Mission-based social and ethical investing

Maahir Jakoet is an investment analyst at Old Mutual Investment Group. (Picture: Supplied)
Maahir Jakoet is an investment analyst at Old Mutual Investment Group. (Picture: Supplied)

The South African financial services industry boasts several Shari’ah-compliant funds, and the Old Mutual Albaraka Balanced Fund* is certainly among the largest of Shari’ah balanced funds.

The portfolio is strictly managed in accordance with Shari’ah (Islamic law) and consequently does not invest in the shares of companies whose core business involves dealing in alcohol, gambling, non-halaal foodstuffs or interest-bearing instruments.

Although managed according to Islamic principles, those principles have appealed to a broader investor base, with approximately 20% of the investors being non-Muslim. 

Balanced funds tend to not be as aggressive as pure equity funds since a balanced fund comprises various asset classes (bonds, Islamic bonds (sukuk), shares etc.), which diversifies sources of return and may reduce volatility.
 
Investors seeking moderate to high long-term capital growth with generally less volatility than in pure equity investments would also do well to consider this fund. 

In terms of the fund’s composition, it aims to be less risky by design compared to its Shari’ah benchmark. However, investors need to be able to withstand short-term market fluctuations.

According to Old Mutual Investment Group investment analyst Maahir Jakoet: “It’s an attractive investment for investors who are cautious about risk and seeking smoother long-term returns.”

The fund’s strategy is to achieve greater returns and less volatility compared to the market over medium- to long-term investment periods. 

Having exposure to international assets enables it to achieve greater diversification and consequently reduction in volatility.

Any income that is deemed non-permissible is accrued and deducted on a daily basis and is paid to a charitable trust elected by the Shari’ah Supervisory Board. 

This trust is completely independent and neither Old Mutual nor Albaraka have any say in the allocation of funds and the recipients thereof. 

The Old Mutual Albaraka Balanced Fund is a Regulation 28 compliant fund. It is suitable as a standalone retirement investment. The fund has returned an impressive annualised 9% for the five years ending June 2017 – outperforming the Islamic Balanced Funds’ average over this time period.**

It has also outperformed the conventional (non-Shari’ah compliant) Balanced Fund peer group average over the two- and three-year period. The performance objective is to outperform the benchmark over rolling three-year periods.

The Old Mutual Albaraka Balanced Fund may invest in local equities, global equities and non-equity assets such as sukuk, says Jakoet. 

It may also invest in the portfolios of other unit trusts, both locally and those registered in countries with acceptable regulatory environments. 

The fund has an offshore limit of 25%.

A breakdown of the fund’s recent composition as at 30 June shows domestic equities (38.9%), Islamic liquid assets (37.4%), international equities (20.4%), and international non-equities (3.3%).
 
In total, 20.4% of the global equity component is invested directly into Shari’ah-compliant global equities.

The global equity component constitutes between 80 and 120 stocks and is managed by the same investment team as the Old Mutual Albaraka Balanced Fund. 

A prominent feature of this global component is that it is environmental, social and governance (ESG) cognisant, profiling one of the few balanced funds that is not only Shari’ah compliant but also has a significant ESG bias, placing a high premium on evaluating corporate behaviour and determining future performances of companies.

Three important factors driving performance domestically, says Jakoet, are emphasis on risk management (speaking to low volatility stocks); valuation (what’s cheap and what’s expensive); and seeking out momentum stocks that the market likes and that continue to do well.

They call this a managed volatility strategy, which is the engine driving their Shari’ah and certain non-Shari’ah solutions. 

Top equity holdings currently include Vodacom, BHP, Mondi, Richemont, Cashbuild, Kumba Iron Ore, Sibanye-Stillwater, Clicks Group and Datatec.

“We are benchmark cognisant, but because we look at value, momentum and volatility, we don’t look at valuation multiples in isolation. So, if a stock shows great value, it may well be in the fund. We look at the portfolio holistically when tilting toward value, momentum and low volatility,” says Jakoet.

The investment team established the process of deducting non-permissible income on a daily basis. The fund adopts leading governance and compliance practices on multiple levels, boasting a proven long-term investment track record.

The investment team’s strategy aims to manage the fund in such a way that it has a moderate risk profile and similarly is less risky (in terms of volatility) than its benchmark.

The portfolio management team responsible for the fund’s strategy consists of Saliegh Salaam as lead portfolio manager, assisted by Grant Watson and Warren McLeod.

The team’s members have worked together for over a decade, and their combined experience, insights and focus has resulted in Old Mutual having a highly proficient investment team responsible for managing their range of Shari’ah-compliant funds. 

*Disclaimer: Old Mutual Customised Solutions (Pty) Ltd is a licensed FSP. The above fund is a registered collective investment scheme administered by Old Mutual Unit Trust Managers (RF) (Pty) Ltd. The relevant fund’s Minimum Disclosure Document is available here.

**Morningstar returns – June 2017


This article is from the September 2017 edition of FundFocus, which appeared in the 21 September edition of finweek. Buy and download the magazine here.

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