Last month, Sanlam Private Investments (SPI) launched South Africa’s first bespoke Shariah compliant equity portfolio. The uptake, until the 8th December 2010, has been exceptional, and demand is expected to jump even more next year.
The first of its kind in the country, the equity portfolio is a departure from the ‘one-size-fits-all’ Shariah options currently available in South Africa, because it gives Muslim investors access to investment portfolios which are tailored to their individual investment needs.
According to Daniël Kriel, chief executive of SPI, the new direct equity portfolio means that one Shariah investor’s portfolio need not look the same as the next.
“There are currently five Shariah compliant unit trusts in the country but none of these allow for tailor made investment choices. This market has been neglected to date and many Muslim investors have not had the opportunity to ensure their investments adhere to Shariah.”
Our investment strategy includes looking for quality stocks, as we prefer well known companies with sound management principles, high dividend yields and a positive cash position. Companies must also show strong fundamentals.
Currently, the portfolio is still focused on quality heavyweight blue chip stocks.
For instance, stocks such as Anglo American, BHP Billiton and Sasol are favored. The portfolio is 13% invested in Billiton, 12% in Anglo and 10% in luxury goods group Richemont. These stocks have also performed well over the past month — boosting the portfolio’s performance.
Richemont in particular has enjoyed a strong month, with the share price rising nearly 13%. Over the past six months, the share has rocketed just short of 60%.
However, we remain cautious and 17% of the portfolio is currently invested in cash. He also invests in Shariah compliant bonds, or the Sukuk, for those more risk averse investors.
In fact, opting for Shariah compliant investments is already considered a safer investment than traditional options — and as such, the industry is seeing a jump in popularity, both in South Africa and worldwide.
Currently some US$950 billion is invested in Shariah compliant assets globally — with many industry experts predicting that to jump to nearly US$2 trillion by 2012.
As it is, big banks, like HSBC, are positioning themselves to make the most of the increase in demand. And that increase is set to be fuelled by non-Islamic countries like France — which recently amended laws to allow Islamic bonds to be issued there — and China.
The latter has a Muslim population of nearly 40 million and experts reckon the country will offer huge Shariah opportunities in the near future.
In South Africa, asset managers are forecasting big growth now, despite the fact that Shariah compliant investments have been offered locally since the late 1980s.
There are 350,000 Muslim households in the country. While this may be dwarfed by China’s population, Muslim investors here are not to be trifled with financially. They make annual savings of nearly ZAR2 billion (US$293 million) half of which could be pumped into Shariah compliant investments per year in the country.
Currently some ZAR4.2 billion (US$615 million) are invested in the five Shariah compliant unit trusts that operate here, offered by the likes of Oasis, Stanlib and Absa Capital.
So why the likely increase in popularity for Shariah investments? For one, Yusuf Moola, portfolio manager of Sanlam Private Investments (SPI) says its safe haven status is a big help, particularly after the credit crunch that crippled banks and companies that dabble in debt.
Shariah compliant investments avoid debt, gearing, and the financial sector in general because of the interest financial firms pay (known as riba). They never invested in those toxic securities backed by many sub-prime mortgages in America.
Even as the credit crunch wiped out balance sheets of western banks, not a single Islamic bank went bust during the crisis — simply because Shariah law does not allow them to get into debt. As a result, going Shariah offers investors a certain amount of capital protection and some predictability.
The Shariah space is also luring non-Muslim socially responsible investors. Shariah compliant investing does not allow investments in companies that operate in sectors such as gaming and casinos, tobacco and alcohol, arms and weaponry, and amusement and recreation, among others.
It also avoids companies such as Tiger Brands, because of its pork operations. Because these products have to adhere to the ethical Shariah principles, they fall under the socially responsible category.
The products have to comply with the strict criteria contained in the Islamic law, and this is overseen by a Shariah advisory board, which usually comprises four Muslim clerics or scholars.
In the case of SPI, a board consisting of three Muslim legal scholars, oversees its investment process.
A further reason for the rise in Shariah popularity could be the strong performance of Shariah compliant stocks in South Africa. Since February this year to the end of November, the FTSE/JSE Shariah all share index has risen around 17%. That compares well with the traditionally more risky JSE all share index, which rose just under 20% over the same period.
Investors in the Shariah space also have the alternative option of investing in the Sukuk, or Islamic bonds. There has been a recent revival in the Sukuk, after a number of Sukuk defaults occurred among Gulf based corporates globally last year.
Still, issuances worldwide are rising — and analysts expect that Sukuk will play a vital role in putting a flame under the global Islamic finance market this year.
SPI will be at the forefront of Sukuk development in South Africa, with plans to launch its own Shariah compliant bond soon. This will enhance our offering to our private clients in our bespoke equity portfolio, and should protect those Shariah compliant investors keen to avoid risk.
If an investor wants to take advantage of a specific investment opportunity, SPI can facilitate this through a stockbroking service. The portfolio charges no upfront or exit fees, and there is no difference between buy and sell costs (which is normally the case when investing in unit trusts).
As a result, our portfolio is far more cost effective than any unit trust offering would be.
Aside from the Sukuk, SPI is currently investigating a Shariah compliant property portfolio. This portfolio would look to invest in property unit trusts listed on the Johannesburg Stock Exchange.
Yusuf Moola
Portfolio manager
Sanlam Private Investments
Email:
[email protected]
Yusuf Moola is a portfolio manager at Sanlam Private Investments where he is responsible for the recently launched Shariah compliant portfolio. He has over 16 years of stockbroking experience in three major areas — portfolio management, arbitrage and institutional broking.