Al Rajhi Multi Factor fund benefits from diversification, low cost structure

Al Rajhi MSCI Saudi Multi Factor Index Fund is distinguished for its diversified investments, low cost structure and easy performance monitoring, fund manager Al Rajhi Capital said in an exclusive interview to Argaam on Thursday.

The fund invests in the constituents of benchmark index based on their weights, through tracking MSCI Saudi Multi-Factor Index.

The fund has zero subscription fees while management fees stand at 1 percent annually of net asset value, Al Rajhi Capital said.

Excerpts from the full interview with Al Rajhi Capital:

Q: What are the fund’s mechanism and investment objectives?

A: Al Rajhi MSCI Saudi Multi Factor Index Fund is an open-ended fund that aims to achieve medium to long-term capital growth by tracking the performance of the MSCI Saudi Multi Factor Index, which complies with Al Rajhi Shariah Board's rules.

The vehicle relies on passive management, as it invests in the benchmark index constituent stocks as per their weights.

Q: What are the characteristics distinguishing the fund from peers and other Saudi REITs? 

A: The fund has been constructed by using a combination of three customized underlying MSCI Factor indices, including quality, momentum and enhanced value.

These factors are stock characteristics that explain portfolio performance in the long term. The fund is distinguished by investment diversification, low-cost structure and easy performance monitoring.

Q: Can you explain the “passive management” approach?

A: Passive management is an approach wherein the underlying investment securities are not chosen by a portfolio manager, but instead are selected to match an index or part of the market. A passive fund aims to be closely aligned with the performance of its underlying index.

Q: What about the fund subscription and management fees?

A: There fund has zero subscription fees, while management fees stand at 1 percent annually of net asset value. The fund manager will pay the necessary and actual management fees, including audit, custody, publishing, board remuneration, regulatory fees and other expenses.

The fund will pay transaction commissions and fees, the purchase and sale of securities at prevailing market prices.

Q: How will the fund pay zakat on behalf of investors?

A: The fund will not pay zakat on behalf of its investors. Each investor has to directly calculate and pay zakat. Zakat value will be rather based on investor intentions.

For example, if an investor aims to buy units for ownership purposes, the amount paid by companies to the Saudi zakat authority will then be sufficient. However, if investors are looking to speculation, they will be required to pay their own zakat at 2.5 percent of unit prices.