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Financial Planning

Momentum’s Sharia-aligned Portfolio Shines in Tough Times

By: Francois Strydom, Portfolio Manager at Momentum Securities

Confirming theories that Sharia-compliant investments outperform their conventional counterparts in challenging economic times, Momentum Securities’ International Sharia Aligned Equity Portfolio has achieved a cumulative year-to-date return of 23.8%, compared to a benchmark return of 5.5%. This portfolio invests in companies contained in the MSCI World Islamic Index (USD), which is also the portfolio’s benchmark.

“Our Sharia-aligned portfolio has proved extremely resilient since its inception a year ago,” says portfolio manager Francois Strydom. “The returns, however, are reliant on the ability of our portfolio management team to identify and take positions in both undervalued and growth-orientated shares in a consistent manner that will deliver long-term returns in excess of the portfolio benchmark.”

Excluding companies based on business activity, the portfolio refrains from investing in businesses that are directly active in or derive more than 5 % revenue from the following activities: Alcohol; Tobacco; Pork-related products; Financial services not regarded as Islamic Financial Institutions; Defense/Weapons; Gambling/Casinos; Adult Entertainment; Music; Hotels; and Cinema.

“Empirical research suggests that sharia-complaint investments carry higher balance sheet quality because of their lower debt ratios, which makes them less susceptible to rising rates or macroeconomic factors,” notes Strydom. “At Momentum Securities, we select companies and analyse them both in isolation and in context of the macro environment in which they operate, enabling our investment teams to determine what value to place on securities’ growth potential. 

“This investment process has assisted us in finding stocks that trade below their intrinsic value, generate more reliable cash flows, and ultimately provides us with a competitively performing portfolio,” he states.

Currently, almost a third of the fund is invested in healthcare companies, while 15% remains in cash, enabling the portfolio management team to take advantage of any opportunities they identify. Other investments include companies in the technology, consumer-non-cyclical, industrial and consumer staple sectors.

Strydom says that South African investors are able to access this international Sharia-aligned investment opportunity for a minimum initial investment amount of R5 000, via an exchange traded note (ETN) listed on the Johannesburg Stock Exchange. “This means that investors are able to gain offshore exposure without having to utilise their offshore allowance.

“It also provides Rand-denominated clients access to Sharia-aligned investment opportunities on a global scale,” he adds.

Going forward, Strydom says that the objective of the portfolio remains unchanged. “This portfolio continues to have a global focus determined to maximise risk-adjusted returns to investors over the medium to long term by investing in concentrated listed equity positions contained in the MSCI World Islamic Index.

“This fund remains targeted at individuals looking for global equity exposure from the MSCI World Islamic Index universe with a minimum of five years investment horizon. As with all investments which are higher risk, we encourage investors to seek advice before making any investment decisions,” Strydom concludes.

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