Shariah ETF Report | Apr 2024

Shariah ETF Key Takeaways

Given strong market performance over the course of 2023, first quarter returns came as a surprise, especially when we consider how the narrative evolved from a March rate cut, to a June cut to maybe no cuts in 2024.

With a few exceptions, such as Brazil and Hong Kong, global stock markets performed impressively with Germany, Italy, the Netherlands and Japan all registering double-digit returns in local currencies.

In March the Shariah ETF returned 1.82%, trailing conventional and Islamic global indexes. Most of the difference in ETF and Islamic global benchmark performance can be explained by the ETF not investing in fossil fuels or other commodities.

Energy, which accounts for ~14% of the weight in one widely tracked global Islamic index, had a strong quarter rising just shy of 10% and contributing ~1.3% to benchmark returns.

The materials sector, primarily mining, carries a ~10% weight and contributed ~70bp of benchmark return during March.

Our IT stocks failed to keep pace with weakness among Accenture, Adobe and Apple. Taiwan Semi, ASML and Microsoft did well.

The strongest performance was in healthcare where Eli Lilly and Novo Nordisk continued to rise, while we also saw strong performances from Edwards Life, Agilent and AstraZeneca.

Source of all performance data: HANetf / Bloomberg as of 31.03.2024. Additional sources available upon request. Please note that all performance figures are showing net data. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

What’s next for the fab four?

In some ways, the first quarter continued the 2023 Magnificent 7 trends, with AI semiconductor star Nvidia maintaining its torrid pace, rising over 80%. Meta (+37%), Amazon (+19%) and Microsoft (+12%) also had strong quarters, outpacing the broad market. Meanwhile, Alphabet trailed while Apple and Tesla shares declined during the quarter, with Tesla falling over -29%. Taken together, NVDA, META, AMZN and MSFT, still contributed half the return of the S&P500.

The good news is that the rest of the market provided the other half and there has been a broadening of performance across sectors. Of course, you can’t have a group of stocks or markets move in sync with appending a nickname, so the question becomes, will The Fab Four continue their runs or will they succumb to the same forces that sidelined Apple and Tesla? Those forces are: 1) modest to disappointing earnings growth trajectories; 2) regulatory risk. Apple’s growth has been pedestrian for the past couple years, which looks set to continue, while Tesla’s earnings have fallen short of expectations. Apart from those two, earnings for the remainder of the Mag 7 are solid, especially in Nvidia’s case.

Regulatory risk, however, touches several of the companies. In March, the European Union (EU) fined Apple $2 billion for breaking anti-trust rules with its app store. In the United States (US) the Department of Justice (DoJ) has launched a case against the company for monopolizing the cellphone market. Meanwhile, the DoJ has also sued Alphabet for monopolizing search and search advertising, and Amazon has come under Federal Trade Commission scrutiny for monopolizing online retail.

Undoubtedly, these cases will persist for years, and the ultimate result may be irrelevant…apart from opportunity cost? Bill Gates has said the government’s case against Microsoft distracted him from the rise of mobile causing Microsoft to miss out. Others might say MSFT’s distraction opened the door for Apple, Amazon, Google and others. Could the same happen again?

Shariah ETF Performance Table                                                                                                                                          
As of 31.03.2024

 1M3M6MYTD12M3YSI
Saturna Al-Kawthar Global Focused Equity UCITS ETF1.82%8.18%21.44%8.18%22.65%2.60%13.10%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/03/2024. Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”)before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs and ETCs, your capital is at risk.