30.09.2016

Soon after the financial crisis, 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.

 

As with all funds rated by Morningstar, it received its first rating three years after its launch and was immediately awarded a five star rating with its performance (Class I) putting it in the top 10% of its peers in the agency’s Islamic Global Equity category.

 

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

 

 

 

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.”

 

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 help to reduce volatility compared to conventional indices. Basic investment theory would always favour a 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 investor’s priority. Picking the best investment process is far more important,” he adds.

 

 

 

TAPPING INTO GLOBALISED MARKETS

Meanwhile, the fund’s 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

Looking ahead, post-Brexit uncertainty will likely continue to hang over the UK economy and, to a lesser extent, the wider global economy, although there are signs that the economic fall-out from the UK’s historic referendum result may not be quite as bad as had been forecast by some. Oil price volatility is likely to stay an issue and weakness in China also remains a concern. However, the US economy appears to be sticking largely to the recovery track and Europe is growing, albeit slowly.

 

However, whatever happens, the fund 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. The firm’s AUM stood at USD 37.5 million as of April 2016.

 

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. Trident Fund Services (Guernsey) 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 Trident Fund Services (Guernsey) 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.