We avoid, by design, concentrated revenue streams and exposure to the government,’ adds Al Nasser - government-related stocks tend to be heavily tied to the volatility of oil production - ‘and we also avoid concentrated shareholder structures and price-taking businesses. We know what type of businesses work here,’ he continues, ‘and we’re looking at businesses that have “platform value” in fragmented sectors.’

Healthy prospects

One example is found in the healthcare sector, ‘where most of our focus has been on the Gulf’, notably in Saudi Arabia, a nation affected by lifestyle diseases that has decided to endorse private heathcare. Given a population where 70% are under the age of 30, access to real estate is limited and there’s a shortage of healthcare provision under-supply looming, the fund is well-placed to profit through its holding in Saudi Arabian hospitals operator Mouwasat Medical Services (MOUWASAT:AB).

‘We’re also looking at companies that are net-net beneficiaries of the weaker Egyptian pound,’ adds Al Nasser, who flags an FX shortage in Egypt that has halted the capex cycle in the country though he is optimistic about the potential there.

In his latest fund update, he writes: ‘Our different discussions with government officials, the central bank, and business leaders have us convicted in the ability and willingness of the government to push through reforms that will get the country’s economic cycle moving in the right direction.’ The fund is invested in London-listed Integrated Diagnostics Holdings (IDHC), Egypt’s largest fully integrated private-sector provider of medical diagnostics services, offering pathology and molecular diagnostics, genetics testing and basic radiology.

Egypt accounted for 90% of sales in the first quarter, results (11 May) revealing sales up 16% year-on-year to EGP 274 million as the number of tests completed grew 4% year-on-year to 5.9 million. Asset-light and strongly cash generative, Al Nasser highlights Integrated Diagostics’ near-10% free cashflow yield as well as ‘scope for special dividends that the market is not ascribing value to’.

Duet Mena Horizon Fund

Investment Manager, Duet Group

Fund manager, Ali Al Nasser, Hedi Ben Mlouka

ISIN: LU0651840448

Fund Facts

Inception date: 05/01/2011

Fund type: SICAV