The primary objective of the Developing World Fund is long-term capital growth.
What led to this fund being launched?
In 2009, we believed there were significant growth opportunities overseas. We also felt this type of fund further helped diversify the Amana Fund family.
What are the key factors that drive the fund’s performance?
The first factor is our Shariah-based screening process. Companies with excessive debt or that engage in prohibited activities are not eligible for purchase by the fund. Secondly we are highly disciplined in the price we will pay for a stock. Third, we have very low turnover; less than 10% of the fund’s holdings annually. This keeps trading costs to a minimum but more importantly allows us to avoid the pitfalls of behavioralism that often cause investors to buy when enthusiasm and prices are at their highest yet value at its lowest and vice versa.
This is especially important in market downturns as simple math tells us that a portfolio declining in value by 50% needs to rise 100% to reclaim its original value. Our portfolios consistently outperform in down markets, while capturing the majority of the gain in rising markets. We are able to hold stocks for long periods because of the extensive research we conduct on portfolio candidates, seeking companies with identifiable and sustainable positions of superiority in their industries, high quality management teams and an opportunity to substantially grow their earnings.
As a developing world fund we often have opportunities to invest in companies replicating business models that have succeeded in the developed world or providing goods and services we know have proven desirable in the developed world and are likely to be just as desirable as incomes rise in the developing world.
Who are your investors (profile)?
Retail (Muslim and non-Muslim) and institutional from the US.
What specific risks does the fund take into consideration? And why?
Apart from the traditional portfolio, factor and stock specific risks, a developing world fund presents unique risk challenges relative to our US-centric growth and income funds. Currency movements or commodity price swings can have a larger impact on developing nations. With a developing world fund one must be cognizant of political risks, while most OECD countries don’t have coups or revolutions. Of course, such events often present excellent buying opportunities.
How often do you review this fund?
We review the fund daily as the nature of the investments means there’s that much more to know, understand and interpret. It’s not enough to know what the Federal Reserve is doing. We need to know what’s happening at the Bank of China or possible outcomes of the elections in Malaysia.
What is the market outlook for this fund?
While we prefer positive market environments, tactical market calls are not a significant contributor to fund performance. Our goal is to select the best possible companies in all market environments and with our multi-year average holding period for investments, tactical portfolio adjustments are not a part of our toolkit.