30.09.2013

For some investors, ethics can play as large a part in where they put their money as anything else. The WSF Global Equity Fund (formerly the WSF Reliance Global Shariah Growth Fund) 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 Shariah-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, CEO of Shariah investment specialist Cogent Asset Management Ltd and portfolio manager for the WSF Global Equity 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 fund so attractive. The Fund (formerly the WSF Reliance Global Shariah Growth Fund) has repeatedly proved itself to be not just a leader in its class but also among non-Islamic global equity funds. Its accolades include:

 

  • Named Best Islamic Fund (Global Equity) 2012 at the Islamic Business and Finance Awards.
  • Was the world’s best performing Islamic global equity fund in 2011, according to international global fund ratings agency Morningstar.
  • Was ranked second out of more than 350 global equity funds for its performance in the 12 months up to July 31 2012 by the Lipper global fund ranking agency.
  • Has consistently been among the top performing Shariah funds in Morningstar’s Global Category – Islamic Global Equity since its inception in 2010.
  • Was awarded a five star rating by Morningstar as its first rating from the agency after its inception three years ago in its fund ratings. The Fund’s performance (I Class) put it in the top 10% of its peers in Morningstar’s Islamic Global Equity category.

 

PERFORMANCE (USD)

COGNITION

The portfolio manager selects Shariah-compliant equities using ‘Cognition’ – Cogent’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 its benchmark.

 

  • Cognition continually monitors the market, changing its preference between Value, Growth, Momentum, Quality, Low Volatility and Financial Strength investment “styles” as the market’s focus moves between them.
  • Detailed analysis of economic sectors across six geographic regions enables Cognition to track down the most promising types of company characteristics based on local market conditions.
  • Companies that offer the most compelling combinations of the most favourable investment styles are ranked highly and form the core of the portfolio.
  • The Cognition investment process is used to invest in a portfolio of approximately 100-150 companies from 2,500 Shariah-compliant equities across the world’s developed equity markets.

 

GLOBAL CONSIDERATIONS

The Fund’s worldwide investment reach taps into one of the key themes for today’s investor: the increasing globalisation of markets. The impact of global issues (technology, outsourcing, environmental change etc.) has also 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 as, 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

US monetary policy, specifically when it will be reined in, will affect all markets, and especially emerging markets, in the near future with elevated volatility expected. The situation in Syria will also be an important factor in determining market movements in the near future. However, recent data has pointed to the US recovery continuing and there are signs that the Eurozone economic situation may be improving. Moreover, growth in most emerging economies is still expected to exceed that in the developed world this year. 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 portfolio 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 dominant investment themes.

 

INVESTMENT ADVISER

The Fund’s investment adviser is Shariah investment specialists Cogent Asset Management Ltd. The firm is run by a team with decades of investment experience with a proven track record having previously managed award-winning funds. The company has developed a unique strategy for managing equities through a systematic approach to investment management which rigorously implements stock selection based on clearly quantifiable criteria, thereby helping minimise the possibility of subjective judgments negatively influencing the investment decision making process.

 

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. MitonOptimal Portfolio Management (CI) 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 MitonOptimal Portfolio Management (CI) Limited or www.wsffunds.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.