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Investors’ Guide

Contents

Editorial 5

Performance: KSE gained; Global Mixed 6

Performance: Mutual Funds in April 2010 8

Big News: A prestigious deal 15

Interview: CEO, ABL Asset Management Company 16

Big News: Governor SBP Quits 20

Big News: Spain Backs Pak bid for EU Mkts Access 21

Funds in Focus 22

Discourse: Currency trading 25

Special Report: Privatise with rationale 28

Article: Cash Funds; temporary but safe havens 30

Big News: 6th WIEF, Gearing for recovery 31

Contribution: Myths of Close-End Funds 32

Analysis: Stocks for all 34

Special Comments: Budget FY11 36

Big News: SBP stays policy rate 39

Main News: Five-year Investment Strategy 40

Big News: Resignation of Tariq Iqbal Khan 41

Analysis: What's wrong with telecoms? 42

News 44

Feature: Rating agencies, the touchstone 45

Economic Survey 48

Special Report: Proposed changes in SECP Act 49

Article: Avoid investing failures 53

News 54

Performance: Mutual Funds in April 2010 (Urdu) 57

Article: Cash Funds; temporary but safe havens (Urdu) 58

Big News: A prestigious deal (Urdu) 59

Performance: Stocks in April 2010 (Urdu) 61

News Feature: Competitively yours 63

DisclaimerAll reports and recommendations have been prepared for your information only. Summaryand Analysis are not recommendation to buy or sell. This information should only be used byinvestors who are aware of the risk inherent in investments. The facts, information, data, indi-cators and charts presented have been obtained from sources believed to be reliable, but theiraccuracy and completeness cannot be guaranteed. The Financial Daily International and itsemployees are not responsible for any loss arising from use of these reports and informations.

Investors’ GuideEditorial

Hapless retailinvestors

AMCs would to pay two per cent of their cumulative profit on accounting profit inWorkers Welfare Fund (WWF) from June 2009 as per Section 4 (1) of Workers WelfareFund Ordinance, 1971, which envisages every industrial establishment, the total incomeof which in any year of account commencing on or after the date specified by the FederalGovernment in the official Gazette in this behalf is not leas than one lakh of rupees, shallpay to the Fund in respect of that year a sum equal to two per cent of so much of its totalincome as is assessable under the Ordinance. Earlier, disposing of the plea of MutualFunds Association of Pakistan (MUFAP) a court upheld the provision and now its ultimateburden would obviously be shifted to tail-end consumers including retail and corporateinvestors of the industry.

Securities and Exchange Commission of Pakistan (SECP) had earlier proposed FederalBoard of Revenue to exempt mutual funds, provident funds, approved pension funds, gra-tuity funds and superannuation funds regarding contribution of profit to Workers WelfareFund (WWF). It is believed that apex regulator might not have pleaded its case arguablybecause it is already grappled with several internal administrative problems and shortageof visionary leadership is one of them.

Also, SECP in its budget proposals for the next fiscal year 2010-11 has pointed out thatdue to issues encountered by mutual funds, provident funds, approved pension funds, gra-tuity funds and super-annuation funds regarding contribution of profit in the WWF may beresolved for the smooth arrival of investment. These funds are structured as trust in com-pliance with the SECP regulatory framework and income tax rules.

As far as high net worth investors are concerned, the court decision would not put anysignificant effect on their net returns because of the huge volume of their investment invarious types of mutual funds. However, retail investors will suffer most by this decisionbecause there is a sizeable lot of retail investors who put their hard-earned money in mutu-al funds which hardly comprises of few hundred thousands.

If seen broadly, this step would dispirit the awareness drive of the fund industry which,as a matter of fact, is yet to be started by Mufap while at individual level most AMCs focusmarketing of their products instead of raising awareness on benefits of the investing inmutual funds. Now rosy picture about the returns of mutual fund investment would besomewhat eclipsed and would-be investors could not be tempted towards this already neg-lected avenue of investment.

Now, it all ups to Mufap that how it plays its role in developing the modus operandi to payWWF and clear the ambiguity in this regard. Most important question at this point in timeis, if this deduction is applicable from June 2009 then would the arrears on this score be col-lected in total or in piecemeal. Moreover, what about those investors especially corporateones who have withdrawn all their money from mutual funds and it is itself a stingy issue.

Shakil H. [email protected]

5

Performance Investors’ Guide

6

K S E G A I N E D ; G L O B A L M I X E D

Karachi stock market gained during April, 2010 mainly due tocontinued foreign interest, buying in E&P, Fertilizer andselective third tier stocks on expectations of good corporate

results. However, selling from government institutions adverselyaffected the market sentiments. The benchmark KSE 100-Indexincreased by 250 points or 2.45 per cent to close at 10,428 points.

The month started with the positive note and made a high of 10,677points on 15th April 2010. However, imposition of capital gain taxand issues regarding levy of VAT adversely affected the market sen-timents. Average daily trade volume was 194 million shares in April2010 as compared to 157 million shares last month. During the monthforeign inflows once again remained strong with the net inflow of$93.3 million.

Among the sectors, Auto, E&P, Food, and selective third tier stocksoutperformed the index. Attock Cement and Lucky Cement hasshown substantial gains in the first 15 days of April 2010 as SindhHigh Court has made the decision to provide "inland subsidy" tosouthern exporters as well, who were not previously eligible for thisincentive. However, the stocks were not able to continue theirmomentum in the later part of the month as outlook of cement exportremained invisible.

Banking sector spreads stood at a healthy 7.30 per cent in March2010 versus 7.66 per cent in March 2009. Healthy spreads translatedinto strong net interest earnings for the sector and also witnessed in1QCY10 profitability. The results of the commercial banksannounced by 23 commercial banks depicted 16.8 per cent YoYgrowth in profitability as on cumulative basis the profit after tax for1QCY10 stood at Rs19.6 billion as compared to Rs16.8 billion lastyear and contributed Rs11 billion in the national exchequer. Factorsfor growth in profitability were: (1) decline in provisions by 23 percent YoY due to lower growth in fresh NPLs and heavy reversals (2)17.7 per cent YoY growth in non interest income to Rs21.1 billion onaccount of higher fee income and capital gains on sale of equities, and(3) mild increase of 9 per cent in admin expenses.

Fertilizer sector showed lacklustre performance as strong earningswere offset by gas supply limitation as government decided to divertgas from Fertilizer sector to Power Generation sector for 2 months.Fertilizer companies i.e. FFC, Engro and Fatima Fertilizer faced 12per cent lower gas supply as gas provided to them by Mari GasNetwork while other fertilizer companies i.e. FFBL, Agritech,Dawood Hercules were facing 20 per cent lower supply provided bySui networks. As Fertilizer sector has a strong buying power resultedin urea price hike by Rs 75/ bag.

On the Flip side, power sector profitability witnessed a decline of11 per cent in 3QFY10. The double digit decline in power sector prof-itability was due to higher plant maintenance cost incurred by KotAdu Power Company despite Hubco performed well in the samequarter.

Economic indicators of the country showed a slight improvement inApril10. Trade deficit shrank by 13.92 per cent to reach at $12.23 bil-lion on the sustainable exports' growth in the 10 months of the cur-

rent fiscal year 2009-10. Exports fetched $15.88 billion against $14.7billion during the same period of corresponding year, showing aslight increase of 8.0 per cent. Imports during this period stood at$28.12 billion against $28.92 billion, indicating a decline of 2.7 percent. Remittances sent home by overseas Economy continued toshow a rising trend as an amount of $7,306.65 million was receivedin the first ten months (July09-April10) of the current fiscal year2009-10, showing an increase of $951.07 million or 14.96 per centover the same period of the last fiscal year.

Source: KSE website

Money Market

Money market position remained better as all the money marketindicators showed sign of improvement, despite MoM inflation inMarch-10 was up by 130bps. After bottoming out at 8.87 per cent inOct-09, YoY inflation increased to 12.9 per cent YoY in March10.Despite of that, yield started to decline as broader money increaseddue to government shifted some of its borrowing from scheduledbanks back to the central bank.

State Bank of Pakistan (SBP) conducted Treasury bill auctiontwice, accepting bids worth Rs149.6 billion as against the participa-tion of Rs384.0 billion, against the SBP pre-auction target of Rs145.0billion. Maximum participation was seen in the 6-month tenure whereyields declined by a total of 6bps. The drop of yield in other tenureswas 5 bps.

April10 March10 Chg (bps)T-Bills (3 months) 12.15% 12.20% -5bpsT-Bills (6 months) 12.28% 12.34% -6bpsT-Bills (12 months) 12.36% 12.41% -5bps

6M KIBOR also declined by 8bps during the month to stand at12.33 per cent, as enough liquidity was present in the system causing6M Kibor decline continuously. Foreign exchange reserve improvedto $15.04 billion in April10. The increase in exchange reserve was

Funds in FocusInvestors’ Guide

7

Colombo

due to payment of $657 million under Coalition Support Funds.

Performance of Global & Regional Indices in April10Country Indices April 10% ReturnSri Lanka COLOMBO 12.47Indonesia JAKARTA 6.98South Korea KOSPI 2.88Pakistan KSE100 2.45Malaysia KUALA LUMPUR 1.95U.S.A DOW JONES 1.40Taiwan TAIEX 1.06India SENSEX 30 0.18Japan NIKKEI 225 -0.29Hong Kong HANG SENG -0.62UK FTSE 100 -2.22China SHANGHAI -7.67Source: Reuters

Global and regional markets which performed well in the first threemonth of calendar year, showed a lusterless performance for themonth of April10. At the end of April10, market was expected toshow serious concerns as credit ratings downgrades of Greece andPortugal rattled investors and sent global markets tumbling. Investorsthen feared that credit woes which started in Greece could slow downthe whole European economy. Rating agency Standard and Poor'sslashed Greek debt to junk status and also downgraded Portugal,

fuelling concerns about euro zone economic stability and sendingEuropean and US stocks sharply lower.

The Shanghai Composite ended down 7.67 per cent to 2,870points,extending its losing streak, as investors remained cautious over theimpact of a series of steps to cool the country's surging property sec-tor. Along with lower-than-expected earnings from some small-capcompanies and souring sentiment due to euro zone debt woes result-ed foreign institutions to damp shares in falling markets.

UK benchmark index FTSE100 index also fell by 2.22 per cent asdowngrades in Greece and Portugal's credit ratings sparked fears theeuro zone's debt problems were spreading. Japan benchmark indexdropped by 0.29 per cent as investors punished shares of companiesthat reported disappointing earnings and mainly focus on individualstocks that have reported better-than-expected profits or revised upearnings guidance.

On the flip side, SriLanka and Indonesia index surged by 12.47 percent and 6.98 per cent respectively for the month of April10 as lowvaluation multiple prevailed upon foreigners to continuously injectthe money. Malaysia has recently raised the interest rate which tooksome market participant into surprise. Despite increase in interestrate, Malaysia benchmark index rose by 1.95 per cent in April10.

Moving towards India, its inflation also surprised on the upside,resulting in central bank of India to increase interest rate furtherwhich brought on Indian benchmark index Sensex30 to close flat.Furthermore, investors fear India will likely be affected from slidingEuropean countries.

PerformanceInvestors’ Guide

M u t u a l F u n d s i n A p r i l , 2 0 1 0

MODEST COMEBACKInvestors' Guide Research

The size of mutual fund industry swelled 4.25 per centmonth-on-month (MoM) to Rs221.5 billion in April,2010 as against Rs212.4 billion in March, 2010. Open-

end funds, which contribute almost 84.8 per cent of total mutu-al fund industry size stand at Rs187.8 billion in April comparedwith Rs178.7 billion in March, showing an increase of 5.11 percent MoM; while close-end funds were at the level of Rs33.61billion.

In absolute terms, the total mutual fund industry rose byRs9.03 billion MoM. Out of Rs9.03 billion, Rs7.86 billion (87.1per cent) has been raised by money market funds which haveshorter duration as compared to income fund's long-term dura-tion. Major surge was contributed by Nafa GovernmentSecurities Liquid Fund, MCB Cash Management Optimizer

Fund, Meezan Cash Fund and UBL Liquidity Plus Fund whichasset size increased by Rs1,927, Rs1,193, Rs1,156 and Rs1,057million to Rs6,332, Rs7,949, Rs5,789 and Rs6,516 millionrespectively.

Within income fund category, ABL Income Fund's asset sizesoared by Rs2,794 million to Rs12,358 million in April. Withthis increase, income and money market category now stands atRs109.36 billion at the end of April compared with Rs100.31billion in March. On the flip side, despite benchmark KSE 100-Index jumped by 2.45 per cent MoM, open-end equity fundsasset size only zoomed by 0.88 per cent MoM to Rs47.80 bil-lion till April 2010. The underperformance was due to heavy-weight OGDC which pushed the index upward regardless ofremaining blue chips companies remained constant or declinedslightly MoM. Before evaluation of the mutual fund industry wewould cast a look on this month's fund scene.

Categories April-10 (Rs in bn) March-10 (Rs in bn) % Chg

Equity Market Funds 47.8 47.38 0.9%

Income & Money Market Funds 109.36 100.31 9.0%

Balanced Funds 5.3 5.367 -1.2%

Islamic Funds 5.19 5.176 0.3%

Islamic Income Funds 6.270 6.396 -2.0%

Hybrid Funds 8.49 8.46 0.3%

Asset Allocation Funds 2.19 2.19 0.1%

Islamic Asset Allocation Funds 2.29 2.45 -6.5%

Fund of Fund 0.95 0.98 -2.6%

Open End Fund Size 187.84 178.72 5.1%

Closed end Fund size 33.61 33.717 -0.3%

Total Mutual fund Asset size 221.5 212.4 4.3%

8


E Q U I T Y F U N D SDuring April10, the benchmark KSE 100-Indes moved up by

2.45 per cent. Equity market funds that track KSE 100-Index fol-lowed the suit. Out of eighteen funds, fourteen of them postedpositive returns, while none of them outperformed KSE 100-Index's return of 2.45 per cent. Its reason was that broader marketremained stagnant except Oil & Gas Development Company(OGDC) which was stepped up by 3.16 per cent MoM.

The average returns of equity funds were 0.48 per cent inApril10 i.e.409 bps lower than previous month. As far fund's per-formance, Pakistan Stock Market Fund secured best risk adjustedreturns; the fund has outperformed average equity returns by138bps and posted 1.86 per cent returns in April10.

In terms of Year-to-date, ABL Stock Fund posted 45.38 per centreturns followed by MCB Dynamic Stock Fund with returns of42.10 per cent till April10.

As regard to asset's size, the equity funds, which constitute 25.4per cent of the total open-end mutual fund's asset's size, hasachieved a slight growth of 0.88 per cent in its asset's size toRs47.80 billion in April 2010 as compared to Rs47.38 billion inMarch2010.

With respect to asset's size increase, MCB Dynamic Stock Fundasset's size hiked by 12.75 per cent MoM to Rs741 million, fol-lowed by IGI Stock Fund and United Stock Advantage Fund with4.36 per cent and 3.44 per cent increase respectively.

Equity Funds April 2010 Return (%) YTD Return (%)

Pakistan Stock Market Fund 1.86 35.91

IGI Stock Fund 1.73 41.84

Alfalah GHP Alpha Fund 0.81 33.09

MCB Dynamic Stock Fund 0.80 42.10

NAFA Stock Fund 0.53 27.12

Atlas Stock Market Fund 0.52 40.83

United Stock Advantage Fund 0.41 39.39

HBL Stock Fund 0.38 30.97

Pak Oman Advantage Stock Fund 0.29 11.26

National Investment Trust 0.25 33.64

First Habib Stock Fund 0.25 33.64

Crosby Dragon Fund 0.11 4.36

Lakson Equity Fund -0.06 8.60

KASB Stock Market Fund -0.08 25.23

ABL Stock Fund -0.31 45.38

AKD Opportunity Fund -1.47 32.95

Source: TFD Research & Fund Manager Report

9

Performance of Equity Funds in April 10


INCOME AND MONEY MARKET FUNDS

Income and money market fundsonce again showed volatile returnsMoM as most of the funds having

exposure in TFCs have depicted amixed performance TFCs yield furthernarrowed in fertilizer and banking sec-tors but widened in textile and telecomsectors. On the other hand, moneymarket funds have offered consistentstable returns with low volatility inearning yields.

Income and money market fundswhich now constitute 58 per cent oftotal open-end mutual fund, their

asset's size has reflected a positivegrowth of 9.02 per cent to Rs109.3 bil-lion at the end of April10 as comparedto Rs100.3 billion in March10, up byRs9.05 billion in absolute terms. Outof Rs9.05 billion ABL Income Fund,Nafa Government Securities LiquidFund and UBL Liquidity Plus Fundwhich asset's size bulged by Rs2,794,1,927 and 1,057 million to Rs12.35,6.33 and 6.51 billion respectively inApril 2010.

Comparing fund's performance, HBLIncome Fund posted annualised

returns of 22.41 per cent in April10and thus outperformed its respectivecategory, followed by AKD IncomeFund and Dawood Money MarketFund which delivered returns of 20.34per cent and 18.64 per cent respective-ly.

In terms of year-to-date returns,Pakistan Income Fund secured annu-alised returns of 14.83 per cent fol-lowed by Pakistan IncomeEnhancement Fund and HBL IncomeFund with returns of 14.07 per centand 13.94 per cent respectively.

Income & Money Market Funds April 10 YTD FundReturns Returns Stability(%) (%) Rating

HBL Income Fund 22.41 13.94 A(f)

AKD Income Fund 20.34 8.50 BBB(f)

Dawood Money Market Fund 18.64 -12.58 n/r

JS Income Fund 17.69 7.10 AA-(f)

Pakistan Income Fund 17.51 14.83 AA-(f)

Crosby Phoenix Fund 17.00 12.42 A(f)

MCB Dynamic Cash Fund 15.20 11.80 A+(f)

United Growth & Income Fund 15.08 9.09 A(f)

JS Aggressive Income Fund 12.73 -3.95 n/r

MSF - Perpetual 12.23 10.33 AA (f)

First Habib Income Fund 12.12 10.60 u/p

Lakson Income Fund 11.99 11.63 n/r

IGI Income Fund 11.68 11.14 n/r

Faysal Savings Growth Fund 11.40 11.13 A(f)

MCB Cash Mgt Optimizer Fund 11.30 11.10 AA(f)

NIT Income Fund 11.29 10.88 n/r

Pakistan Cash Management Fund 11.15 11.21 AAA

NIT Government Bond Fund 11.11 11.44 n/r

Lakson Money Market Fund 11.08 11.02 n/r

Atlas Money Market Fund 11.06 10.77 AA(f)

KASB Cash Fund 10.95 9.95 AA+(f)

Askari Sovereign Cash Fund 10.88 10.90 AA+(f)

UBL Liquidity Plus Fund 10.86 10.49 AA+(f)

ABL Income Fund 10.79 11.08 A+(f)

NAFA Govt. Securities Liquid Fund 10.54 10.32 AA+(f)

Alfalah GHP Cash Fund 10.42 10.81 n/r

BMA Express Cash Fund 10.30 10.36 AA+(f)

JS Cash Fund 10.30 10.30 n/r

Meezan Cash Fund 10.06 10.11 AA(f)

NAFA Saving Plus Fund 10.02 10.30 AA-(f)

Meezan Sovereign Fund 9.90 9.48 AA+(f)

Pakistan Income Enhancement Fund 9.86 14.07 A+(f)

Atlas Income Fund 8.82 10.73 A+(f)

Alfalah GHP Income Multiplier Fund 7.11 4.76 u/p

NAFA Cash Fund 6.84 6.58 A+(f)

BMA Chundrigar Road Saving Fund 4.78 11.70 A-(f)

Nafa Income Fund 4.53 2.23 A(f)

KASB Liquid Fund 0.78 -9.63 n/r

Namco Income Fund -4.68 10.29 n/r

POBOP Advantage Plus Fund -9.52 -10.05 A-(f)

Askari Income Fund -13.70 2.44 n/r


10

n/r: not rated u/p: under progressSource: TFD Research & Fund Manager Report


BALANCED FUNDSBalanced fund stayed more accommodative for switching of

asset in terms of asset allocation. Out of five funds, three fundsposted positive returns and none of them could outperform KSE100-Index. The average returns of balanced fund category duringthe month of April10 were 0.05 per cent as compared to returns of1.33 per cent in March10, dropped by 128bps MoM. HBL MultiAsset Fund has secured 1.20 per cent returns and once againexcelled balanced fund category's average returns by 115bps andremained the best pick in balance fund category. The outperfor-mance was due to as fund's holdings in OGDC.

In terms of year-to-date returns, Faysal Balanced Growth Fundoffered returns of 27.80 per cent followed by Unit Trust of Pakistanand HBL Multi Asset Fund posted returns of 25.76 per cent and25.11 per cent till April10.

With regard to asset's size growth the category stands at Rs5.30billion at the end of April10 as compared to Rs5.37 billion in pre-vious month (March10), a descent of 1.31 per cent MoM.

As far as growth in individual fund's asset size is concerned, HBLMulti Asset Fund's asset size increased by 1.16 per cent to stay atRs380 million.

ISLAMIC EQUITY FUNDSAs far as Islamic funds are concerned, all the three Islamic equi-

ty funds expose to local capital market and obtained positive

returns, however none of the funds outperformed KSE 100-Index

returns of 2.45 per cent.

Atlas Islamic Stock Fund and Meezan Islamic Fund offered opti-

mum risk adjusted returns in their category and posted gains of 1.09

per cent and 1.0 per cent respectively in April10 as compared to

average category returns of 0.72 per cent, and thus outperformed

category by 37bps and 28bps respectively.

In terms of year-to-date returns, Meezan Islamic Fund once again

outperformed its category by providing returns of 44 per cent fol-

lowed by Atlas Islamic Stock Fund and JS Islamic Fund with

returns of 39.95 per cent and 33.86 per cent respectively. The size

of Islamic equity funds slightly increased by 0.31 per cent to remain

at Rs5.19 billion in April10 as compared to Rs5.17 billion in

March10. In terms of performance of individual fund's asset size

growth in Islamic funds category, Atlas Islamic Fund's asset size

soared by 2.23 per cent to Rs291.0 million at the end of April10.

Balanced Funds April'10 Return (%)Year to date (%)HBL Multi Asset Fund 1.20 25.11NAFA Multi Asset Fund 0.89 16.08Unit Trust of Pakistan 0.25 25.76KASB Balanced Fund -0.60 4.61Faysal Balanced Growth Fund -1.56 27.80Source: TFD Research & Fund Manager Report

Islamic Equity Funds April10 Year to Return (%) date (%)

Atlas Islamic Stock Fund 1.09 39.95Meezan Islamic Fund 1.00 44.00JS Islamic Fund 0.06 33.86Source: TFD Research & Fund Manager Report

11


ISLAMIC

INCOME FUNDSDuring April10, the asset size of Islamic income funds

waned by 1.95 per cent to Rs6.27 billion as compared to

Rs6.40 billion in March10 i.e. asset size slid by Rs125

million in absolute terms(-1.95 per cent MoM). The fall

in Sukuks' prices was quite reflecting in Islamic income

funds' NAVs.

United Islamic Income Fund posted annualised returns

of 19.97 per cent in April10 and remained the top pick in

the category, followed by KASB Islamic Income Fund

and Meezan Islamic Income Fund which secured annu-

alised returns of 18.88 per cent and 12.66 per cent

respectively.

For Year-to-date returns, Atlas Islamic Income Fund

and IGI Islamic Income Fund posted annualised return of

9.50 per cent and 9.49 per cent respectively till April10.

In terms of asset's size growth, Atlas Islamic Income

Fund obtained a growth of 9.42 per cent in its asset size

to stand at Rs336 million.

Islamic Income Funds April '10 Return (%) Year to date (%)

United Islamic Income Fund 19.97 5.30

KASB Islamic Income Fund 18.88 -2.38

Meezan Islamic Income Fund 12.66 7.27

Atlas Islamic Income Fund 9.42 9.50

NAFA Islamic Income Fund 9.29 -28.73

IGI Islamic Income Fund 9.26 9.49

Pak Oman Advantage Islamic Income Fund 9.08 -1.69

Askari Islamic Income Fund 8.55 8.46


12


ASSET ALLOCATION FUNDSAsset allocation funds looked flexible for switching of assets in

terms of asset allocation. Funds in the category were aggressive-ly exposed to equity market on anticipation of boost in KSE 100-Index. Out of six funds in the asset allocation category, half ofthem achieved positive returns. However, none of them couldoutperform KSE 100-Index's returns in April10. Pakistan CapitalMarket Fund was best pick in asset allocation category as it post-ed gains of 3.49 per cent outdid its category by 285bps.

With regard to year-to-date returns, Faysal Asset AllocationFund posted return of 38.0 per cent followed by JS AggressiveAsset Allocation Fund and Pakistan Capital Market Fund withreturns of 26.72 per cent and 25.24 per cent respectively.

In terms of asset's size growth, the category remained flat atRs2.18 billion at the end of April10 as compared to Rs2.19 billion

in last month, a minor decline of 0.06 per cent MoM.As regard to individual fund's asset size growth, Pakistan

Capital Market Fund's asset size inflated by 5.97 per cent toRs480 million at the end of April10.

Asset Allocation Funds April '10 Return (%)Year to date (%)

Pakistan Capital Market Fund 3.49 25.24

MCB Dynamic Allocation Fund 1.30 24.40

Alfalah GHP Value Fund 0.96 23.72

Faysal Asset Allocation Fund -0.28 38.00

Askari Asset Allocation Fund -0.36 18.66

JS Aggressive Asset Allocation Fund -1.25 26.72


ISLAMIC ASSET ALLOCATION FUNDS

The asset's size of Islamic asset allocation funds posted nega-tive growth of 6.57 per cent in April10. Except Alfalah GHPIslamic Fund and Askari Islamic Asset Allocation Fund, remain-ing all funds posted positive returns. The category's asset sizeremains at Rs2.29 billion as compared to Rs2.45 billion inMarch10, drop by 6.57 per cent MoM. Pak Oman AdvantageIslamic Fund was the best pick in Islamic asset allocation catego-ry as it secured gains of 1.08 per cent and thus outperformed thecategory average by 61bps.

For year-to-date returns, United Composite Islamic Fund cameup with the best fund in the category by posting returns of 24.41per cent, followed by Alfalah GHP Islamic Fund and PakistanInternational Element Islamic Fund with returns of 24.14 per centand 16.27 per cent respectively till April10.

In terms of asset size growth, only Pak Oman AdvantageIslamic Fund and Askari Islamic Asset Allocation Fund hadshown a positive growth of 1.07 per cent and 1.0 per cent to standat Rs108 and 114 million respectively.

Islamic Asset Allocation Funds April 2010 Return (%) YTD Return (%)

Pak Oman Advantage Islamic Fund 1.08 2.45

United Composite Islamic Fund 0.94 24.41

NAFA Islamic Multi Asset Fund 0.74 14.43

Dawood Islamic Fund 0.43 -7.33

Pakistan International Element Islamic Fund 0.31 16.27

Alfalah GHP Islamic Fund -0.07 24.14

Askari Islamic Asset Allocation Fund -0.11 3.16


14

Big NewsInvestors’ Guide

15

A PRESTIGIOUS DEAL

Investors' Guide Monitoring

Finally Faysal Bank reportedly won the bid for RBSPakistan which was being eyed by several bidders fora long time and many deals for its sale could not see

the day light despite reaching at the end of tunnel. Big giantslike MCB Bank earlier moved ahead to buy the RBS Bankbut later on due to regulatory hitches it could not becomevictor of the deal. However, now after a year and half sincethe Scottish bank was offered for sale, a relatively new bankin the sector has managed to win the coveted deal.

Experts said that the main objective of Faysal Bank toacquire the RBS Pakistan was not only to expand its marketshare but also to enhance its product base which was well-achieved when the deal was nailed down. In its successfulbid for RBS Pakistan, the bank has been able to get a littlebit of both, though the price tag may not necessarily beworth it. The details of the financial agreement betweenFaysal Bank and RBS have not yet been disclosed, but ana-

lysts expect the price to be higher than last time. According to the latest available financial statements, dat-

ing September 30 2009, the bank has approximately Rs37billion in unpledged investments, about Rs25 billion ofwhich is in highly liquid government securities. Should thebank have to, it could theoretically liquidate some of thosesecurities to complete the transaction, though it would thenhave a less stable balance sheet, not quite a wise idea giventhe high rate of non-performing loans on RBS Pakistan'sbalance sheet.

This is especially relevant when considering the fact thatthe bank's Bahraini parent company, Ithmar, has made itabundantly clear that the funds for the transaction will beraised locally by Faysal Bank. As for the impact on thefinancial sector as a whole, the impact is expected to beremarkably little. Faysal Bank will move from being the12th largest bank in the country by assets to the 10th largest,with Rs256 billion in assets. Perhaps most critically, howev-er, the bank will be within striking distance of becoming

larger than Bank AL Habib and Askari Bank, a thoughtthat is no doubt on the minds of Faysal Bank's manage-ment.

The planned sale of RBS Pakistan is part of a move byBritish government-controlled RBS to sell assets globallyas it tries to exit from up to 36 countries and focus on itscore domestic businesses.

The Faysal Bank's management has been largely unwill-ing to comment on anything to do with the RBS transac-tion, but according to sources familiar with the matter,Faysal Bank has procured RBS to maintain its prestigefactor as well. RBS is a globally recognised brand nameand has some of the best human capital in Pakistan interms of banking talent. But the two banks also have verydifferent cultures, a factor that may be cause for somestrife once the merger of the two organisations takes place.

Standard Chartered Bank faced similar cultural clashesafter its acquisition of Union Bank. In addition, RBS hasa product for high net-worth individuals called "RoyalPreferred Banking."

The high net-worth business is coveted by banks since itgives them a much greater asset base without having acorresponding increase in their operating costs. FaysalBank is likely to be keen to integrate RBS' high-endclients into its own branch network, though for the deal tomake financial sense, the bank would probably want toconsider shutting down redundant branches.

MCB Bank said in January this year its bid for RBS'sPakistan operations had lapsed because it had failed to getregulatory approval. MCB Bank had agreed in August lastyear to buy 99.37 per cent of RBS Pakistan for about $87million (60.9 million pound).

Apart from Habib Bank and MCB Bank in a year's agobid, four financial institutions recently showed interest inbuying the company: Faysal Bank, EFG Hermes, SoneriBank and Invest Capital Investment Bank.

RBS Pakistan had over 117 billion Pakistan rupees (972million pound) of assets as at March 31, 2008, about 5,000employees and over 75 branches in 24 cities, according toits website.

MCB Bank said in January this year its bid for RBS's

Pakistan operations had lapsed because it had failed

to get regulatory approval. MCB Bank had agreed in

August last year to buy 99.37 per cent of RBS Pakistan

for about $87 million (60.9 million pound).

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