Investment Adviser:

Cogent Asset Management Ltd

(October 2013)

The Fund recently changed its name to the WSF Global Equity Fund (formerly the WSF Reliance Global Shariah Growth Fund), although its portfolio management team has remained the same. Have there been any other changes to the Fund apart from the name?


Although the Fund name has changed and the team has moved to a different Investment Advisory company, the objective and strategy of the Fund has not changed. The same team is still advising on the investments that the portfolio should make, utilizing “Cognition”, the original investment process.


The Fund has now been open for three years and received its first rating from international ratings agency Morningstar, gaining the agency’s top, five-star rating. Why do you think the Fund has performed so well over the last three years, especially given that those years have been generally very volatile for markets?


Receiving the top Morningstar rating is a welcome acknowledgment that the design of the investment strategy is achieving its aims. Morningstar places a heavy emphasis on the consistency of outperformance. Whilst equities have been volatile, in essence the markets have been recovering from the global financial crisis, which has been a consistent trend that we have been able to follow. In general the Fund has been invested in companies with healthy finances and better than peer levels of growth and profitability.


Are you confident that the Fund will keep up this kind of outperformance in the future?


One of the most interesting things about the design of the strategy is that it focuses investments in companies that demonstrate fundamental characteristics that are currently being rewarded by the markets. So as we move towards more normal markets, and even to a late cycle pro-growth phase, the fundamental characteristics of the portfolio will change to reflect the current market ‘mood’. As such, the strategy is designed to move with the times and should work in most market environments.


The Fund was also last year named the Best Islamic Global Equity Fund at the Islamic Business and Finance Awards. Did that surprise you at all or, because of the Fund’s repeated outperformance, did you think that it would at some point be recognized within the industry?


For good reasons awards and ratings are usually only given to funds with reasonably long track records. In essence any fund can have a good year. Over longer periods, consistency is the key. For this reason, Morningstar only rates funds after 3 years. It was nice to be recognized by the Islamic Business and Finance Awards after just 2 years, the fund was way ahead of its peers and the Islamic fund industry is quite new, so funds tend to have a shorter track record.


The Fund’s performance over the years certainly suggests you have superior fund management skills. Is there one particular thing you would say that sets you and your team apart from other portfolio managers?


We have always been happy to admit what we don’t know, and focus on where we believe our ability to add value lies. For instance, in international funds a lot of stock picking alpha can be given up by incorrect positioning of currency exposure. Our strategy is broadly currency neutral as we are not macro economists with a skill in forecasting FX movements. In addition, rather than running a ‘conviction’ portfolio which often sounds good for marketing but disappoints in terms of performance, we maintain a broad spread of investments by stock and by sector. Where we do have significant skill is in understanding, through simple mathematics, what fundamental characteristics are driving the markets, how different sectors respond to those characteristics, and which stocks are best positioned to outperform given their individual characteristics. This is what we focus on and this, I believe, is what sets us apart.


To what extent has the fact that the Fund’s investments are Shariah-compliant helped during these periods of extreme global market volatility?


I view a Shariah-compliant portfolio as an ethical portfolio (i.e. no alcohol, no gambling, no tobacco) that strategically invests in companies with a conservative level of borrowings. Certainly through the global financial crisis the conservative level of borrowing of Shariah-compliant investments helped, but it strikes me that this is a sensible constraint at all times. If one could predict when the good times are going to end then high borrowings are fine, but most investors cannot.


In recent years Shariah indexes have outperformed conventional indexes. Is this a trend you think is likely to continue?


There will be periods when Shariah indexes will outperform conventional and vice-versa. As equity investment should be undertaken over a medium term time horizon, fine tuning the timing between these indices should not be the priority of the investor. Picking the best investment process is far more important.


You have worked for many years in Shariah investment. Is there anything you would like to see changed in the Shariah investment industry that would benefit investors?


I think that the Shariah-compliant investment industry needs to spend more time explaining the ethical and financially conservative nature of the investments made. It is a philosophy-based investment strategy, but the investment attractions are over and above the religious underpinnings. If the Shariah-compliant investment industry encourages more conventional investors to invest in an ethical and conservative manner, then this is better for society in general.


You have also worked extensively in conventional investment. What advantages for investors would you say Shariah investment offers over conventional investment?


Over the cycle the performance of Shariah-compliant and conventional investments tends to even out. However the Shariah-compliant index is less volatile. Achieving a similar return with less volatility is a basic aim of any investment strategy. For this reason, and combined with its ethical underpinnings, I believe that Shariah-compliant investment is a better strategy than conventional investment.


For some time now data has been suggesting that the recovery in the US, where the Fund has the majority of its investments, is growing stronger while recent macro figures from the Eurozone suggest that the region’s recession is over. Are you optimistic about the economic prospects for both regions?


Yes, data from the US has demonstrated that a robust recovery is gathering pace, hence the debate over the timing of the withdrawal of US Federal Reserve’s support for bond markets. Due to austerity policies, the Eurozone is behind the curve, but early signs of recovery are already visible. What is clear is that thankfully we are beyond the period of dramatic and unprecedented emergency measures and moving back to normal conditions. As such, market returns may be lower than achieved during the recovery, but the volatility will be much lower. This is a much better environment to invest in and the more stable macro environment should benefit a stock picking process such as ours.


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.