Markaz Research
Al Ahli Bank of Kuwait (ABK) Successfully Completes KD 50 Million Bond Issuance with Joint Lead Managers – Ahli Capital, Kamco Invest, Markaz and NBK Capital
Published: 12 - Oct - 2021 Read More
Markaz Research
Markaz: Kuwait markets register gains for the sixth consecutive month
Published: 04 - Oct - 2021 Read More
Markaz Research
Kuwait gains for the sixth consecutive month as positive earnings growth strengthens business optimism
Published: 05 - Sep - 2021 Read More
View All News

Blog

Active vs. Passive Management

Date : 27/02/2017
Author:  Talal Al-Othman

Blog - Active vs. Passive Management

For the past few decades, one of the most debated topics in finance has been the argument of:
Which strategy is better, Active or Passive Management?

Each side can make a strong logical case to support their arguments, yet no clear winner has emerged. So, which strategy is the better? Before we can answer that question, let’s explore how each strategy is defined along with their associated benefits and risks.

Active Management refers to a manager, or team of managers, actively trying to outperform a specific benchmark through the use of  analytical research, forecasts, and judgment in making investment decisions on what securities to buy, hold and sell. The majority of Mutual Funds are categorized as actively managed products.  Advantages of active management include: Flexibility; altering
the weights of their holdings against the outperforming/underperforming areas of their respective benchmark. Research; carrying out exhaustive research to identify which areas to invest in. Defensive Measures; minimizing potential risks by applying instruments such as shorts, options and swaps.

Ironically, some of the risks of active management are derived from the benefits they offer, such as: High Fees (cost of research), Style Limitations (long-short Funds in a rally), and Stock Picking Risk (choosing non-performers).


Both strategies should be treated as tools, not rules, to be utilized on a case-by-case basis, depending on risk appetite and market conditions


Passive Management is defined as a management approach based on investing in exactly the same securities, in the same proportions, as an index such as the S&P 500. It’s termed passive because managers don’t make decisions about which securities to buy and sell. Managers apply the same methodology of portfolio construction the index uses. Index Funds and ETFs are classified as passively managed investments. As implied in its definition, the benefits of passive management include Diversification, Simplicity, and Low Fees. The drawbacks of passive management involve Total Market Risk, Non-flexibility, and Limited Returns. Today, the industry has finally come to the realization that the answer to our original question is evident when the question is asked differently; “Which strategy is better for you, at this time?“ Traditionally, Active Management tends to do well during times of volatility, while Passive Management tends to outperform in the long run.

Therefore, both strategies should be treated as tools, not rules, to be utilized on a case-by-case basis, depending on the investor’s risk appetite and current market conditions. So, when asking a simple question of: “Which strategy is better?” The answer is also simple, both.

Cumulative fund flows


This article is published in "Engage Q4, 2016" - click to view the publication


 

Tags:  Business, Company Analysis

Ratings:
 Current rating: 5 (3 ratings)

SABIC - Low Oil Prices Pressurizing Top Line

Date : 12/11/2015
Author:  Marmore MENA

SABIC was established in 1976 by Royal decree, and is currently ranked amongst the world’s largest petrochemicals manufacturer. According to Marmore’s company report on SABIC, the petrochemical segment contributed over 86% to SABIC’s revenue in 2014. The next big segment in terms of revenue is the minerals/metals segment, generating over 5% of the revenue.  From 2010-14, the revenue from all the four business segments has grown at CAGR of 6%.

Revenue – Remain flat post stellar numbers in 2011
The total revenue of SABIC has increased after 2009 as the global markets recovered post the 2008 recession. According to the Global Platts Petrochemical Index, petrochemical prices declined by 30% in 2014 compared to 2013 price levels. The primary reason for the drop in sales in 2014 is the decline in oil prices in the last quarter of 2014, resulting in drop in the petrochemical product prices. Revenues have continued to decline during the 1st 9 months of 2015, dropping by 20% YoY (2014 9M earnings $ 38,788 Mn). Drop in revenues was attributed to the drop in selling prices of the petrochemical and other products that the company sells. While the company has not officially stated a reason for the decline in the prices of its products, it can largely be attributed to the falling oil prices.

Figure 1: Total Revenues 2010-15 (USD Mn)

Source: Reuters

The petrochemical and fertilizer segment contributed over 86% to SABIC’s revenue in 2014. The next big segment in terms of revenue is the minerals/metals segment, generating over 6% of revenue. Throughout 2010 to 2014 petrochemical segment has generated revenue in excess of 80% of the company’s total revenue. SABIC is focused to be the leading player in this segment of business and almost 70% of the plant capacity was utilized to manufacture products which are part of the petrochemical business.

The operating profit margin of SABIC has witnessed a decline since 2011. Following record revenues in 2011 the operating profit margin reached 26% while in the subsequent years they were hovering between 22%-23% before falling to 20% in 2014. The Net profit margin has also followed a similar pattern. While the revenues for the 1st 9 months of 2015 fell by over 20% the net profit margin fared slightly better compared to the same period last year. Net profit for 2015 9M stands at 13.66% as against 13.11% during 2014 9M while the operating profit declined from 21.53% to 20.89% during the same period. The improvement in net profit margin could be attributed to the cost cutting that the company has managed during 2015.

Figure 2: Operating profit and Net profit 2010-15 

Source: Reuters

ROE (Return on Equity) – ROA (Return on Assets) – In line with Revenues

According to Marmore’s company report on SABIC, both ROE and ROA trends have been consistent with SABIC’s revenue. The ROE and ROA reached its peak in 2011 at 14.80% and 22.60%, respectively, before declining in 2012. Continued slow global economic growth in 2014, malaise in China (one the key markets for SABIC) and decline in product prices due to lower oil prices has reflected in the revenues and earnings of 2014. However, an increase in equity and a marginal increase in assets value in 2014 resulted in lower ROE and ROA relative to 2013. Though the likelihood of outperforming in the near to medium term are high due to the cyclical recovery and potential for structural recovery in its European operations and new investments in the pipeline, the lower oil prices resulting in lower products prices can be a major hindrance to the recovery.

Figure 3: ROE & ROA, (2010-14)

Share Performance

SABIC’s share performance has seen wide swings this year. While the share price continued to increase during the 1st half of the year it started to decline in the 2nd half of the year largely due to the negative impact that the Chinese stock market had on global stock markets. SABIC reached its peak of 108.75 on 04th May 2015 before falling to a low of 72 on 24th Aug 2015. It ended at 82.25on Oct 28th 2015. The Saudi Stock index’s performance has been even more underwhelming; TASI reached its peak of 9,834.39 on 30th April 2015 before falling to 7,024.6 on 24th August 2015. TASI ended at 7,118.42 on Oct 28th 2015. Year to date returns of SABIC and TASI has been negative at -2.1% and -14.6% respectively.   

Figure 4: SABIC Share Performance (YTD – 2015) - Rebased


Blog Source by, Marmore MENA Intelligence

Tags:  Company Analysis, Financial Analysis, SABIC, Share performance

Ratings:
 Current rating: 0 (3 ratings)

Tag cloud

GCC(26)
Economy(21)
Capital Markets(13)
Oil(13)
Stock Market(10)
GCC Markets(7)
Market(6)
SAUDI(5)
technology(5)
Business(5)
Capital(4)
Arabia(4)
Power(4)
KSA(4)
Kuwait(4)
Markaz Analysts Club(3)
Investment(3)
Investors(3)
MENA(3)
Real(3)
Real Estate(3)
Sector(3)
IN(3)
Energy(3)
Equity(3)
estate(3)
financial(3)
Electricity(2)
East(2)
FINTECH(2)
Funds(2)
Games(2)
Gaming(2)
Gas(2)
banking(2)
Bonds(2)
Company Analysis(2)
SMES(2)
Price(2)
Solar(2)
Startups(2)
Stock(2)
UAE(2)
US(2)
VAT(2)
Middle(2)
Monetary Policy(2)
markets(2)
KSE(2)
INNOVATION(2)
LCC(1)
Management(1)
ISLAMIC FINANCE(1)
Oil&(1)
online(1)
OPEC(1)
Outlook(1)
PARIS(1)
payment(1)
Petrochemicals(1)
Pollution(1)
PPP(1)
Mutual(1)
Mutual Funds(1)
Nations(1)
Offices(1)
realestate(1)
Reforms(1)
Regulatory(1)
REMITTANCE(1)
Renewables(1)
RESEARCH(1)
Reserve Bank Of India - RBI(1)
Residential(1)
retail(1)
Risk(1)
Robo(1)
SABIC(1)
Waste(1)
US economy(1)
US financial markets(1)
US government(1)
to(1)
Tourism(1)
Trading(1)
Turkey(1)
Stock Brokers(1)
Sports(1)
Stocks(1)
storage(1)
systems(1)
Tax(1)
Printing(1)
private(1)
Saudi Market(1)
savings(1)
Social Media(1)
Share performance(1)
Concerns(1)
Corporate governance(1)
Crisis(1)
CROWDFUDING(1)
Debt(1)
Debt Issuances(1)
DIGITAL(1)
Dividend(1)
Dubai(1)
Capital Gain(1)
Cap(1)
Central(1)
CLIMATE(1)
Climate Change(1)
CMS(1)
Commodities(1)
Brexit(1)
Brokerage(1)
beverage(1)
Bond(1)
ARAMCO(1)
Asset Management(1)
Aviation(1)
Bank(1)
&(1)
2022(1)
3D(1)
ACCORD(1)
acquisition(1)
Advisors(1)
Affordable(1)
and(1)
App(1)
appreciation(1)
Arab(1)
Fixed Income(1)
food(1)
FRM(1)
FSC(1)
INDIA(1)
Indian Economy(1)
Indian Market(1)
Infrastructure(1)
GDP(1)
Gold(1)
government(1)
Housing(1)
Hydrocarbon(1)
Ecommerce(1)
Education(1)
Entertainment(1)
ENVIRONMENT(1)
Environmental(1)
Employment(1)
Equity Markets(1)
Financial Analysis(1)
EU(1)
FIFA(1)

Archive