Islamic Equity Monthly Report | April

Learn more about our Shariah ETF.

The bravery and resilience of the Ukrainian people in the face of the Russian onslaught has inspired much of the world and perhaps led investors to believe that the West may still have a future. Stock markets generally recovered in the second half of March as Ukrainian battlefield successes and a respite from soaring oil prices cheered investors. While we hope the former continues, the outlook for energy has become murkier due to the apparent atrocities committed in Bucha by withdrawing Russian troops. [1] The massacre of civilians has re-energized the Western sanctions regime and has even raised the possibility that European holdouts such as Germany might agree to halt Russian energy imports. [2] Removing Russian oil production from global markets would almost certainly cause prices to spike again. 

Even in advance of any potential further increase energy costs, inflation figures remain elevated and central banks have been telegraphing more aggressive action. Various governors of the U.S. Federal Reserve have floated the possibility of a 50 basis point rate hike, rather than standard cadence of 25 basis points. [3]

In March the Saturna Al-Kawthar Global Focused Equity UCITS ETF gained 2.04%, broadly in line with global benchmarks. Performance was led by led by solid recoveries in stocks that had performed poorly until early March, led by Schneider Electric, which has a tremendous opportunity to participate in the transition away from fossil fuels. GPS leader Trimble, Tokyo Electron and businesses services firm Inuit all rebounded strongly in the back half of March.

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

Looking at the United States, the yield curve moved sharply higher over the first quarter, raising the discount rate at which investors estimate the net present value of the future cash flows generated by any given investment. Our Shariah ETF has greater Technology exposure than broad global indices, which is relevant to recent performance of the ETF because many Technology companies are considered “long duration assets.” Their valuations are supported by cash anticipated to be generated over an extended time horizon, captured by what analysts refer to as the “terminal valuation.” Raising the discount rate lowers the net present value of future cash flows and, thus, the value of the investment. 

In Q1 the effect of rising interest rates was exacerbated by the higher valuations of Technology stocks relative to other sectors and concerns over what effect the tapering of the pandemic and return to work might have on demand for various products and services. Conversely, those companies with lower valuations and/or resilient demand, performed better. That said, there was a significant reversal of this trend in the second half of March, which contributed to our performance.

AMAL Performance Table (As of 31.03.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/03/2022. 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. 

Learn more about our Shariah ETF.

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