Advisers considering Shariah mutual funds
Strictures help clients sidestep problems in financial sector
By Darla MercadoTimothy Parker, Hudson Cap
October 5, 2008
With stocks falling, credit tightening and the economy in a tailspin, mutual funds that comply with Shariah, or Islamic law, are becoming more appealing to some advisers.”I dipped my toe into a Shariah mutual fund last week for a client,” said Timothy G. Parker, president of Hudson Capital Management LLC of Ridgewood, N.J.

Mr. Parker bought shares in the $792 million Amana Trust Growth Fund (AMAGX), investing a tiny portion of his client’s assets. In accordance with Shariah rules, the fund screens out companies with ties to gambling, alcohol, tobacco and pork processing.

As of last Monday, the fund had a year-to-date return of -16.39%, a three-year trailing return of 4.33% and a five-year return of 12.16%. In comparison, the fund’s benchmark, the Standard and Poor’s 500 stock index, was down 23.55%, and had three- and five-year returns of 3.66% and 6.49%, respectively.

For some advisers, going into a Shariah fund has less to do with religious observance than surviving the mess that has hit the financial sector: The Quran prohibits paying or receiving interest; investments in financial services firms are generally eliminated from Shariah-based funds too. Firms with large amounts of debt on their balance sheets are also largely avoided — which has kept these funds largely safe from the credit crunch and tumultuous markets that have rocked many mainstream mutual funds.

“I didn’t look at it from a Shariah perspective,” said Mr. Parker, whose firm manages $15 million

 

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