GLOBAL INVESTOR - ADCBthe role of inflation targeting in controlling inflation. Still, in a large...

GLOBAL INVESTOR Asset Management Newsletter from ADCB

August 2014

Global Market

Performance

Macro

Themes

Product

Spotlight

Performance

Review

adcb.com


August 2014

Global Market

Performance

Macro

Themes

Product

Spotlight

adcb.com

Global Market Performance Global equity markets ended mixed in July with most

Western European (including the UK) and US markets

finishing lower and their Far Eastern counterparts

higher. Throughout the month, global stock markets

were influenced by rising geo-political tensions,

mixed corporate earnings results, concerns over an

expected debt default by Argentina and improved

macro-economic data from the US and China. US

markets including the Dow Jones, S&P 500, and

NASDAQ declined 1.56%, 1.51% and 0.87%

respectively, on news that the economy expanded

faster than expected during the second quarter of the

year (+4%), prompting fears that the Fed may need to

raise interest rates earlier than anticipated. Moreover,

the Federal Open Market Committee (FOMC) cut its

monthly asset buying to USD 25bn, its sixth

consecutive decrease, and signaled continued steady

reductions. Meanwhile, the FTSE was down 0.21%,

due to poor earnings from several companies

including Weir Group Plc and Lloyds Banking Group

Plc. Elsewhere, the Hang Seng jumped 6.75%, on

speculation that the government plans to accelerate

measures to support the housing market and better

than expected China factory activity data. The Nikkei

added 3.03% following improved earnings results

from both industrial and pharmaceutical companies.

The Sensex added 1.89%, due to sustained buying of

IT shares by foreign funds and the Indian cabinet’s

approval of a higher FDI limit for the insurance sector

and a reorganization of foreign debt limits, increasing

confidence in the new government's reform agenda.

The GCC ended the month bullishly, with all seven

indices finishing higher. The DFM and DSM

outperformed other regional markets, gaining 22.60%

and 12.09%, respectively. In particular, the DFM

surged on strong buying activity in the Investment &

Financial Services and Real Estate sectors, while the

DSM advanced following robust gains in the Real

Estate and Banks & Financial Services sectors.

Natural gas prices dropped 13.90% in July, reporting

their sixth consecutive weekly decline, as forecasts of

mild summer weather look set to depress demand.

Similarly, NYMEX crude oil prices decreased 6.83%

with ample global supplies offsetting a sharper than

expected drop in US crude stocks.

Meanwhile, corn and soybean prices slumped 15.84%

and 12.57%, respectively, following indications of a

satisfactory US harvest with crops in the Midwest

developing well.

Performance

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Product

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Global Market Performance

Index Snapshot (World Indices) Commodities, Yields and Currencies

Index Latest 1M Change 1Yr Change YTD Commodity Latest 1M Change 1Yr Change YTD

S&P 500 1,930.67 (1.51%) 14.53% 4.45% NYMEX Crude 98.17 (6.83%) (6.53%) (0.25%)

Dow Jones 16,563.30 (1.56%) 6.86% (0.08%) OPEC 105.21 (3.63%) 0.28% (3.09%)

NASDAQ 4,369.77 (0.87%) 20.50% 4.63% Natural Gas 3.84 (13.90%) 11.46% (9.20%)

Hang Seng 24,756.85 6.75% 13.13% 6.22% Gold 1,281.30 (3.06%) (2.37%) 6.61%

Nikkei 15,620.77 3.03% 14.28% (4.12%) Platinum 1,465.70 (1.03%) 2.61% 6.90%

FTSE-100 6,730.11 (0.21%) 1.65% (0.28%) Copper 7,135.50 2.61% 5.68% (3.50%)

Sensex 30 25,894.97 1.89% 33.85% 22.32% Sugar 16.46 (8.61%) (3.01%) 0.30%

MSCI World 1,714.33 (1.67%) 13.69% 3.21% Soybean 1,224.40 (12.57%) (10.89%) (6.71%)

MSCI EM 1,065.78 1.43% 12.48% 6.29% Corn 357.00 (15.84%) (28.46%) (15.40%)

TASI 10,214.73 7.38% 29.05% 19.67% Wheat 530.20 (6.09%) (20.17%) (12.39%)

DFM 4,833.76 22.60% 86.74% 43.44% Rice 12.99 (10.69%) (17.95%) (16.28%)

ADX 5,054.95 11.07% 31.39% 17.82% Yields and Currencies 101.58 (0.98%) 4.47% 3.21%

KSE 7,130.89 2.29% (11.64%) (5.55%) 2Y Treasury 0.53 0.06 0.22 0.15

BSE 1,471.40 3.07% 23.14% 17.82% 10Y Treasury 2.58 0.05 (0.02) (0.46)

MSM 30 7,200.70 2.75% 8.39% 5.36% EUR 1.3398 (2.15%) 1.01% (2.69%)

DSM 12,877.31 12.09% 32.69% 24.06% GBP 1.6929 (1.04%) 10.61% 2.65%

JPY 102.37 0.96% 4.37% (2.71%)


August 2014

Sources: Exchange websites, Bloomberg, LME, US Treasury, CME Group, OPEC, Live charts, UAE Central Bank, Erate, and XE.

Global Market

Performance

Performance

Review

Does inflation targeting work? Will India benefit from

inflation targeting?

Considering the success of inflation targeting in

developed markets, many central banks in emerging

countries have, over the past decade, adopted such a

policy to control general rises in prices. This

approach replaces its predecessor, which aimed to

meet a specific inflation target at all times. Instead, it

looks to achieve its target over the medium term, i.e.

two to three years. However, aging populations and

high debt in many developed economies have limited

the role of inflation targeting in controlling inflation.

Still, in a large number of emerging countries with

young populations, inflation targeting may still play a

crucial role in promoting price stability. Recently, the

Reserve Bank of India (RBI) became the latest central

bank to adopt inflation targeting. It has announced a

consumer price index (CPI) inflation target of 4%, plus

or minus 2%. In the very short term, we believe the

RBI will find it difficult to reduce inflation as the

country faces supply side constraints, and operates

controlled price regimes for many commodities

including inputs such as food, diesel, electricity and

train fares that render monetary policy ineffective.

Still, provided Mr. Modi’s government can slowly but

surely introduce the necessary structural reforms,

particularly removing distortionary subsidies and

other impediments to increased investments, the

central bank’s new anti-inflationary stance could

substantially increase macro-economic stability,

encouraging real growth.

Inflation targeting was first introduced by developed

economies such as Germany and Switzerland

following the collapse of the Bretton Woods

international monetary system in the early 1970s. In

the 1990s other developed countries including New

Zealand, Canada, the UK, and Australia followed suit.

Inspired by the success of these economies, many

emerging markets also began to target inflation to

control domestic inflation.

Using this method, a central bank sets itself an

inflation target that must be met over a specified

period, usually two to three years. Adopting various

tools including changes in interest rates, it attempts

to steer actual inflation towards a publicly announced

target. Many central banks have chosen targets with

symmetrical ranges around a midpoint, while others

have identified only a target rate or an upper limit to

inflation. For example, both the US and UK have

adopted a target inflation rate of 2%, while countries

such as Canada, Australia and New Zealand have set

upper and lower limits around their desired rate.

Global Market

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Macro Themes


August 2014

Countries Inflation

targeting

adoption date

Inflation rate

at adoption

date

Current

inflation

Developed Markets:

UK 1992 4.0 1.9

Canada 1991 6.9 2.4

Australia 1993 2.0 2.9

New Zealand 1990 3.3 1.6

US 2012 2.9 2.1

Source: IMF, Trading Economics

Countries Inflation

targeting

adoption date

Inflation rate

at adoption

date

Current

inflation

Emerging Markets:

Brazil 1999 3.3 6.5

Indonesia 2005 7.4 6.7

South Africa 2000 2.6 6.6

Turkey 2006 7.7 9.2

India 2014 8.8 7.3

Source: IMF, Trading Economics

GLOBAL INVESTOR

Global Market

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Macro Themes

However, over the last decade aging populations and

high debt in many developed economies have

weakened the role played by monetary policy tools,

such as changes in interest rates, in controlling

inflation. Together, these two factors now seriously

threaten the structural, long term, growth prospects

for these countries. Given the slow growth and

deflationary dynamics pervasive in developed

economies, the biggest risk facing them is no longer

inflation but deflation. Consequently, traditional tools

(essentially setting interest rates) used to implement

monetary policies (whether or not they involve

inflation targeting) are no longer sufficient. Any

monetary policy target must be supported by credible

methods of implementation (which in today’s

advanced economies basically implies massive direct

or indirect expansion of balance sheets). The means

chosen to target inflation are crucial, with the

effectiveness of both the policy and the target

dependent on the credibility of the tools used to

promote them. Recently, the BoJ has been credibly

aggressive, raising its inflation rate. Conversely, the

ECB’s reluctance to take action to support its rhetoric

has made it less effective in increasing inflation.

Despite the decreasing effectiveness of traditional

tools such as interest rate changes in the monetary

policies of developed economies, an inflation

targeting strategy could still prove effective in

emerging markets. Many have favorable

demographics but face high inflation and economic

uncertainty. A key advantage of such a policy is that it

promotes economic stability as central bank actions

to raise or lower interest rates become more

transparent. Also, managing inflation expectations is

one of the main driver of current inflation as it

influences wage negotiations, price setting, and

financial contracts for investment. Due to this

connection, central banks can affect current and

future inflation by better anchoring agents’

expectations concerning long term price rises.

Therefore, considering the effectiveness of inflation

targeting, emerging markets have announced such a

strategy. For example, at the beginning of this year,

India adopted a target to decrease consumer price

index (CPI) inflation in the medium term to 4%, plus

or minus 2%.

Asset Management Newsletter from ADCB

August 2014

3.0 3.0 3.0

1.0

2.0

1.0

2.0 2.0

2.5

2.0 2.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

UK Canada Australia New Zealand

US

(Per cent)

Developed markets inflation targets

Upper limit Lower limit Target rate/ Mid point

Source: IMF, Central Bank Website

6.5 6.0 6.0

7.0

6.0

2.5

4.0

3.0 3.0

2.0

4.5 5.0

4.5 5.0

4.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Brazil Indonesia South Africa Turkey India

(Per cent)

Emerging markets inflation targets

Upper limit Lower limit Target rate/ Mid point

Source: IMF, Central Bank Website

Global Market

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Macro Themes However, in the short term, the RBI aims to reduce

inflation in stages (as shown in the glide path in the

chart below), targeting year-on-year inflation of 8% by

January 2015 and 6% by January 2016. Indian

headline inflation, as measured by the new CPI, fell to

7.3% y-o-y in June 2014, down 386 bps from a high

of 11.16% y-o-y in November last year. This decrease

is mainly due to lower food prices, which account for

50% of the CPI basket. However, we still believe that

the RBI will find it difficult to meet its medium term

inflation target of 4% as core inflation, which excludes

food and fuel, remains high. The primary reasons for

such robust core inflation are connected with the

fact that a huge supply-demand mismatch persists in

India, the prices of many inputs including diesel,

electricity, train fares and various foodstuffs are

administratively controlled, and inflation in the

services sector, which comprises ~64% of the core

CPI basket, remains persistently high. Moreover, in

the short term food prices look increasingly likely to

rise again, due to the development of the El Niño

phenomenon, which has resulted in a sub-normal

monsoon season in India.

As a result, the RBI’s new anti-inflationary policy will

struggle to be effective in the short term. Indeed,

unless the government’s new structural reforms

complement the new monetary policy its inflation

targeting initiative may face problems over an even

longer term. However, from an investor’s perspective

this consideration also has very positive implications.

Markets in India may well retain positive momentum

even if inflation figures disappoint over the short- to

medium term. What matters is that the RBI maintains

a relatively restrictive monetary stance and that the

government’s roadmap of reforms is not diluted

going forward. In other words, both RBI and

government policies must remain credible. If they do,

the country’s equity markets could well continue to

gain ground on hopes of lower future inflation.

To conclude, inflation targeting is one of the most

important techniques in the modern world to control

general rises in prices. Despite the decreasing

effectiveness of this technique in advanced

economies with aging populations and high debt, we

believe it retains potential to benefit emerging

markets where demographic changes have less

impact on the effectiveness of monetary policy. In

the long term, the recent adoption of inflation

targeting by the RBI could augur well for the Indian

economy, while the country’s equity markets could

move even higher, provided the RBI continues to

adopt a relatively restrictive monetary policy with

some degree of independence, and the new

government fulfils its promises to introduce

necessary structural reforms.


August 2014

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

20

05

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06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

(Per cent)

A tough challenge to achieve RBI Inflation target

WPI New CPI

'Glide Path'

recommended by

RBI committee

CPI target set at 4%

within a +/-2% band

Source: Gavekal, Thomson Reuters

Global Market

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Themes

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Macro Themes GCC banking sector undergoes a major

transformation

To ensure stable and sustainable income levels within

the GCC, over the past decade the region has

implemented several strategies to diversify economic

activity and to decrease the importance of its

previous strong growth driver, the oil sector. Most

importantly, governments have moved quickly to

develop various alternative industries such as banking,

travel and tourism, telecommunications, and

additional oil processing businesses. As a result,

between 2007 and 2013, the oil sector’s share of

GDP within the GCC decreased significantly, with oil

sector GDP expanding at a modest CAGR of 2.2%.

Nevertheless, regional GDP growth has remained

reasonably resilient, due to an increased contribution

by the non-oil sector, which concurrently reported a

CAGR of 6.7%. On the other hand, the banking

industry (once a major contributor to non-oil sector

growth within the GCC) is currently expanding more

slowly than before 2008 when the global economic

crisis (which hit the sector so badly) began. Still, the

region continues to recover with higher economic

activity clearly set to support growing activity among

GCC banks. Moreover, its banking sector is

undergoing a substantial transformation supported by

an increasing focus on retail banking, the adoption of

more customer focused business models, the use of

state-of-the-art technologies to attract new

customers, and the launch of innovative products

and services such as Islamic banking.

The GCC banking sector expanded much faster

before the present economic difficulties began (i.e.

between 2005 and 2008) with CAGR in assets

ranging between ~46% in Qatar and ~20% in Saudi

Arabia (KSA). During this period, the region’s banks

reported record increases in corporate banking,

which accounted for between 30% and 50% of total

sector assets and revenues, and 75% of total loans.

However, since the global crisis, GCC banking sector

growth has slowed markedly with expansion at

around half pre-crisis levels throughout the region.

Apart from its slower growth, the GCC is also

experiencing various substantial changes in its

banking sector. In contrast to the period before 2008

when the corporate banking industry was expanding

more rapidly than any other, retail banking is now

increasing faster in four of the six GCC countries;

Qatar and the UAE are the exceptions.


August 2014

6.5

0.9

7.7

3.7

-2.4

-6.3

10.5

0.4

11.0

3.8 6.5

5.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2007 2008 2009 2010 2011 2012 2013 E

(Per cent)

GCC real GDP growth

Real GDP growth Real oil GDP growth Real Non-oil GDP growth

Source: IMF

31.4

19.7

46.2

21.6 22.0

34.8

6.5 10.2

17.0

(4.7)

8.3 12.6

-10

0

10

20

30

40

50

UAE KSA Qatar Bahrain Kuwait Oman

(Per cent)

Asset growth highest in Qatar - Pre & Post crisis

Pre crisis - 2005-2008 Post crisis - 2010-2013

Source: Central Bank Websites

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Macro Themes

With economic expansion taking place in non-oil

sectors such as travel and tourism,

telecommunications and oil processing industries,

the GCC banking sector now services a more diverse

customer base that comprises long-neglected

business clients such as small and medium-sized

enterprises (SMEs). Increasingly, banks will target

clients including young customers as well as women,

both of which are becoming increasingly important,

due to their higher education and employment within

the regional economy.

Consequently, retail banking in economies with low

sector penetration, such as KSA, Oman and Kuwait

(excluding Qatar and UAE), is likely to grow faster.

Both these countries have the GCC region’s most

developed banking sectors, with penetration rates in

2013 of ~124% and ~134%, respectively. As the UAE

banking market is considered to be overbanked and

Qatar’s domestic market to be relatively small, growth

in these economies, especially within the retail

banking sector will be lower compared to other

regional economies.

Apart from strengthening its focus on the retail

banking industry, the GCC banking sector is expected

to be transformed by more extensive use of new

(including mobile) technologies as growing numbers

of internet users pave the way for the emergence of

new distribution formats that complement

conventional methods of accessing clients.

Moreover, GCC banks are also considering more

customer focused business models to position

themselves in an increasingly competitive market,

with the banking sector continuously evolving to

meet customer demand for new products including

Islamic banking. The growing popularity of Islamic

products reflects its 'ethical' characteristics and

aversion to risk taking. Many government agencies,

authorities, banks and companies in both emerging

and developed countries are using Islamic finance

products more to fund large infrastructure and capital

expenditure projects. The growing importance of

Islamic banking as a source of finance within the

GCC region will certainly improve the GCC banking

industry’s growth prospects in future.


August 2014

133.6 124.1

98.3

71.9 67.7

0

20

40

60

80

100

120

140

160

UAE Qatar Kuwait Oman KSA

(Per cent)

UAE & Qatar have highest banking penetration

2013

Source: Central Bank Websites, IMF

100

150

200

250

300

350

400

450

500

550

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

(Index to 100)

Change in money supply (M2)

UAE KSA Qatar Bahrain

Kuwait Oman GCC

Source: Central Bank Websites

700

900

1,100 1,016

Global Market

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Macro Themes To conclude, the outlook for the GCC banking sector

looks increasingly positive. On the one hand, its

exponentially high growth in the pre-crisis period was

primarily driven by high economic growth and a

thriving corporate banking segment. Following the

global downturn in 2008, regional banks faced an

often volatile business environment driven by

evolving macroeconomic and demographic

conditions. These resulted in substantially slower

industrial and economic growth than previously.

However, measures continue to be taken to improve

the sector’s longer term outlook. Banks are

increasingly switching from the corporate banking

segment to its long neglected and underserved retail

counterpart for future growth, in turn servicing a

more diverse customer base. Further, the regional

banking industry is still developing, incorporating new

technologies such as mobile banking to attract new

customers, and diversifying product portfolios to offer

more niche — including Islamic – banking products

and services to clients.


August 2014

Global Market

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Product Spotlight

GLOBAL INVESTOR

ADCB Arabian Index Fund

The ADCB Arabian Index Fund is a passively managed

index fund, managed by ADCB. Recent developments

in Saudi Arabia related to the opening of their market

to foreign investors bode well for the performance of

Saudi equities and the ADCB Arabian Index Fund, with

its large Saudi exposure, represents an efficient

vehicle for accessing this market.

The Fund's investment objective is to provide

investors with the investment returns which

correspond closely to the total return of the S&P Pan

Arab Large/Mid Cap Composite Index before fees

and expenses.

The regulatory Authorities in the Kingdom of Saudi

Arabia recently announced that they could open their

stock market to foreign investors as soon as the 2nd

quarter of 2015. Such a move could also lead the way

for the inclusion of Saudi into the MSCI emerging

market Index in 2016. Should this happen KSA would

represent around 4% of the emerging market Index, a

share equal to 8 times the current weight of the UAE

in that same index. The succession of these potential

events could offer a long lasting catalyst for the Saudi

market in the coming two years and certainly adds

luster to the already compelling Saudi Investment

case with its growing population and important

government led Infrastructure spending. International

Investors will be more then keenly interested by the

Saudi Market as the largest economy in the Arab

world, offers a the most diversified stock market in

the region, solid budgetary surpluses and a dollar peg

that is considered a boon in a sea of volatile

emerging market currencies.

The ADCB Arabian Index fund which has a 56%

exposure to Saudi Arabia, is a tracker fund

benchmarked against the S&P pan Arabian Large and

Mid cap composite. It offers diversification through its

176 names, in 16 industry groups and 9 countries

spanning across the GCC, the Levant and North

Africa. It is one of the most diversified equity

exposure offerings in the region.

For more information about the ADCB Arabian Index

Fund, and investment products in general, please

contact your relationship manager at ADCB.

Asset Management Newsletter from ADCB

August 2014

ADCB Arabian Index Fund Country Exposure

Saudi Arabia 56.04%

United Arab Emirates 12.07%

Kuwait 10.42%

Qatar 7.98%

USD 4.00%

Egypt 3.87%

Oman 1.59%

Jordan 1.48%

Morocco 1.45%

Bahrain 1.10%

Global Market

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Product Spotlight


August 2014

0

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Performace Chart

ADCB Arabian Index Fund S&P Pan Arabian Index

Cumulative Returns as at 31 July 2014 1 month 3 month 6 month YTD 1 Year 3 Years 5 Years Since Inception (Jan 08)

ADCB Arabian Index Fund (Net of Fees) 8.28% 4.83% 14.09% 18.14% 27.78% 48.61% 54.80% -20.94%

Benchmark 8.52% 4.75% 15.53% 19.88% 30.94% 54.62% 72.18% -9.74%

Calendar Year Returns YTD 2013 2012 2011 2010 2009 2008

ADCB Arabian Index Fund (Net of Fees) 18.14% 24.37% 5.95% -11.38% 12.33% 17.46% -56.56%

Benchmark 19.88% 26.62% 6.81% -10.47% 17.27% 21.46% -56.34%

Top Five Holdings Weight

Saudi Basic Industries 7.34%

Al Rajihi Bank 5.61%

USD Cash 4.00%

Etihad Etisalat 3.34%

Emaar Properties 2.81%

ADCB Arabian Index Fund – Performance Data as at 31 July 2014

Global Market

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Performance

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WealthDesignTM: Funds Performance Review


August 2014

Fund House Performances

Fund Asset Class / Target Market ISIN CNY NAV 3M YTD 12M 36M 60M

Equity Funds

Developed

M&G GLOBAL LEADERS FUND "A" Global Equities GB00B1RXYW84 USD 11.0 3.1% 1.7% 10.7% 29.8% 61.4%

M&G GLOBAL DIVIDEND FUND "A" Global Equities GB00B39R2V77 USD 16.5 1.1% 2.8% 14.5% 38.4% 93.8%

AB GLOBAL THEMATIC REASEARCH PORTFOLIO "A" Global Equities (Thematic) LU0069063385 USD 18.4 3.0% 2.7% 16.5% 9.4% 38.9%

FIRST EAGLE AMUNDI INTERNATIONAL FUND "A" Gobal Equities LU0068578508 USD 6040.1 1.6% 3.6% 9.3% 20.8% 58.5%

OASIS CRESCENT GLOBAL EQUITY FUND "D" Islamic Global Equities IE00BCV7MP24 USD 28.2 2.3% 5.5% NA NA NA

M&G AMERICAN FUND "A“ * US Equities GB00B1RXYR32 USD 13.5 3.4% 3.6% 13.3% 43.2% 85.0%

SCHRODER ISF EURO EQUITY FUND "A" European Equities LU0106235293 EUR 27.9 (0.2%) 2.8% 12.9% 38.3% 58.8%

JPMORGAN FUNDS- PACIFIC EQUITY FUND "A" Asia Pacific Equities LU0210528096 USD 16.3 9.2% 0.8% 9.7% 11.6% 45.1%

FTIF FRANKLIN TECHNOLOGY FUND "A" Global Tech Equities LU0109392836 USD 9.8 5.1% 4.2% 18.6% 35.3% 98.6%

JPMORGAN FUNDS- HIGHBRIDGE US STEEP FUND "A" US Equities LU0325075496 USD 17.0 2.7% 5.6% 14.0% 54.5% 110.4%

JPMORGAN FUNDS- HIGHBRIDGE EUROPE STEEP FUND "A" European Equities LU0325073954 EUR 14.8 1.6% 7.4% 17.5% 36.9% 65.7%

Emerging

SCHRODER ISF EMERGING MARKETS FUND "A" Global Emerging Markets Equities LU0106252389 USD 13.9 8.9% 5.9% 13.0% 1.2% 35.1%

SCHRODER ISF BRIC FUND "A" BRIC Equities LU0228659784 USD 199.0 12.6% 7.6% 16.5% (5.0%) 20.2%

AMUNDI ISLAMIC- BRIC QUANT "A" * Islamic BRIC Equities LU0399639573 USD 169.5 5.0% (1.0%) 12.4% (18.9%) 5.8%

FTIF FRANKLIN INDIA FUND"A" India Equities LU0231203729 USD 28.6 16.9% 27.2% 40.1% 6.7% 53.5%

FIDELITY FUNDS -LATIN AMERICA FUND "D" Latin America Equities LU0050427557 USD 39.4 3.9% 4.1% 4.8% (14.0%) 27.6%

FTIF -TEMPLETON EMERGING MARKETS SMALLER COMPANIES FUND "A" Emerging Markets Small Cap Equities LU0300738514 USD 9.9 8.4% 10.1% 23.3% 8.6% 64.2%

EASTSPRING INVSTMENTS- DRGAON PEACOCK FUND "A" China & India Equities LU0259732245 USD 19.7 14.2% 10.4% 21.1% (2.8%) 21.8%

BLACKROCK GF EMERGING EUROPE FUND "A" Emerging Europe LU0011850392 EUR 86.6 10.2% (2.9%) (1.1%) (12.6%) 35.7%

JPMORGAN FUNDS-ASEAN EQUITY FUND "A" South East Asian Equities LU0441851309 USD 20.5 4.8% 11.8% 3.7% 18.4% NA

* Approved by ADCB Sharia Supervisory Board

Global Market

Performance

Macro

Themes

Product

Spotlight

Performance

Review

adcb.com



August 2014



Equity Funds

Frontier

AL NOKHITHA FUND UAE Equities (Active) ADCBANF UH AED 9.5 4.7% 34.9% 56.3% 146.6% 132.1%

ADCB MSCI UAE INDEX FUND UAE Equities (Passive) ADCBMSC UH AED 11.1 (0.8%) 36.6% 61.1% 167.5% 151.9%

ADCB ARABIAN INDEX FUND Arabian Markets Equities (Passive) ADCARAB UH USD 7.9 4.8% 18.1% 27.8% 48.6% 54.8%

FTIF-TEMPLETON FRONTIER MARKETS FUND "A" Frontier Markets Equities LU0390136736 USD 21.0 5.8% 9.2% 15.8% 28.5% 63.9%

Fixed Income

Developed

BNY MELLON GLOBAL BOND FUND "A" Global Bond IE0003924739 USD 2.2 0.5% 3.5% 3.2% 0.6% 18.6%

SCHRODER ISF GLOBAL CORPORATE BOND FUND "A" Global Corporate High Yield Bond LU0106258311 USD 10.2 1.6% 4.9% 7.1% 15.2% 32.2%

AMUNDI FUNDS- BOND GLOBAL AGGREGATE "A" Global Aggregate LU0319688361 USD 204.7 1.5% 3.0% 4.0% 18.4% 53.2%

Emerging

PICTET-EMERGING LOCAL CURRENCY DEBT FUND "A" Emerging Markets Bond LU0255798364 USD 177.2 1.3% 3.3% 0.5% (5.7%) 21.3%

FTIF-TEMPLETON GLOBAL BOND FUND "A" Global Bond LU0252652382 USD 29.5 2.3% 2.9% 5.8% 11.4% 38.7%

High Yield/Sukuk

GOLDMAN SACHS GLOBAL HIGH YIELD PORTFOLIO "A" Global High Yield LU0234573771 USD 18.1 0.2% 3.4% 7.2% 24.8% 69.7%

Global Market

Performance

Macro

Themes

Product

Spotlight

Performance

Review

adcb.com



August 2014



Alternatives

Real Estate

HENDERSON HORIZON FUND- GLOBAL PROPERTY EQUITIES FUND "A" Global Real Estate Companies Equities LU0209137388 USD 17.8 4.5% 9.3% 8.3% 22.1% 83.9%

NEUBERGER BBERMAN US REAL ESTATE SECURITIES FUND "A" US Real Estate Securities IE00B0T0GQ85 USD 15.3 3.0% 12.8% 9.9% 23.5% 129.6%

Commodities

JPMORGAN FUNDS GLOBAL NATURAL RESOURCES FUND "A" Natural Recources Companies Equities LU0266512127 USD 12.5 7.2% 12.1% 21.3% (38.5%) 1.3%

BLACKROCK GF WORLD GOLD FUND "A" Gold Mining Companies Equities LU0055631609 USD 32.7 9.9% 23.6% 4.8% (49.4%) (20.6%)

SCHRODERS ISF GLOBAL ENERGY FUND "A" World Energy Companies Equities LU0256331488 USD 35.6 5.0% 13.2% 27.1% (12.4%) 28.4%

BLACKROCK GF WORLD MINING FUND "A" Global Mining Companies Equities LU0075056555 USD 49.4 7.9% 8.5% 16.7% (39.8%) (5.5%)

AMUNDI ISLAMIC -GLOBAL RESOURCES "A" Islamic Global Resources Equities LU0399640407 USD 136.2 6.5% 13.6% 21.9% 22.6% NA

Multi Asset/ Balanced

RUSSELL GLOBAL 35 MULTI MANAGER "A" Multi Asset- Moderetly Conservative IE00B02WN480 USD 150.7 1.5% 2.6% 5.3% 14.9% 38.4%

RUSSELL GLOBAL 50 MULTI MANAGER "A" Multi Asset-Moderate IE00B02WN597 USD 157.4 1.5% 2.3% 6.5% 17.3% 44.5%

RUSSELL GLOBAL 70 MULTI MANAGER "A" Multi Asset-Moderetly Aggressive IE00B02WN712 USD 162.8 1.6% 2.1% 8.1% 20.6% 52.2%

RUSSELL GLOBAL 90 MULTI MANAGER "A" Multi Asset- Aggressive IE00B02WN829 USD 152.5 1.8% 2.0% 10.0% 22.9% 58.2%

Disclaimer:

This document does not constitute a public offer of securities in the United Arab Emirates and is not intended to be a public offer. This document is for information and

illustrative purposes only; it is not an offer or solicitation to buy or sell any investment. ADCB will not be held liable for the information provided in this document which has

been obtained and prepared by 3rd party sources. This document should be read in conjunction with the Fund Prospectus, Term Sheet and Subscription Agreement.

Information included in this document is based on past performance; current valuation may be higher or lower and Return on Investment and Principal Amount value will

fluctuate. Past performance does not guarantee future results. Investment products are not bank deposits and are not guaranteed by ADCB, they are subject to investment

risks, including possible loss of principal amount invested. This Fund is not intended for sale to US persons. Please refer to ADCB Terms & Conditions for Investment

Services.

adcb.com

Sources

All information in this report has been obtained from Bloomberg sources except where indicated otherwise. All data in this report is as of the last

international business day of the preceding calendar month except where indicated otherwise.

Disclaimer

This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”,

“intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be

achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are

subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements.

Readers are cautioned not to place undue relevance on these forward looking statements. ADCB expressly disclaims any obligation to update or revise any

such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of

unanticipated events

This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state,

country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

This report is for information and illustrative purposes only; it is in no way a recommendation, or an offer or solicitation to buy or sell any investment

products, but only factual information being provided. ADCB will not be held liable for any information provided in this document which is stated to have

been obtained from third party sources, this information may be based on assumptions or market conditions and may change without notice.

The information in this report was prepared by employees of ADCB and is current as of the date of the report. The information contained herein has been

obtained from sources that ADCB believes to be reliable, but ADCB does not guarantee its accuracy, adequacy, completeness, reliability, or timeliness, and

will not be held liable for any investment decisions made based on this information. Moreover, ADCB is not responsible for any errors or omissions or for

the results obtained from the use of such information. All information and estimates included in this report are subject to change without notice. This

report is intended for qualified customers of ADCB.

Past performance does not guarantee future results. Investment products are not bank deposits and are not guaranteed by ADCB. They are subject to

investment risks, including possible loss of principal amount invested. Please refer to ADCB Terms and Conditions for Investment Services.

You may not redistribute this report without explicit permission from ADCB.

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