Tue, Jun 28, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Islamic Finance Intelligence

Fund Manager Interview: Monem A. Salam, Director of Islamic Investing, Saturna Capital

Friday, November 12, 2010

Monem A. Salam is Director and Vice President of Islamic Investing and Amana's deputy portfolio manager. He was born in Pakistan in 1972 and raised in Texas, USA. Mr. Salam received his degrees from the University of Texas: BA (Austin) and MBA (Dallas). He worked as Chief Investment Officer for ITG & Associates (Dallas) until 1999, then as a representative with Morgan Stanley (suburban Dallas) until joining Saturna Capital in June 2003. Mr. Salam also manages many of SATURNA's Islamic private accounts.

Q1: What motivated you/Saturna Capital to pursue Islamic fund management? 

As you may know, the Amana Mutual Funds started in 1984, with the first fund (Amana Income Fund) launching in 1986. This came about when a group of Muslims living in Indiana started an investment club that quickly grew to a point where they needed something larger. They approached a local investment firm headed by Nicholas Kaiser. The Muslims knew nothing of the mutual fund industry, and Nick knew nothing about Islamic Investing, but together developed what is now a well-established product range.

Saturna Capital, based in Bellingham, Washington, now administers a series of three different funds namely: Sextant, Idaho and Amana funds. It is currently the premier US based financial institution offering Sharia-compliant investment funds to investors through:

  1. Amana Income Fund (NASDAQ: AMANX)
  2. Amana Growth Fund (NASDAQ: AMAGX)
  3. Amana Developing World Fund (NASDAQ: AMDWX)

Q2: What do you think sets Amana funds apart from other Islamic funds?

What sets Amana apart from other Islamic funds is our deep commitment to shareholders and our rigorous investment guidelines. Deep commitment to shareholders comes in two forms: 1) Our commitment to keep costs low: Since the creation of the funds, we have done everything in our power to reduce the expense ratio of the funds, and we are proud to say that as assets grow, this trend should continue; 2) Our commitment to being Sharia compliant: Having experience and history on our side, we feel we have come up with a unique formula for “grading” securities and knowing what qualifies for a buy, sell, or hold; this can only come from a balance between Sharia compliance, portfolio management and experience in the industry.

Q3: In your view does Sharia compliance engender superior risk-adjusted returns? How have Amana Funds fared in comparison to its respective benchmark and what role has alpha played in investment fund strategy?

In our opinion, the descriptive screens of avoiding companies involved in haram activities do not result in a superior risk-adjusted return. However, when this is coupled with the financial ratio screens, there is a significant value-add. For example, in the last crisis, our ability to avoid conventional banks did prove to add value to our portfolio relative to other funds. However, over the long term, as banks rebound from current lows, we will not be able to take advantage of this. What is more important over the long term is the debt-to-market capitalization ratio, as we have to screen out companies over 33%. This usually eliminates the riskiest ones and those most prone to getting in trouble due to economic instability

Q4: How much time/effort/cost was involved in setting up SATURNA's Amana Funds? Do you think this represents a potential barrier to entry for other fund managers?

Cost is not a factor when it comes to creation of funds; however, two important barriers to entry are time (to develop a track record) and marketing (where one must educate investors as to the benefits of Sharia compliant investing).

Q5: What is the current investor breakdown for your funds in terms of onshore/offshore capital? How has this mix evolved over time?

From the very beginning, the Amana Mutual Funds have been onshore for U.S. residents. We have no direct clients that are overseas. 

Q6: Does SATURNA market funds individually or as a range of products? If so, what would be the optimal mix between them?

Saturna markets the Amana Mutual Funds, which is made up of three funds: Amana Growth, Amana Income, and Amana Developing World. We leave it to individual shareholders to decide what their optimum mix is.  The investment objectives of the Amana Income Fund are to provide current income while preserving capital; dividend-paying stocks remain the top picks. The Amana Growth Fund, however, seeks to generate long-term capital appreciation; investments in small caps are considered. The Amana Developing World Fund is equally occupied with long-term capital growth albeit with diversification in emerging markets.   Some select financials are included below:

Fund

AMANX

AMAGX

AMDWX

Inception Date

23/06/1986

03/02/1994

28/09/2009

Geographic Focus

North America

North America

Emerging Markets

Investment Style

Large Blend

Large Growth

Large Growth

AUM

$ 1.1 billion

$1.7 billion

$11.8 million

NAV

$ 29.95

$23.07

$10.79

Source: Morningstar (Financial Data as of 08/10/2010)

Q7: In your opinion are there any specific products missing from the marketplace? Does SATURNA have any new products in the pipeline? 

What is clearly missing in the market place for Muslims is a stable income product, whether it is short-term (money market) or long-term (sukuk). There are a few hurdles to overcome before these might be offered, the most important being liquidity. 

Q8: How have you addressed the challenges posed by the current financial crisis to Amana Funds? 

The only effect that the financial crisis has had on the funds is that we have benefited from it, due to an increase in Assets under Management. As our performance dramatically outperformed conventional peers, many conventional investors have been buying our funds. Sharia restrictions towards investment in conventional financial institutions have also benefited Amana shareholders keeping returns relatively insulated from the effects of the current economic downturn. The Amana Growth Fund and its Developing World Fund have shown particular resilience outperforming the broader market in the in the first three quarters of 2010, as the following table illustrates.

Fund Returns vs. S & P 500 Index

Your feedback and comments are very important to us, please feel free to contact the author via email.



Article Link

<< Go Back to Archive

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Roundup: Hedge funds shrink as liquidations outpace new launches in Q1: hedge fund news, week 27[more]

    In the week ending 17 May, 2016, HFR said hedge fund liquidations declined narrowly to begin 2016 after rising sharply to conclude 2015, as investors positioned f

  2. Europe - Hedge funds keep powder dry over big Brexit bets, Hedge funds sense profit in Europe shock waves after Brexit vote, Soros warns Brexit may cause pound plunge worse than Black Wednesday, After Brexit: What will happen if Britain votes to leave the UK?[more]

    Hedge funds keep powder dry over big Brexit bets From FT.com: Hedge funds are shying away from big bets on Brexit, with many unwilling to risk further losses having already suffered a painful first half of the year. With the outcome of a UK vote on the country’s membership of the Europea

  3. News Briefs - ’Flash Boys’ get green light to launch stock exchange, Pimco says ‘storm is brewing’ in U.S. commercial real estate, Bankers get ready to rumble at Hedge Fund Fight Night, AIMA Australia celebrates 15th anniversary[more]

    ’Flash Boys’ get green light to launch stock exchange In an investing environment ruled by fast, the newest U.S. public stock exchange is banking on slow. Well, slower. IEX Group, which won Securities and Exchange Commission approval on Friday to go head-to-head with the New York Stock E

  4. Blackstone buys minority stake in New York-based credit hedge fund Marathon[more]

    Benedicte Gravrand, Opalesque Geneva: Blackstone Strategic Capital Holdings Fund, a vehicle managed by Blackstone Alternative Asset Management (BAAM), has acquired a passive, minority interest in Marathon Asset Management, for an undisclosed sum. Based in New York,

  5. Investing - Soros, Druckenmiller among hedgies profiting in market plunge, Hedge funds were most bullish on bonds since 2004 before Brexit, Surprise Brexit vote unleashes scramble for dollars, High-yield hit on Brexit but no panic selling, Scientist turned hedge fund founder lured to pound, euro, Hedge fund avoids commodities, posts big gains[more]

    Soros, Druckenmiller among hedgies profiting in market plunge From HITC.com: Bullish positions in gold and volatility and well-timed short bets on China and emerging markets, among other areas, were some of the trades that benefited hedge funds on Friday as markets digested Britons' s