Global Equity Shariah Monthly Report | December
- Our Shariah compliant ETF will invest in companies of a high quality with wide economic moats
- The Shariah ETF will take active positions against the MSCI World Index
(the index) with typically 30 positions against the index’s 400 constituents
- Historically a selection of high quality businesses managed with a
rigorous valuation discipline has managed to outperform the index over time
based on the investment team’s historic track record
Monthly Performance of Fund/Sector
- In November, the fund’s net asset
value increased by 11.8% in Dollar terms.
- We saw strong performances from some
of our names including Taylor Wimpey, Inditex
- Alibaba was our worst performing
name this month. Alibaba sold off when news emerged of a tightening of
monopolistic rules from the Chinese Communist Party (CCP) regulator. Alibaba
also had the extra disappointment of the delayed IPO of Ant Group, the fintech
owner of payments platform Alipay, of which they own a third of the company. It
looks likely that this is a case of the CCP reasserting their control, rather
than any long-term fundamental headwind for the company.
What Has Driven This
The top performer in our Shariah compliant ETF during the month of November was Taylor
Wimpey with a return of 50% in US$.
Taylor Wimpey has benefited from a resurgent new homes market, guiding this
year's earnings towards the upper end of their previous range six months
earlier. Management now believes that 2021's earnings will be materially above
the top end of the market range which took the market by surprise. Although
risks remain significant, the market took plenty of comfort entering 2021 with
approximately 50% of anticipated revenues in the order book. We believe that
based on 1.2 times book, a free cash flow yield two years from now close to 10%
and the prospect of dividend resumptions next year, the stock remains
Inditex was sold during the month after the stock moved up by 35%
by the end of the month. Based on our
deep analysis, the valuation now looks demanding with the company trading above
our assessment of fair value. Inditex’s business model remains among the
strongest in the retail sector and an improved free cash flow improvement
outlook was fully discounted in the share price. Given that Alibaba was very
weak during the month, we used the proceeds of Inditex to increase our position
size in Alibaba.
Qorvo’s results and outlook continue to impress and the stock
appreciated by 23% this month as they continue to benefit from the shift to 5G
technology. The once in a decade shift to 5G is on full display with content
increasing considerably above smartphone units. And it’s not just smartphones;
5G infrastructure, smart speakers, automotive and wearables are all benefitting
from the convergence of 5G cellular and WiFi 6. Qorvo remains at the forefront
of this convergence, and its 5G infrastructure should continue to benefit the
company’s growth prospects. We slightly reduced our position in this name after
a move of 21% in 2 months.
November we initiated a position in NVR. NVR builds single family detached homes, primarily in the Eastern United
States, with its largest markets in the Washington and Baltimore areas. The
company was founded in 1980, and operates under the NV Homes, Ryan Homes and
Heartland Homes brands. US homebuilding remains depressed after the 2009
crisis, but was recovering rapidly and steadily year by year before COVID hit.
There is strong upside just to a normalised historical level of US
homebuilding, and NVR offers a very high quality way to participate in a
multi-year recovery, with its net cash balance sheet and very high ROE. Q3 saw a 40% spike in new home orders over
2019. These will be delivered over the next 9 months.
line with our valuation discipline, we exited our positions in Inditex and
Shiseido following strong gains during the month. Since we invested, these names have returned
14.1% and 16.8% respectively. We will
continue to monitor these quality businesses should the opportunity to reinvest
of a working vaccine that came to light during November was a big positive for
the equity markets. But as global lockdowns persist, it’s clear we’re not out
of the woods yet, and markets pulled back again to reflect that. What we did
see though, was a change in sentiment towards so-called value stocks, which has
interesting implications for investors.
Energy stocks, which do not feature in the portfolio, in particular were
one part of the market that staged a spectacular rally, increasing 29% in USD during
November, albeit this part of the market is still posting negative returns of
more than 30% year to date.
recent months the gulf between the performance of growth stocks (companies with
good cash flow and earnings that were largely insulated from the effects of
Covid-19) and value stocks (companies with cyclical businesses, more dependent
on a strong economy, which remain cheap relative to the rest of the market),
has widened. Growth stocks have more than recovered their losses from the crash
in March, while value stocks still languish below pre-Covid levels. However, news
of a vaccine seemed to stem this trend. In November, we saw value stocks rise
4.2% percent more than growth stocks, and as the clouds start to dissipate over
the future economic landscape this may continue. At the same time, growth
stocks may fall out of favour as investors realise the profits they have made
and reinvest elsewhere. What we could see is a convergence of the fortunes of
these two investment approaches. There is still a huge amount of uncertainty,
but carefully seeking the right opportunities in value stocks now whilst still
adhering to our quality criteria principles could improve future returns.
good example of this could be our investment in SAP, the leading provider of
Enterprise Resource Planning (ERP), analytics, supply chain management and
human capital management solutions. The company serves 440,000 customers in
more than 180 countries. According to the company, 77% of the world’s
transaction revenue touches an SAP system. SAP customers include 92% of the
Forbes Global 2K companies and 98% of the 100 most valued brands. The company
employs 101,450 people worldwide and more than 73% of employees are
shareholders in SAP. We believe the transition to cloud ERP is a once in a
decade opportunity for SAP to drive customer retention, add new customers and
capture share. The stock has had a
volatile ride this year, with a low of Euro87 and a high of Euro140. After
another prolific drop of 36% from the July highs, we felt that the stock now
offers upside below Euro100 per share, and were able to significantly increase
our position during the month.
working vaccine should also lead to the resumption of normality in the travel
sector and many other sectors in the not too distant future. We believe that our large exposure to the
healthcare sector is based on good growth prospects and attractive valuations.
The outcome of the US election appears sealed, with a Biden victory but
Republicans likely maintaining control of the Senate and gaining ground in the
House. With regards to the impact on the healthcare sector, it looks like a
scenario where large-scale dramatic regulatory changes are fairly unlikely, and
this has helped enabled the strong market performance seen after the election
results became clear. The result of a clear election outcome is that there is
unlikely to be dramatic, landscape-altering change and that brighter days are
ahead for the healthcare sector, which trades at a historically low relative valuation.
The US healthcare sector posted the most broad-based outperformance of all
sectors in the third quarter results announcements and has had the strongest
earnings revisions of all sectors for both 2020 and 2021 since the start of the
year. Further, the sector is actually expected to see the fastest EPS growth
from 2019-2022 of close to 11% per annum yet trades at the second-lowest 2022
valuations multiple of all the sectors in the US.
Top 10 holdings
Johnson & Johnson
Source: Sanlam. Data as of 30/11/2020
Almalia Sanlam Active Shariah Global Equity UCITS ETF is a UCITS compliant
exchange traded fund domiciled in Ireland.
fund aims to achieve capital growth over the medium to long term, whilst
complying with the Principles of Shariah Investment.
Our Shariah compliant ETF is an actively fund managed by Sanlam Investment Managers that invests
in best of class, high quality companies with strong growth prospects, durable
business models, sustainable revenue and free cash flow. It focuses on 20-35
companies with high returns on capital, low leverage, enduring businesses with
a sustainable competitive advantage that produce significant free cash flow
after capital expenditure.
remember that when you trade ETFs your capital is at risk and past performance
is no guarantee of future performance.
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