Latest Shariah ETF Monthly Report | HANetf

Shariah ETF Key Takeaways | September

While the US and Japanese economies continue to demonstrate impressive resilience, European growth remains challenged, with inflation persisting at stubbornly high levels. Q2 eurozone GDP expanded at a 0.3% pace following zero growth in the first quarter, while July inflation came in at 5.3% and core inflation at a sticky 5.5%. Eurozone performance has been held back by a weak German economy which suffered more than most from the Russian invasion of Ukraine and declining demand in China. As Europe stagnates, US GDP growth hit 2.1% in Q2 and the Federal Reserve Bank of Atlanta forecasts a stunning Q3 rate of 5.6%. 

In August the Shariah ETF returned -1.78%, in line with comparable Islamic benchmarks but ahead of conventional global indices. Returns were led by the 20%+ appreciation of both Eli Lilly and Novo Nordisk, driven by their diabetes semaglutide offerings, which have been found to also be highly effective in weight reduction. While both companies reported excellent first half results, the real driver of returns was a recently completed five-year, 17,600 patient study from Novo Nordisk indicating that its semaglutide led to a 20% reduction in major adverse cardiovascular events (MACE) in non-diabetic patients 45 and older who were overweight with established cardiovascular disease.   While insurance companies can deny coverage for “cosmetic” treatments such as weight loss, refusing coverage for a highly effective heart medication is more difficult. Despite the gains from Lilly and Novo, most portfolio holdings declined in line with global stock market averages. These declines were across the board with our five weakest performing stocks representing five different industries: alternative energy, agricultural materials, healthcare insurance, technology and HVAC.

Source of all performance data: HANetf / Bloomberg as of 31.08.2023. Additional sources available upon request. Please note that all performance figures are showing net data. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

Macro Outlook – Bear Steepening?

The economic resilience described above has come as a surprise to most, with recession being the default expectation at the start of the year due to the Federal Reserve’s aggressive rate hikes. Instead, consumers have been buoyant and GDP expansion is accelerating. How to explain the disconnect? We believe it comes down to time. Pandemic stimulus support has dwindled but remains. Student loan repayments have been suspended, although they will soon resume. Seniors received a boost in Social Security payments. Rates have jumped but corporates and consumers locked in lower rates during the pandemic and have yet to feel the effect of more expensive borrowing. Look at the housing market. US homebuilder stocks have soared as they became the default source of supply while existing home sales collapsed. US 30-year fixed rate mortgages are unique globally and why trade a 3% mortgage rate locked in during the pandemic for a 7%+ rate today? Many corporates used the pandemic to issue debt and replenish coffers. Eventually people will need to move or purchase a new car and companies will need to borrow. Interest expense will kick in and we will see how resilient the economy remains then. 

Shariah ETF Performance Table                                                                                                 
 As of 31.08.2023

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/08/2023. 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. When you invest in ETFs and ETCs, your capital is at risk.