Shariah ETF Monthly Report: Key Takeaways
- Omicron has driven COVID-19 infections to stratospheric levels across Europe and the US. The surge has already caused economic disruptions and we can expect that to spread to Asia before long. Whether it affects supply chains to an extent that exacerbates inflationary pressures remains to be seen.
- The Federal Reserve admitted that its original stance on inflation had been overtaken by events and announced a reduction in its bond buying program. Most participants now expect three quarter-point rate increases during 2022.
- In December the Saturna Al-Kawthar Global Focused Equity UCITS ETF performed well, returning 3.79%. Early in the month ETF performance was dented by a sharp decline in business services firm Docusign but was able to recover through the remainder of the month. We have maintained the investment in Docusign believing that management has identified the shortcomings that caused the sell-off and will work to address them.
As we enter 2022, we believe the major themes occupying investors revolve around inflation, interest rates and the effects these may have on valuation, especially among the more highly valued technology stocks. Every stock valuation reflects the market’s estimate of the value of future cash flows of that business discounted at an appropriate rate. The lower the rate, the greater the value of future cash flows discounted to the present. Of course, the reverse is also true. Many technology companies benefitted from the acceleration in a variety of consumer and business trends toward e-commerce, e-payments, remote conferencing, WFM, etc. Regardless of the benefits such companies may have received, low interest rates undoubtedly supported rising valuations. The combination of abating pandemic tailwinds and higher rates could bring further declines both to stocks that were treated roughly over the course of 2021 and those that continued to enjoy investor support.
Related to the discussion above is the concentration of global market capitalization among a handful of stocks, primarily technology and primarily in the US. Apple, Microsoft, Alphabet (Google), Saudi Aramco and Amazon are the top five global companies by market capitalization, each of them valued at well over $1 trillion. A reasonable question is whether these will continue to be the largest companies in the years to come. Very few companies have managed to maintain a position among the world’s largest for more than one or two decades. Exceptions include Exxon Mobile, which ranked among the largest companies for several decades. Microsoft was the largest company in 2000, the third largest in 2010 and the second largest today. Perhaps more interesting than whether the current giants maintain their positions is to ask what companies may take the place of those that fall out? That question will occupy our minds over the coming years.
As of 31/12/2021
note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/12/2021
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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