Funds Group: Azzad Funds Group
Management Company: Advisor: (1) Azzad Asset Management, Inc. Sub-Advisor: Ziegler Capital Management, LLC (2) Azzad Asset Management, Inc. Sub-Advisor: Federated Investment Management Company
Funds Affected: (1) Azzad Ethical Fund, (2) Azzad Wise Capital Fund
Principal Sustainable Investment Management Strategies: Religious/Ethical-Sukuk, Exclusions
Group Summary:
(1) The fund does not invest in corporations that derive substantial revenue (defined as more than 5% of total revenue) from alcohol, tobacco, pornography, pork, gambling, hydraulic fracturing, private prisons or weapons industries as determined by the adviser. The fund also will not invest in securities or other instruments that derive revenue from the receipt of interest from lending arrangements, preferred stocks and convertible securities or other instruments that pay interest from lending, or from the receipt of gains from futures contracts, trading debt or trades that involve exchanging the same kind of monetary instruments (such as the same type of currency).
(2) The fund invests primarily in fixed income securities issued for payment by international financial institutions, foreign governments, and agencies of foreign governments in transactions structured to be compliant with the fund’s ethical investment guidelines. Examples of fixed income securities in which the fund invests include sukuk and wakala.
The fund does not invest in corporations that derive substantial revenue (defined as more than 5% of total revenue) from alcohol, tobacco, pornography, pork, gambling, hydraulic fracturing, private prisons, or weapons industries as determined by the adviser. The fund will not invest in securities or other instruments that derive revenue from the receipt of interest from lending arrangements, preferred stocks and convertible securities or other instruments that pay interest from lending, or from the receipt of gains from futures contracts, trading debt, or trades that involve exchanging the same kind of monetary instruments (such as the same type of currency). The fund will, however, be able to invest in instruments that provide a fixed rate of return in transactions that are structured to be compliant with the fund’s ethical investment restrictions such as sukuk, certificates of deposit, bank notes, and short-term bank deposits.
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Reporting and Disclosure:
Annual Report 6/30/2018. The Azzad Ethical Fund reported that during the one-year period ended June 30, 2018, the fund rose by 17.37%, underperforming the Russell MidCap Growth benchmark’s 18.54% return. According to sub-adviser Ziegler Capital Management, mid-cap growth was among the best performing areas of the market over the period, with particular strength in the technology and financial sectors, and to a lesser extent, energy. While the fund’s ethical restrictions may have served as a slight headwind this year, the fund’s focus on reasonable valuations was more detrimental and has yet to be rewarded.
At the same time, the Azzad Wise Capital Fund reported that the fund gained 0.90% for the 12 months ended June 30, 2018, outperforming its benchmark, the ICE BofAML 1-3 Yr. U.S. Corp. & Govt. Index, which returned 0.27%.
Beyond the comment made by Ziegler above, the funds offered no additional commentary in their annual reports regarding the considerations of the fund’s religious/ethical practices, exclusions and shareholder engagements relative to the positioning of the two fund portfolios or investment decisions. Nor did the funds offer any observations regarding the impacts or outcomes of their sustainable investing practices.
About Azzad Asset Management, Inc.:
Azzad Asset Management, Inc. is a privately owned investment manager located in Falls Church, VA that offers financial solutions and investment options that are aligned with the Islamic faith. The firm manages $598.6 million in assets with a staff of 10 employees, including nine that perform investment advisory functions. The firm was founded in 1997 by Bashar Mohammad Qasem, CFA, CSAA, a computer engineer from Jordan who came to the United States at the age of 23 and who continues to serve as President and Chief Executive Officer. The investment manager offers its services to individuals, high net worth clients and institutional investors.
In addition to a complete financial planning package, the company offers separate accounts and mutual funds that invest in the public equity and fixed income markets across the globe by employing a combination of fundamental and quantitative analysis to create its portfolios. The firm’s investing philosophy is anchored in the belief that “sustainable companies operating responsibly and in ethical lines of business offer the best opportunities for shareholder returns.” Azzad believes that such companies offer relatively less business risk and are in a better position to thrive and, to that end, the investment manager integrates its socially responsible investment philosophy with a disciplined investment process to build a portfolio that’s in line with its core values.
Azzad also offers two mutual funds that are now both sub-advised by external managers. The first, the $121.4 million Azzad Wise Capital Fund, is a growth and income fund that invests at least 80% of its assets in fixed-income securities and up to 10% of its assets in domestic and foreign equities. The fund, originally managed by Azzad, has been sub-advised by Federated Investment Management Company since 2014. Launched in 2010, the Azzad Wise Capital Fund (which may have absorbed the assets of the liquidated Azzad Ethical Income Fund in 2009) was devised to respect the Islamic prohibition of giving and taking interest from lending and was the first halal fixed-income mutual fund in the United States.
A second fund, Azzad Ethical (originally Azzad Ethical Mid-Cap Fund), was launched in 2000 under the management of Azzad. This growth fund, which invests in securities of mid-capitalization companies, has been sub-advised by Ziegler Capital Management, LLC since 2013.
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