Islamic Equity Monthly Report | August

Key Takeaways

The tug of war between bulls and bears continued in July with bulls grabbing the upper hand, especially following Federal Reserve Chairman Powell’s comments that the economy appeared to be slowing following the decision to raise rates by 75 basis points for the second consecutive month.[1] That decision was followed by sharp stock market rallies across much of the world, perhaps led by the belief that if economies appear to be slowing, inflation can’t be far behind, and rate hikes may be nearing their end.

The scenario outlined above may turn out to be correct but there’s one more step in the process that can’t be ignored – recession. The latest figures to emerge from Europe indicate the eurozone’s average PMI has dipped below 50, signaling contraction.[2] Meanwhile, establishing price stability remains the top concern for central bankers, meaning additional rate rises are a near certainty, placing additional pressure on economic activity.

In July, the Saturna Al Kawthar Global Focused Equity UCITS ETF rose 8.68%, well ahead of broad global indices. Contrary to earlier in the year, the weakest performers were all Healthcare investments, including Merck, Philips, Roche, AstraZeneca, and Lilly. Strong performances across Technology and industrials overwhelmed the handful of value detractors. Global lithography giant ASML led the way, followed by Texas Instruments, Trimble, and Schneider Electric. The decision by US Senator Joe Manchin to support a bill addressing climate change propelled wind turbine manufacturer Vestas to sharp gains at month end, along with the entire renewable energy complex.

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

Following the sharp reversal in stock market fortunes in July, it seems like a good time to reiterate that we do not invest tactically. Said another way, we do not speculate. Islamic rules discourage speculation, sometimes described as, that whose consequences are hidden. We do not make market calls or adjust portfolio positioning based on an interpretation of where we are in the cycle. We seek well-managed companies demonstrating positive ESG attributes that have an identifiable and, what we believe to be, sustainable competitive advantage. We seek to invest in these companies at attractive prices with the goal of outperforming over the cycle. We believe that we position ourselves more favourably for success through this strategy, rather than guessing what the Federal Reserve may do, when inflation may peak or whether economies will fall into recession. We will make long-term judgements on countries where we do not wish to be invested. We have never held stocks in Russia and are not engaged in South America. We have decided to eliminate investments in China-domiciled companies for Social and Governance reasons, as well as our belief that China faces significant demographic, debt and decoupling challenges that are only exacerbated by installing a leader for life.

AMAL Performance Table (As of 31.07.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/07/2022. 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.      

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