27.09.2011

Ian LancasterIan Lancaster

Portfolio Manager

Reliance Asset Management (Malaysia) Snd. Bdh.

 

For some investors, ethics can play as much a part in where they put their money as anything else. The WSF Reliance Global Shariah Growth Fund allows investors to meet their ethical needs and gain financial reward, as well as offering the benefits of access to global markets and an investment sector that has grown dramatically in recent years.

 

GROWING MARKET

Shariah-compliant funds - which are prohibited from investing in industries considered speculative or unjust – have become popular with more and more investors in recent years as the global Islamic finance industry has grown exponentially. According to data from the 1st Ethical Charitable Trust, an adviser on Shariah compliance in the UK, the global Islamic finance industry currently has USD2.2trn of invested assets – up from USD10bn in 1975. But while Shariah-compliant funds follow the principles of Islam, their growing popularity is not limited just to Muslims. In Malaysia, for example, it is estimated that more than three quarters of Shariah-compliant investment products are held by non-Muslims. A desire to capitalise on this growing interest and attract foreign holders of Sharia-compliant products has seen governments in Middle Eastern countries bring in new regulations on Islamic funds. Meanwhile, investment centres in other parts of the world are also actively looking to attract investors in Shariah-compliant products.

 

OUTPERFORMANCE

However, it is not just the growing size of the Islamic finance market which makes investment in the WSF Reliance Global Shariah Growth Fund so attractive. Historical data has shown that Shariah investments are more than capable of delivering sustained outperformance. From its inception in November 2007 to August 2011, the S&P Shariah Developed BMI Total Return USD Index outperformed its conventional counterpart by 9.4%.

 

Shariah vs. Conventional Index

STRUCTURED FUND

The fact that the Fund is a structured fund also helps in getting the best out of investments. Structured funds implement a process driven strategy that controls risk whilst still offering the potential to outperform the benchmark. Investments are chosen after making traditional fundamental assessments of value and quality using a score system, after which portfolios are constructed via a structured process of risk reward considerations. On a regular basis the portfolio is refreshed with the best opportunities available at the time. This strategy offers the potential to outperform a benchmark index, but with lower volatility than traditional equity funds.

 

RELIANCE ON COGNITION

The Fund selects Shariah-compliant equities using ‘Cognition’ - Reliance’s dynamic multi-factor stock screening process. Cognition systematically sifts through thousands of data items in the Fund’s investment universe to identify companies with characteristics that give them the potential to outperform the benchmark. The process includes the following stages:

  • Factor Analysis identifies which fundamental factors are working best for each sector by economic region (Canada, US, UK, Continental Europe, Japan, Asia ex-Japan).
  • Dynamic Weights tilt the model towards the most effective investment ‘styles’.
  • Stock rankings are translated into portfolio allocations using optimization software, ensuring effective diversification across sectors and countries.
  • Qualitative oversight at every stage of the process to achieve optimal results.

 

GLOBAL CONSIDERATIONS

The very nature of the Fund takes into account key themes for today’s investor. Product and capital markets are increasingly global, a trend expected to continue in the coming years. The impact of global issues (technology, outsourcing, environmental change) has become increasingly important even for those companies operating in traditionally regional industries. Investors must therefore consider international trends and valuations when assessing investment opportunities. This is by no means a simple task, but one for which Cognition is ideally suited given its ability to concurrently analyse multiple geographic regions and market segments.

 

Geographical Breakdown

Also, investing within a Shariah-compliant universe offers investors access to a more financially conservative hunting ground. To qualify for inclusion in the Shariah index companies must pass an accounting-based screening which targets and removes those with high levels of leverage. The investment manager views this as a sensible starting point for equity investment regardless of the prevailing economic environment.

 

UNDERSTANDING THE ENVIRONMENT

Market volatility has risen steadily since the beginning of March this year, as sovereign debt concerns in the US and Europe, combined with evidence of a stalling global economic recovery, have combined to unnerve investors. In early May 2011 the market was very much focused on European efforts to manage Greek debt restructuring. By August, the sovereign debt issue had extended all the way to the top of the debtors’ league table, as Standard & Poor’s controversially downgraded the AAA rating of the United States, the largest sovereign debtor in the world. Recent economic data has confirmed that growth in Asian and emerging markets remains intact, though inflationary pressures continue to give cause for concern. In the US and Europe, the economic outlook is less encouraging, with mixed economic data and the parlous state of government balance sheets continuing to weigh on sentiment.

The Fund is uniquely well positioned to cope with such divergent fortunes in the global economy, given the nature of its expert-system investment process. The investment manager does not seek to outperform the market by taking active bets on sectors or currencies, but rather by understanding the prevailing economic environment in different regions of the world. Trading is therefore undertaken to realign the portfolio towards the dominant investment themes, which is currently a preference for stocks offering good financial strength and high levels of quality (profitability).

 

INVESTMENT MANAGER

Reliance Asset Management (Malaysia) Sdn. Bhd. (RAMMy) The Fund also offers the management skills of one of Asia’s largest asset management companies with strong experience of Islamic asset management. Reliance Asset Management (Malaysia) Sdn. Bhd. (RAMMy) is fully licensed to undertake Islamic Asset Management by the Securities Commission of Malaysia. RAMMy is a subsidiary of the largest asset management company in India, Reliance Capital Asset Management Limited (RCAML). Furthermore RCAML is a part of Reliance - Anil Dhirubhai Ambani Group which is among India’s top three private sector business houses.

 

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent either an offer to purchase or subscribe to shares of any Cell, or an advertisement for countries where the Cells are not registered for sale. Argyll Investment Services Limited and World Shariah Funds PCC Ltd (the „WSF“) are licensed and regulated by the Guernsey Financial Services Commission under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended. Company Registration Number: 51802. WSF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. The full documentation required to make an investment, including the Scheme Particulars is available and may be obtained through Argyll Investment Services Limited or www.wsff unds.com. Before investing in any WSF Cells investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WSF and its particular Cell(s), such as the latest annual report and Offering Memorandum and relevant Supplement that specify the particular risks associated with the Cell, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WSF is a suitable investment for them.