Growth in Shari’ah shows need for more values-based investing

SALIEGH SALAAM Portfolio Manager, Old Mutual Investment Group

During 2020/1, Shari’ah funds saw substantial growth, peaking at $130bn in June 2021, ending the year at $120bn. Fitch Ratings estimate that the growth rate of Islamic funds has exceeded that of the broader global mutual fund industry. Clearly, when viewed in the context of the number of those who practice Islam, we can conclude that Shari’ah appeals to a broader investment universe than just Muslims.

This, coupled with the growth of ESG funds to $35tr in 2021, which Bloomberg says are “moving from the periphery to the mainstream”, was a direct result of the Covid-19 crisis highlighting the need for responsible investing, as the pandemic showed deficiencies in economies and societies across the world.

The popularity of Shari’ah investments among non-Muslim investors is nothing new for Old Mutual, with almost 30% of our Shari’ah funds held by non-Muslim investors.

Old Mutual Shari’ah

We offer Islamic Funds with a market value of about $300m in global and South African assets, where we invest according to Shari’ah investing principles while actively integrating ESG metrics. We seek to grow our clients’ wealth while simultaneously impacting the United Nations Sustainable Development Goals (UNSDGs) through the investment returns the Funds generate. Our first Shari’ah fund, the Old Mutual Albaraka Equity Fund, was launched in South Africa (SA) in 1992, and the latest, the Old Mutual Albaraka Income Fund, in March 2020. As a Sukuk fund that actively incorporates ESG, it’s a first of its kind in SA.

Shari’ah investing principles have historically been interpreted by scholars to determine what the minimum standards are that an investment must satisfy to meet the requirements of Islamic Law. Our investment approach incorporates the higher purposes and objectives of Islamic Law by actively incorporating ESG principles and UNSDGs, sharing common values with the higher objectives of Islamic Law – which, among others, seeks the preservation and protection of life, resources and the environment.

We go beyond the literal meaning of the law, raising the bar to incorporate the purposes and objectives behind Shari’ah, integrating both Shari’ah standards and ESG principles into our investment process. The wealth created from this investment approach is also shared with disadvantaged communities in support of the UNSDGs.

Our partner in impacting the UNSDGs is The South African Muslim Charitable Trust (SAMCT), which was established in 2008 to act as a conduit for the provision of funding assets, services and other resources to approved public benefit organisations. Since its creation, the Trust has made significant donations towards poverty alleviation, empowerment, community upliftment and sustainability programmes. Funds are distributed to improve the health and development of people, irrespective of race or religion. The Trust contributes towards four primary sectors: Education, Health, Social Development and Poverty Alleviation.

ESG ratings

We partnered with MSCI to be the first LISP platform to rate our Shari’ah unit trust funds and publish them on the Old Mutual Wealth platform. All three of our Shari’ah Funds – Old Mutual Albaraka Balanced Fund, Old Mutual Albaraka Equity Fund, and Old Mutual Albaraka Income Fund – have their ESG Ratings listed on this platform. For more information, visit: https://www. oldmutualinvest.com/individual/oursolutions/shariah-investing

Sources: Morningstar, Morgan Stanley, Reuters, Rifinitiv, World Economic Forum, Fitch Ratings