30.07.2012

Ian 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 – the world’s best performing Islamic global equity fund in 2011 - allows investors to meet their ethical needs and gain financial reward, offering 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 estimates from those within what is today a USD1tn industry, growth in global Islamic finance has been at a pace of 15-20% per year and is expected to stay at those levels for the next decade.

 

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.
  • Shariah products can be grouped with other ethical investment products such as those promoting clean energy and protecting the global environment. These ethically positive products are gaining popularity as the general public becomes increasingly aware of investing responsibly.

 

As Ian Lancaster, portfolio manager for the WSF Reliance Global Shariah Growth Fund, explains: “Shariah-compliant investing is not only for Muslims. It is suitable for any investor who holds strong social ethics, i.e. does not want to invest in the alcohol, gambling or tobacco sectors, is sceptical about the value added to society by the conventional banking system, and who wishes to invest in companies that are conservatively financed with low levels of debt.

 

“Shariah equities offer access to a universe of financially conservative companies that have delivered good historic investment returns at relatively low levels of volatility. Such attributes have the potential to enhance any investor’s portfolio, particularly in the current economic climate.”

 

 

WORLD LEADER

However, it is not just the growing size of the Islamic finance market which makes investment in the Reliance Global Shariah Growth fund so attractive. The Fund has repeatedly proved itself to be not just a leader in its class but among non-Islamic global equity funds as well. The Fund was the world’s best performing Islamic global equity fund in 2011 and has also outperformed 98% of other non-Shariah global equity funds year-to-date (as of 31.05.2012), according to figures from international fund ratings agency Morningstar. It has also been among the top 2% of Shariah funds in Morningstar’s Global Category – Islamic Global Equity since its inception two years ago.

 

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 is undertaken 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 etc.) 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. 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.

 

OUTLOOK

The Eurozone crisis has been a key driver of world markets for the last few months and will remain so until problems with European debt are resolved to the satisfaction of markets. Concerns over the health of the Chinese economy, which have grown recently following disappointing data releases, will also affect global sentiment. US economic data has been more positive recently and further signals of a sustainable recovery should provide some optimism for investors. The Fund, though, is uniquely well positioned to cope with 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.

 

INVESTMENT MANAGER

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 a subsidiary of the largest asset management company in India, Reliance Capital Asset Management Limited (RCAML).

 

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.