Monday, September 9, 2013

TMR: Islamic portfolios attract ethical investors in US

By Kazi Mahmood

Ethical investment which has similarities with Islamic based investments has reached US$32 trillion (RM105.6 trillion) in size in the US and the European Union, an expert in wealth management and ethical investment said.

Meanwhile, responsible investing such as Islamic finance is probably one of the most appreciated form of investment even in the US, a prominent global investment manager specialising in the issues of ethical and Islamic investment Nicholas Kaiser said.

“There are over 1,200 signatories with US$32 trillion of assets under management and that shows the tremendous growth of assets categorised under the principles of responsible investment,” Kaiser said.

Though the number of very wealthy Islamic investors in the US were scarce compared to investors in conventional funds, he said his Amana funds are doing very well in the US.

“The investors in the Islamic funds are not all Muslims as the funds attracted American citizens from all backgrounds and Muslim investors are only a small number of the investors in the Amana fund,” he said.

“We have US$4.1 billion in asset management in 10 different mutual funds, with two separate families. The Amana family has three funds and the rest is from the Sextant family which has seven funds,” he said while explaining on the size of his business.

There are no surprises that the Amana Mutual Funds, which has 90% of the company’s managed assets, is popular with investors who choose to invest in ethical investment funds, and they are those who do not really care if these funds are religious based funds.

Kaiser said his involvement in the Islamic mutual fund started in 1984 when a group of Muslim businessmen urged him to start an Islamic fund, to which he responded positively.

“They offered to teach me about Islamic finance, of which I had no idea at all at that time but that was how it all started and today it has grown into a major sector of the business,” he told The Malaysian Reserve in an interview at the Saturna offices in Kuala Lumpur.

Islamic finance funds shun shares in firms involved with alcohol, tobacco, gambling, pork, pornography. The funds avoid bonds and other interest bearing securities while seeking protection against inflation by making long-term equity investments.

According to Saturna, the company’s Amana Trust Income (ATI), which is its oldest of the group of Amana funds has US$1 billion in assets and it derive its dividends thanks to investments in top market portfolio’s.

The annual return for ATI for the past 10 years averaged 6%, 6.5 percentage points better than the Standards & Poor’s (S&P) 500 and good enough to put ATI in the top 5% of its category, according to Morningstar.

Kaiser’s biggest fund, the Amana Trust Growth which has US$1.5 billion in size, has invested in stocks like Apple and Google and has returned 3.4% a year and is has done better in the S&P 500 by 4% a year during the same time frame.

Kaiser explained that his company are equity fund advisors, managing funds primarily for US investors, but decided to start operating in Malaysia where they will be conducting market research and analysis.

The company uses its years of investment experience to aid investors in navigating today’s volatile markets, he said.

In the long run, the company will also offer Islamic stocks and perhaps engage in other investment portfolio’s which could include personal retirement funds as and when the market opens up in Malaysia.

Nevertheless, it appears that while Amana’s success is the result of the discipline of its Islamic investment nature, investing in Islamic stocks does not necessarily bring profit to the investors.

“In times of economic downturn, the investors are after stocks that can bring them profit. But during the 2008 crisis, what is called the ‘sin’ stocks were rejected by the investors as they found they could gain more with Islamic cum ethical stocks,” he said.

He explained that it is a good deed to invest in ethical stocks since they are relevant as environmental, social and good governance stocks, and rejected portfolio’s that encroached on human rights, child labour or harmed the environment.