Islamic investment strategies are proving they’re worth a second look from Muslim and non-Muslim investors alike.
Amana Trust Income, a mutual fund managed by Bellingham, Wash.-based Amana Mutual Funds Trust in accordance with Islamic Shariah law, has increased 13.9 percent year-to-date, compared with a 5.7-percent return for the S&P 500.
It’s a star performance in a rocky investment environment, but Amana Trust Income is hardly extraordinary among Islamic funds. The Dow Jones Islamic Index is up 17.1 percent year-to-date.
So what’s the higher power behind the relative success of Islamic funds?
“These are just better stocks and healthier companies,” said William Redman, managing director and treasurer for Connecticut-based Shariah Capital Inc., which creates Shariah compliant financial products.
In fact, Shariah-compliant does not refer to the nationality of a company, but rather its way of doing business. For example, Brooklyn Center, Minn.-based Caribou Coffee conforms to Shariah Islamic law.
“The threshold for debt is lower,” Redman said. Shariah Capital chooses companies with low debt, low accounts receivable and low cash holdings, in accord with the principles prescribed by the Quran.
Shariah law also forbids the collection or payment of Riba, or excessive interest, as well as investment in companies producing goods or services like alcohol and gambling, that are off-limits to Muslims.
While the rules governing Islamic finance are thousands of years old, very recent changes have led to new opportunities. (MORE)