Making strides in shariah-compliant investing

You don’t need to be Muslim to invest in shariah-compliant investment products – as the credit-crunch and fall-out showed, Islamic banking and investment products fared well by avoiding interest-bearing assets and securities, focusing on commodities and profit-sharing, for example.

As more shariah-compliant products hit the market, Sanlam Private Investments (SPI) has launched what it believes to be a unique product, largely because it’s bespoke. The equity portfolio is tailored for an individual’s particular needs and is not a “one-size-fits-all” option.

“With unit trusts, you are to some extent stuck with what you get,” says Yusuf Moola, fund manager for the product. “But here, a client can say, ‘Here’s R5-million I’ve inherited – I want R20 000 a month and the rest invested.’ We’ll then assess how to invest the balance. We look at quality stocks and we prefer well-known companies with sound management principles, high dividend yields and a positive cash position.”

Moola says that mid-caps are preferred for diversification because, realistically, finding shariah-compliant companies is just that little bit more tricky. For example, Tiger Brands has pork operations and this makes up 7% of its business – 5% would be acceptable because the earnings would be purified through the dividend.

Companies that operate in sectors such as gaming and casinos, tobacco and alcohol, arms and weaponry and amusement and recreation are also avoided, and investments in the financial sector are eschewed because of the interest that financial firms pay.

The cost structure
How do the costs work? The minimum investment is R1-million, and the initial management fee is 1,5% for the first R500 000, 1% on a further half-a-million and 0,75% on the following R2-million. The next R8-million is at 0,75% and after R10-million it’s negotiable. “There are no upfront fees and no performance fees, nor are there exit fees, and there’s no difference between buy and sell costs.”

According to Moola, what makes the product unique is the fact that it’s tailor-made, unlike other shariah-compliant unit trusts on the market, and each investor’s personal risk profile is carefully considered before the funds are invested. No two portfolios have to be alike.

Moola and his team focus on quality, heavyweight blue chip stocks like Anglo American, BHP Billiton and Sasol. The portfolio is 13% invested in Billiton, 12% in Anglo and 10% in luxury goods group Richemont. Then 17% of the portfolio is invested in cash, and investing in shariah-compliant bonds is the strategy with regard to the risk-averse.

“Our minimum investment is R1-million and this new portfolio accommodates the investment of both long-term discretionary and non-discretionary funds, including retirement funds,” says Moola.

The JSE shariah All Share Index advanced more than 10% for the year to October 12. Although that is less than the All Share Index’s 16% gain over the same period, Moola says shariah investing is in general more conservative because it hand-picks shariah-compliant companies.

Sanlam Private Investments will consider launching more shariah compliant products for Muslim investors in the future – it’s currently looking into a shariah-compliant property portfolio, which would look to invest in property unit trusts listed on the JSE.

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