Islamic Equity Monthly Report | March

Shariah ETF Monthly Report: Key Takeaways

• It would be disrespectful to begin anywhere other than the tragedy of Ukraine and its people. Saturna Capital stands fully in support of Ukraine and in total opposition to the criminal Russian invasion. While heartbroken over the pain and suffering caused by the invasion and concerned over what the future yet holds, we take some solace from the knowledge that Putin’s long-term goal of splitting the West has backfired spectacularly, while the scales have fallen from the eyes of those who believed he acts with anything other than malicious intent.

• Multi-decade highs for inflation in the United States and the Eurozone insured that rising prices remained a focus for investors. US Inflation hit a 40-year high of 7.5% annualized in January as strong consumer demand collided with continuing supply chain bottlenecks. [1] In February Eurozone prices jumped a record 5.8%. [2] With oil prices rising sharply in the wake of Russia’s aggression, inflation seems likely to remain elevated and we expect US/European policy rates to move higher.

• Stock markets were generally holding steady in February before the invasion of Ukraine. That said, except for Russian stocks, the reaction was muted. For the month various regional markets declined in neighborhood of 3%, with Europe performing slightly worse and Japan less affected. Some investors seemed to adopt the perverse notion that the Ukrainian war would delay interest rate hikes, with a continuation of easy money supporting equities. [3]

• In February the Saturna Al Kawthar Global Focused Equity UCITS ETF slipped 0.63%, a smaller decline than experienced across global equity markets. Vestas Wind Systems, which declined sharply in Q4 of last year, rebounded strongly on the realization that alternative energy not only addresses climate change but can also eliminate dependence on fossil fuel producing rogue nations. Strong performance was also registered by crop protection specialist Corteva and Dutch electronic media firm Wolter Kluwer. ETF returns were eroded by declines in UK engineering software firm Aveva, US tax preparation firm Intuit and Danish coatings company Akzo Nobel. The ETF has not held any Russian investments due to poor governance and the treatment of Muslim minorities in areas such as Chechnya. [3] 

Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.

Macro Outlook

The invasion of Ukraine has ratcheted up global uncertainty regarding economic growth, inflation, supply chains, commodity prices and globalization itself. For some time, trade tensions between the United States and China, exacerbated by COVID supply chain disruptions, have raised the specter of the world devolving into two major trade blocks. The meeting between Putin and Chinese president Xi Jinping during the Beijing Olympics at which they reaffirmed their “..strong mutual support for the protection of their core interests...” [4]  makes this more likely. While China’s support of Russia following the assault on Ukraine has been muted, it has much to gain from the predicament Russia has created for itself. We believe talk of a Chinese-Russian Axis to be overblown and would characterize the future relationship as one likely to be more akin to China’s long history of relationships with vassal and tributary states.  

We shy from making economic predictions in such a fluid environment but the expectation of a strong recovery year for global economies has been tempered, while the outlook for inflation has worsened given Russia’s importance on global energy markets and Ukraine’s position as a major agricultural exporter. Higher inflation implies higher interest rates and a March hike in the Federal Funds rate was recently affirmed by Chairman Powell. [5] Islamic investing focuses on companies boasting minimal debt and strong cash generation. Such companies are less likely to be stressed by a rising interest environment or the business disruptions developing because of the invasion. 

Shariah ETF Performance (as of 28.02.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 28/02/2022
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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