03.12.2015

 

Five years ago, as investors increasingly looked beyond conventional funds often investing in highly-leveraged companies, we saw an opportunity to tap into the growing ethical funds market and launched the WSF range of funds. Since then, the WSF Global Equity Fund has become not just an integral part of Cornhill’s stable of investment products, but an award-winning and world-leading performer among both global Shariah and conventional equity funds.

 

OUTSTANDING PERFORMANCE

Since its launch, the WSF Global Equity Fund’s performance has been exceptional. It finished its first full year, 2011, as the world’s best performing Islamic equity fund and also outperformed 95% of other non-Shariah global equity funds, according to international fund ratings agency Morningstar.

 

Three years after its launch it was awarded a five star rating by Morningstar after its performance (I Class) put it in the top 10% of its peers in the agency’s Islamic Global Equity category. It was the first rating for the fund after its inception.

 

This outstanding performance has continued into this year with Morningstar data from July showing the fund had beaten its benchmark index by 1.7% each year since inception. Its YTD return (Class I USD as of 30.11.2015) was 5.5% - more than double the performance of the fund’s benchmark index over the same period. Meanwhile, its performance YTD (Class I USD as of 30.11.2015) was the best in Morningstar’s Islamic Global Equity Category. It also topped the same category for performance over the last five years (Class I USD as of 30.11.2015).

 

The fund’s superior qualities have been noted by the investment world and it was named Best Islamic Fund (Global Equity) at the prestigious Islamic Business and Finance Awards in 2012. It was nominated for the same award a year later.

 

PERFORMANCE (USD)

 

DRIVEN BY A UNIQUE SYSTEM

The fund’s outperformance of both its benchmark and peers is linked to the unique system that Cogent Asset Management Ltd, whose team have been running the Fund since its inception, uses in its portfolio management.

 

The ‘Cognition’ system is a proprietary computer-based expert system which sifts a huge data base of market and company information to determine the primary drivers of stock performance and positions the portfolio to best capture the highest returns available. Thousands of data points are assessed each month and risk is minimised with advanced statistical techniques.

 

The Cogent team’s fundamental-based approach to stock-selection involves:

 

  • Stock-level fundamental assessment across a broad range of categories; Valuation, Growth, Price / Earnings Momentum, Quality, Volatility and Financial Strength.
  • Each assessment is conducted relative to economic sector peers within 5 distinct geographic regions; US, Canada, UK and Europe, Japan, Asia ex-Japan.
  • The expert-analysis ‘Cognition’ system is used to identify which combination of metrics best suits each company – for example, should P/E or Dividend Yield be taken into account when considering an investment in Microsoft? Is Value or Growth more important?
  • The entire investment universe is analysed according to region-sector neutral ranks (Cogent attempts to mitigate currency and sector risk) and portfolio construction emphasises risk control and effective diversification.
  • Qualitative oversight at every stage of the process to achieve optimal results.

 

As Ian Lancaster, CEO of Cogent Asset Management Ltd and portfolio manager for the WSF Global Equity Fund, says: “We believe this approach to be a far better proposition than that of fundamental fund management. ‘Traditional’ investment managers are limited by the inability of humans to compute the vast amounts of available data, and less able to cope with the overall efficiency and capital mobility that we observe in modern markets.”

 

The fund’s outperformance of its benchmark so far proves that the approach has been a success.

 

A HAVEN IN DIFFICULT TIMES

The nature of the fund itself has also meant that it avoids some of the volatility conventional funds experience in difficult times for world markets.

 

“Over the short term there will always be differences in the performance of ethical vs. conventional funds, sometimes positive, sometimes negative. However our analysis shows that over the longer term there is little difference in returns, and the low-debt criteria actually helps to reduce volatility compared to conventional indices. Basic investment theory would always favour the strategy which provides the same return at a lower volatility,” says Ian Lancaster.

 

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

 

GEOGRAPHICAL ALLOCATION CHART

 

TAPPING INTO GLOBALISED MARKETS

Meanwhile, its worldwide investment universe 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,” says Lancaster.

 

“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,” he adds.

 

But while a non-conventional fund, the WSF Global Equity Fund’s fundamental nature does not preclude it as an investment for people who may not normally consider non-conventional funds.

 

The range of equities the portfolio manager picks from 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,” says Lancaster.

 

OUTLOOK

Chinese growth concerns have weighed on global markets for a large part of this year and are likely to continue to do so in the coming months. The less than rosy commodities outlook has also, to a greater or lesser extent among individual regions and markets, been a drag on sentiment. However, this should not detract from the fact that the US economy continues to develop positively, China still looks on course to meet its growth targets for 2015 and the outlook for developed market equities over the next few quarters is largely good. The International Monetary Fund has forecast an improving economic picture in 2016, with global GDP growth of 3.8%, which should be supportive of equity markets going forward. At the same time, there is confidence that equities will produce positive returns over the next 12 months as corporate earnings continue to be supportive of equity valuations in Japan, Europe and the US and to a lesser extent in the UK. A small rise in US rates is not expected to harm the growth outlook in 2016, for both corporate earnings and GDP. 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 founder directors of Cogent Asset Management Ltd have previously managed award-winning and top performing funds across various categories. The team has developed a propitiatory strategy for managing equities through a process driven and systematic approach to investment which rigorously implements stock selection based on quantifiable fundamental criteria. As of March 2015, the company had assets under management of USD41 million.

 

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.