Islamic Equity Monthly Report | December

Shariah ETF Monthly Report: Key Takeaways

• New uncertainty has arisen with the World Health Organization designating the COVID-19 Omicron mutation as a “variant of concern” and “very high” risk. [1] The sharp sell-off in abbreviated trading on the Friday following the American Thanksgiving holiday was, unsurprisingly, followed by a Monday rebound. [2] Further reflection, however, sent markets down on the final trading day of the month. Border closures around the world, sharply higher case counts across much of Europe and the risk of greater transmissibility combined with diminished vaccine protection bring renewed threats of economic disruption.
• At the start of November Saturna Capital assumed management of the Islamic ETF, ticker AMAL.L, which had previously been managed by another firm. Due to the requirements of the ETF’s Shariah advisor, Saturna Capital was unable to equitize the ETF with its stock selections until November 24th. Therefore, performance for the month reflects the hybrid performance of two portfolios. Going forward Saturna will rigorously adhere to the Shariah guidelines, while integrating ESG factors into stock selection.
• During November the Saturna Al-Kawthar Global Focused Equity UCITS ETF declined 6.03%, [3] which trailed global benchmarks. Momentum from the October market rebound continued through the first half of the month before rolling over in the second half, pushing major indices into negative territory for November.

Please note that all performance figures are showing net data,.

Macro Outlook

November presented a disheartening lesson on the importance of ESG and the ramifications of failing to act. Starting with the Environmental pillar, COP26 featured pledges plagued with loopholes and absent the participation of major countries. The failure of the US, China, and India to commit to a phase out of coal stands out. Billed as the last chance to set the world on a path toward limiting global warming to 1.5°C, the International Energy Agency (IEA) estimates that warming would peak at 1.8°C were all countries to adhere to the pledges made at COP26. That remains short of the goal but does represent an improvement from the IEA’s pre-COP26 estimate of 2.1°C of warming. [4]

Under the Social pillar, the emergence of the Omicron variant was not just predictable; it was predicted. Health professionals warned that developed nation hoarding of vaccines, [5] along with reticence among certain producers to make vaccines readily available in developing nations created an ideal environment for the emergence of potentially dangerous mutations as the virus spread through unvaccinated populations. While we don’t yet know the risk presented by Omicron, single-digit vaccination rates across much of the developing world, not to mention inexcusably low rates (often politically driven) among many developed countries, continue to provide COVID a petri dish for future mutation.

Finally, regarding the Governance pillar, the modest steps taken to address carbon emissions and the lack of urgency in distributing vaccines to developing nations and assisting in the further distribution of those vaccines to the general population both represent failures. [6] As individuals our options for improving nation state governance are limited. We can vote, support environmental and social organizations, and perhaps occasionally march. As investors, we can educate and engage. We can direct capital toward those companies consciously working toward a better future, while denying it to those acting contrary to good ESG principles. As a company we can enthusiastically adopt the best practices we seek in our investments.

Shariah ETF Performance (as of 30.11.2021)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/11/2021
Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Please note that all performance figures are showing net data.

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