Risk and reward go hand in hand in investing. Sure, the more risk you take, the more volatile your portfolio's performance will be.
But history and theory also tell us that gambles pay off in the long run, giving daredevils bigger returns than scaredy-cats who stick to safer assets.
Just look at the figures: the Russell 2000, an index of small US stocks, has gained an average of 9.58 per cent a year since 1982. That is better than the stocks of large companies in the US and Europe, and far better than corporate bonds, which have long-term returns of about four per cent.
It may sound surprising at first that grandma's "slow and steady wins the race" motto does not apply to investing, but it makes sense: investors ought to be rewarded in the long term for buying riskier assets. If there were no "risk premium", there would be little point in buying these assets. And yet people do buy them - lots of them.
As investors across the globe have been reminded recently, taking risks does come with downsides. The global credit crunch and the US subprime housing crisis have pummeled stock markets and led many once-bullish investors to rethink their attitudes towards assets with long odds. Prices for US Treasuries have skyrocketed recently, pushing yields down as investors piled into the world's safest assets. A survey this month of high-net-worth investors conducted by Barclays Wealth and the Economist Intelligence Unit (EIU) found that 61 per cent of Australian investors and 51 per cent of Americans said they would sell some assets and convert to cash in a period of economic volatility such as the one under way.
That is a surprising statistic. When more than half of investors say they will move into cash, not content even with the safety of short-term corporate bonds or government debt, fear is unquestionably in the air. And while the Barclays/EIU survey can easily be pigeonholed as a commercially driven effort to put the bank's name in the press and get a read on its target clientele, it does tell a disturbing story about investor behaviour that people in the UAE might want to listen to.
That is because just as the financial crisis is striking fear into the hearts of investors in the West, their peers in the UAE are prepared to take a few risks. Among the 15 countries the Barclays survey included, the UAE ranked first on all the big "are you taking risks" questions. When asked whether they would increase the level of risk-taking in their portfolios during a period of volatility, a stunning 43 per cent of respondents from the UAE said yes. And when asked whether they would be likely to switch fund managers and change investing strategies when volatility hits, 48 per cent from the UAE said they would.
If it is true that taking risks brings returns, you might think this bodes well for UAE investors. To some extent, that is correct: if investors in the UAE continue to take risks and put their money into stocks as they decline in price, historically they have a good chance of coming out on top. "Value" investing, a discipline that seeks cheap deals in stocks and other assets, has outperformed other investment strategies in developed markets over long stretches of time, suggesting that the simple pursuit of cheapness has merit as an investment strategy. The Standard & Poor's 500 has returned roughly nine per cent per year during the past 30-odd years, but the cheap stocks in the index gave a return closer to 10 per cent a year. That might seem like a small difference, but spread over 30 years, it is huge. Investing Dh10,000 with nine per cent returns gives you about Dh133,000 after 30 years. At 10 per cent, you end up with close to Dh175,000.
But taking risks can also go too far when it veers into speculation, a form of gambling in which the bonds between risk and reward dissolve. In this respect, the finding that nearly half of high-net-worth investors in the UAE would likely switch investing strategies during a volatile period is a bit concerning. The full fruits of risky behaviour can be realised only when investors stick to their guns over a long time. If you toy with your investments, diving after every fad and bailing out at the first sign of trouble, you will never stay in long enough for the risk you are taking to be rewarded.
If, for example, you invested in US stocks in December of 1972, you might have thought you had made a bad move and pulled out two years later, by which time the Dow Jones Industrial Average had declined 40 per cent. If you had stayed in for 20 years, though, your original investment would have almost quadrupled in value, despite your initial losses.
It also does not hurt to remember that although they may seem to drag on for ages, downturns in stock markets do not last long. In the US, the previous two stock market corrections lasted between four and 19 months. Investors can easily miss part of the recovery if they keep fiddling with their portfolio. And adding to the pitfalls of a quick trigger finger, the more changes that are made to a portfolio's allocations and investments, the more trading fees there are, which eat into the returns.
The moral: the best bet is to stay put, which many investors in the UAE apparently are not doing.
Lest we indict the country's investors too quickly, though, it is important to bear in mind that people in the markets here also face a unique set of challenges that encourage riskier than usual investing. First, rising oil revenues have injected a lot of cash into the country's financial system and investors have plenty of spare money to deploy. Second, inflation is rife - it stood at 11.1 per cent last year, according to official figures - and investors are compelled to take on more risk if they are to get inflation-beating returns.
These forces, I suspect, largely explain the results of the Barclays survey. It isn't that investors here are risk-aholics by nature; rather, it is that the UAE's out-of-whack economy has made risky investing almost necessary.
Yet despite all the evidence of risky investing behaviour divulged in the Barclays survey, one statistic stood out as proof that the UAE's investing class is getting a little less risk-happy. While property has been a popular destination for the spare cash of UAE investors in previous years, the appetite for these hard assets has apparently died down in a big way. Asked whether they would increase their allocation to property in the next year, only 36 per cent of wealthy UAE investors said they would. A greater proportion of investors from Singapore, India, China and even the US said they would put more money into property investments.
Investors in the UK, meanwhile, might want to borrow a lesson or two from the UAE. The UK emerged in the Barclays survey as the most conservative nation sampled, where investors were among the least likely to increase risk-taking and came in last on the property investment question. But perhaps that is not too surprising. Amid the global financial turmoil, home prices in that country fell 1.2 per cent in June, and have shed more than three per cent in the past year.
@afitch@thenational.ae
'Manmarziyaan' (Colour Yellow Productions, Phantom Films)
Director: Anurag Kashyap
Cast: Abhishek Bachchan, Taapsee Pannu, Vicky Kaushal
Rating: 3.5/5
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Anghami
Started: December 2011
Co-founders: Elie Habib, Eddy Maroun
Based: Beirut and Dubai
Sector: Entertainment
Size: 85 employees
Stage: Series C
Investors: MEVP, du, Mobily, MBC, Samena Capital
Brief scoreline:
Al Wahda 2
Al Menhali 27', Tagliabue 79'
Al Nassr 3
Hamdallah 41', Giuliano 45 1', 62'
UAE currency: the story behind the money in your pockets
Other acts on the Jazz Garden bill
Sharrie Williams
The American singer is hugely respected in blues circles due to her passionate vocals and songwriting. Born and raised in Michigan, Williams began recording and touring as a teenage gospel singer. Her career took off with the blues band The Wiseguys. Such was the acclaim of their live shows that they toured throughout Europe and in Africa. As a solo artist, Williams has also collaborated with the likes of the late Dizzy Gillespie, Van Morrison and Mavis Staples.
Lin Rountree
An accomplished smooth jazz artist who blends his chilled approach with R‘n’B. Trained at the Duke Ellington School of the Arts in Washington, DC, Rountree formed his own band in 2004. He has also recorded with the likes of Kem, Dwele and Conya Doss. He comes to Dubai on the back of his new single Pass The Groove, from his forthcoming 2018 album Stronger Still, which may follow his five previous solo albums in cracking the top 10 of the US jazz charts.
Anita Williams
Dubai-based singer Anita Williams will open the night with a set of covers and swing, jazz and blues standards that made her an in-demand singer across the emirate. The Irish singer has been performing in Dubai since 2008 at venues such as MusicHall and Voda Bar. Her Jazz Garden appearance is career highlight as she will use the event to perform the original song Big Blue Eyes, the single from her debut solo album, due for release soon.
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
The Intruder
Director: Deon Taylor
Starring: Dennis Quaid, Michael Ealy, Meagan Good
One star
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
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DUBAI CARNIVAL RESULTS
6.30pm Handicap US$135,000 (Turf) 2,410m
Winner Dubai Future, Harry Bentley (jockey), Saeed bin Suroor (trainer).
7.05pm UAE 1000 Guineas Listed $250,000 (Dirt) 1,600m
Winner Dubai Love, Patrick Cosgrave, Saeed bin Suroor.
7.40pm Dubai Dash Listed $175,000 (T) 1,000m
Winner: Equilateral, James Doyle, Charles Hills.
8.15pm Al Bastakiya Trial Conditions $100,000 (D) 1.900m
Winner Laser Show, Kevin Stott, Saeed bin Suroor.
8.50pm Al Fahidi Fort Group Two $250,000 (T) 1,400m
Winner Glorious Journey, James Doyle, Charlie Appleby.
9.25pm Handicap $135,000 (D) 2,000m
Winner George Villiers, Tadhg O’Shea, Satish Seemar.
In Full Flight: A Story of Africa and Atonement
John Heminway, Knopff
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
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Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, (Leon banned).
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
UAE%20medallists%20at%20Asian%20Games%202023
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THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
The biog
Name: Capt Shadia Khasif
Position: Head of the Criminal Registration Department at Hatta police
Family: Five sons and three daughters
The first female investigator in Hatta.
Role Model: Father
She believes that there is a solution to every problem
Where to donate in the UAE
The Emirates Charity Portal
You can donate to several registered charities through a “donation catalogue”. The use of the donation is quite specific, such as buying a fan for a poor family in Niger for Dh130.
The General Authority of Islamic Affairs & Endowments
The site has an e-donation service accepting debit card, credit card or e-Dirham, an electronic payment tool developed by the Ministry of Finance and First Abu Dhabi Bank.
Al Noor Special Needs Centre
You can donate online or order Smiles n’ Stuff products handcrafted by Al Noor students. The centre publishes a wish list of extras needed, starting at Dh500.
Beit Al Khair Society
Beit Al Khair Society has the motto “From – and to – the UAE,” with donations going towards the neediest in the country. Its website has a list of physical donation sites, but people can also contribute money by SMS, bank transfer and through the hotline 800-22554.
Dar Al Ber Society
Dar Al Ber Society, which has charity projects in 39 countries, accept cash payments, money transfers or SMS donations. Its donation hotline is 800-79.
Dubai Cares
Dubai Cares provides several options for individuals and companies to donate, including online, through banks, at retail outlets, via phone and by purchasing Dubai Cares branded merchandise. It is currently running a campaign called Bookings 2030, which allows people to help change the future of six underprivileged children and young people.
Emirates Airline Foundation
Those who travel on Emirates have undoubtedly seen the little donation envelopes in the seat pockets. But the foundation also accepts donations online and in the form of Skywards Miles. Donated miles are used to sponsor travel for doctors, surgeons, engineers and other professionals volunteering on humanitarian missions around the world.
Emirates Red Crescent
On the Emirates Red Crescent website you can choose between 35 different purposes for your donation, such as providing food for fasters, supporting debtors and contributing to a refugee women fund. It also has a list of bank accounts for each donation type.
Gulf for Good
Gulf for Good raises funds for partner charity projects through challenges, like climbing Kilimanjaro and cycling through Thailand. This year’s projects are in partnership with Street Child Nepal, Larchfield Kids, the Foundation for African Empowerment and SOS Children's Villages. Since 2001, the organisation has raised more than $3.5 million (Dh12.8m) in support of over 50 children’s charities.
Noor Dubai Foundation
Sheikh Mohammed bin Rashid Al Maktoum launched the Noor Dubai Foundation a decade ago with the aim of eliminating all forms of preventable blindness globally. You can donate Dh50 to support mobile eye camps by texting the word “Noor” to 4565 (Etisalat) or 4849 (du).