Manager's Updates: Funds Update and Insights on Current Events

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Owaiz Dadabhoy:

Welcome to our webinar titled, “Managers’ Updates: Funds Updates and Insights on Current Events.” We have three portfolio managers joining us today representing all four of the Amana Mutual Funds. Now we have heard news about inflation, banks, and rising interest rates by the Federal Reserve. Does any or all of this affect the Funds you’re invested in or not? So we’ll take some time to address that today.

The portfolio managers will present information about their particular Funds, and I’m going to start off with a quick disclosure like we like to do, and I’m going to tell you that each of the Fund managers are going to talk about returns. And for some of the Funds, the returns for each category has been positive. But that doesn’t mean that that’s necessarily always going to be the case.

And so we want you to definitely take a look at the objectives of each particular Fund, the risks, the charges, expenses. And you can visit our website to read a prospectus or a summary prospectus before investing. In addition to myself, I am the director of Islamic Investing and the President of the Saturna Trust Company. We have Scott Klimo, who’s the manager of the Amana Growth Fund. He’s the chief investment officer and portfolio manager. Monem Salam. He’s the executive vice president, portfolio manager of the Amana Income Fund and the Amana Developing World Fund. And we have Patrick Drum, who is the portfolio manager of the only sukuk Fund that we have in our portfolio of Funds, the Amana Participation Fund.

So with that, I’m going to turn it over to Scott Klimo, who is going to talk to you about the Amana Growth Fund today.

Scott Klimo:

Thank you, Owaiz. Since I am kind of a contrary kind of guy, I’m going to kick off by disagreeing with one thing that Owaiz was talking about in this top ten list and say that the market is actually very easy to predict as long as you have the right timeframe. For example, over the last 100 years, the market has increased about two out of every three days.
That’s covered several periods of war, of depression, of Great Recession, of pandemics. And yet you get that increase two out of every three days over the last hundred years. So I am more than willing to predict that over the next hundred years, the stock market will go up two out of every three days on average. But what does that mean for your investing strategy?

Obviously, it means, as Owaiz was describing, you want to stay invested because it is not just difficult, but, as he said, nearly impossible to predict where the market is going to move on a day to day, month to month, quarter to quarter or even year on year basis. And so the best strategy, as we often say, is to stay invested.

You know, I was thinking about why were we doing this, this webinar? And I was thinking, well, one reason is probably because after a number of very strong years, we had a down year in 2022. And so people may be concerned about that. We have a lot of discussion about inflation, about a possible recession, and also just in terms of relative performance, although the Amana Growth Fund did exceptionally well in 2021 to 2022. At least so far this year, it’s lagging growth indices, if not, if not overall indices. And so those are a couple of reasons people may be wishing to participate in this webinar. So let’s just address a couple of those. 

The Fund over the course of the pandemic did demonstrate very solid performance. In 2021 when the market was up about 20%, the Fund was up nearly 30%. Last year, obviously, we did see a sell off. And so with the S&P 500 was down roughly 18%, the Amana Growth Fund was down about 19. So a little bit less, a little bit worse than the than the broad index in that respect.

But the more important thing, I think, is to just have a look. I know there are a lot of numbers on this slide, and if you look across the top two lines, you see the performance of the Amana Growth Fund versus the S&P 500 Total Return Index. And you see over every one of those periods, the Fund is doing better. And there are a number of reasons for that. One is that growth, has been a very strong category in the S&P 500, is not purely a growth index. So that certainly contributes. But you also see that if you look at the top line over the past ten years, the Amana Growth Fund has provided an annualized return of 14.2%. 14.2% year in and year out on average is what an investor has earned in the Amana Growth Fund over the last ten years.

And that’s going to be equivalent to roughly more than a doubling, like a tripling of your money over that period at that kind of growth rate. And that’s just staying invested. There are plenty of times when people may have been scared out of the market, but as Owaiz mentioned, how do you know when to get back in? Very, very difficult. And so just with that staying the course approach, you’ve had pretty nice returns. You know, even it’s obviously been significantly larger over the last three years because of the incredible move in the market in 2020 and 2021. But over that long period, still 14% very, very respectable. 

Another thing that’s interesting to look at and we’re getting a little bit into the weeds in terms of sophistication here. But it’s the downside protection that the Amana Growth Fund offers. One way that we look at that is through upside and downside capture. And just to give a quick explanation of what that means, upside capture is how many times is your Fund up when the market is up? Downside capture. How many times is the Fund down when the market is down? And you obviously want the upside capture number to be higher than the downside capture because it’s that gap that provides the returns that you get from investing in the Fund. 

And so if you look at those numbers and let’s not worry about one year, three or five year, although they’re all fine numbers, but just look at the ten year and you’ll see an upside capture of 104%, which means actually the Fund is going up in more periods than the market is. So there are periods when the market was down, but the Fund was actually up. And then the downside capture is 95. So it was going down fewer times than the market is going down. And that’s what’s provided the gap, which has provided the performance over the last ten years, over the last 15 years, over the last 30 years, really, since the Amana Fund was established in 1994. 

And another way, just as I was discussing earlier with regard to growth indices, this is a different way of looking at it relative to a comparable category rather than looking at the S&P 500, which is just the 500 largest companies in America. Some are growth, some are income, some are neither. It’s one way of looking to beat the benchmark. Another way of looking at it is something that’s more analogous to what your Fund is, is attempting to provide in terms of access or exposure to growth equities. And that’s what the Amana Growth Fund does. And so here we’re looking at it relative to the Large Growth category from Morningstar. And again, you’ll see that over the ten-year period the Fund has outperformed.

And one way to look at it, if you see those little boxes kind of in the in the top section there, the ten year, five year, three year, one year, you see the black bar at the top of those boxes indicating that the Fund has been in the top quartile and then the numbers below it showing that for the last year it’s been in the second percentile. So out of 1250 Funds, it’s among the top 50 best performing Funds, the fourth percentile over three years and the third percentile over five years. So a pretty solid track record. And a lot of that, as I mentioned, has to do with the upside downside capture. And a lot of that has to do with the Islamic guidelines that we follow in managing the Fund, specifically with avoiding companies that have excessive debt. Think about the current environment right now when we have rising interest rates, companies with substantial debt are going to find that they have to pay a lot more interest on that debt, and that’s naturally going to have an effect on profitability. That’s not an issue that we face within the companies that we invest in within the Amana Growth Fund.

I might also just say that the ESG aspect also provides some protection in that regard as well, particularly within governance. You know, companies that are managed well, that are governed well, it’s kind of an ipso facto, it’s an intuitive thing to recognize that if you have good management at the top, that’s probably going to flow down into other areas, good cash management, good returns on capital, good investment and allocation strategies. And so it’s kind of a virtuous cycle that you start to enjoy with the types of companies that we target and that we seek within the Amana Growth Fund. 

Now, maybe I’ll just say a quick word about the first quarter because we did lag in the first quarter. Something that’s interesting to note is that roughly 90% of market returns and when I say lagged again, I mean versus a growth index, actually outperformed the S&P 500, which was hurt by banks and things of that nature, as I’m sure you’ve seen the various stories there, but they’ve lagged against the growth index.

What we saw in the first quarter was companies such as Tesla was up some 50% in the first quarter. NVIDIA, which is a chip manufacturer, up 80% in that neighborhood over the first quarter. And there’s a saying in investing: that which cannot persist indefinitely will eventually end. And it’s obvious that it will end for Tesla and NVIDIA. Facebook or Meta was another one that was very, very strong in the first quarter. And these were stocks that we didn’t have exposure to. Not in every case because they’re not appropriate, I think, NVIDIA was something that we could potentially have owned. And so that’s kind of on me for not having the exposure to it. But certainly Tesla is a very speculative stock. Obviously every automaker in the world is getting into their business. And Facebook is something that, okay, yeah, they had a good quarter, but definitely is a poor actor in terms of governance with its dual class share system. The company controlled essentially by one person who doesn’t have a majority economic interest. A lot of different reasons we don’t invest in that. 

So we saw a lot of companies, as I mentioned, 20 companies contributed about 90% of the return. Wasn’t a broad based market. I think things will normalize as we move forward, and that should look better for the relative performance of the Amana Growth Fund going forward. Thanks.

Owaiz Dadabhoy:

Okay. And Morningstar Ratings, that’s through the company called Morningstar. They give readings on environmental, social and governance standards and also on performance standards and tenure of the portfolio manager and other factors as well. All right. So and by the way, I’ve had the pleasure of working with Scott since he joined the company in 2012. And he is a chartered financial analyst holder or charter holder of that. And he has spent time in Asia. I believe he speaks at least one other language besides English. I can’t remember which one it was. And, you know, has over 30 years of experience in the investment field. 

So now we’re going to talk with Monem Salam, who’s the executive vice president. As I had mentioned, he’s a portfolio manager of the Amana Income Fund, which started in 1986. It was our first Fund that we launched and the Developing World Fund, which started in 2009. And so with that, I’ll turn it over to Monem.

Monem Salam:

Thank you very much, Owaiz. So, you know, talking about the Amana Income Fund, it is our oldest Fund that 37 years, as Owaiz mentioned, it was started in 1986. And just one thing to keep in mind is, you know, as I’m talking about the Fund, you know, in that 37 years, first of all, in the beginning when we started the Fund, it’s really important to highlight is that savings accounts were yielding about 9%. This Fund was designed to be able to try to give Muslims an alternative to a savings account. In the long run to be able to give them current income, similar to what a savings account does give them, gives you, you know, interest rate. We’re giving a profit rate. But at the same time, you know, in the long run, also try to have some capital preservation and that’s really important when you think about how the Fund is actually managed.

And over the years we’ve had in that 37-year period, we’ve had the interest rate shock of 1994, Asian financial crisis, bubble, Great Financial Crisis, COVID. All of these things happened. And yet we’ve been able to do quite well in being able to deliver on the stated objective of the Fund, which is, again, current income and capital preservation. 
Over the past few years one thing to highlight is that, you know, what Scott mentioned is that, you know, 90% of the growth in the S&P has really come from 20 stocks. And many of those stocks, for Sharia reasons, we cannot own. But also in this Fund, we tried to buy companies that are yielding over and above the S&P 500. A lot of the growth companies that were in the S&P are not eligible for purchase in the Fund.

And so if the lowest 20 companies are giving outsize returns, and that’s what’s driving the index. Obviously, you’re going to see the type of performance you’re seeing in the three year, five year and ten year basis in the Fund itself. You know, we’re in a different environment now. We are in an environment where interest rates are higher, probably will stay higher for the foreseeable future.

And in this environment, usually value or dividend paying stocks actually do quite well. One of those things Scott mentioned was that what happens is usually there’s a rotation between growth and then into value. So that’s one reason why if you look at the one-year performance of the Fund, it’s actually done much better than the S&P. But the second thing is Scott mentioned is that we really focus on the second part of the objective, which is capital preservation.

And so, you know, when you can see a market being down close to 7.7% and we were able to be close to break even, it’s a good feeling to be able to do that. 

As Scott mentioned. You know, if you look at the three months, which is almost the year to date, we are again lagging. But in the first month of the year, a lot of the things that Scott mentioned, he didn’t mention a lot of the companies that are not earning any money maybe have some high debt, those type of things.

And so as Wall Street likes to say, there was a chase for trash, right? Trash companies were the ones that were getting all the cash to be able to do that. So I think going forward, as I mentioned to you, the interest rate environment probably will remain higher. In the past 15 years, ever since the Great Financial Crisis in 2008, we’ve really seen an unprecedented low level of interest rates. And for a lot of people, that’s all they know in their adult lives. They’ve been used to having 0% interest rates or, you know, 2 or 3% mortgage rates, those type of things. And that’s not historically the case. And so if this decade proves to be something where you have higher rates for longer, you are going to see a little bit more balance between value and growth.

Last thing I want to mention is and part of this outperformance that we have is that when the markets have come down, you know, we don’t own any banks in the Income Fund. So that’s actually helped quite a bit. We have also used cash to be able to mitigate some of the volatility, but also some of the downside as well.

The idea of what’s the Fed going to do? I mean, who knows, right? I mean, what’s going to happen in economy three months from now, one year from now? What’s going to happen in the market? Those things we cannot predict. What we can do is do our due diligence and research on the companies that we own and make sure that we own at any given point, the best companies we feel are going to be able to outperform on an overall basis.

Last thing that I wanted to mention on the slide, this is representing the Investor Shares, which has a little bit higher expense ratio than the Institutional Shares. And actually a majority of the Income Fund is actually owned by institutional shares. And so that ratio is approximate about 25 basis points lower than the 1.01 that you mentioned. And that’s because the qualified accounts like IRAs, ESAs, Roth IRAs, those type of things are all in the institutional rather than the investor shares.

So that being said, if you go to the next slide, Owaiz, we can talk a little bit about the holdings. If you’ll notice, this Fund is very highly concentrated in the health care, pharmaceutical and industrials, and that’s because there’s a lot of dividend paying companies in these sectors. The technology companies we own are very selective. These are tried and true technology companies that actually do pay quite a handsome dividend. So companies like Taiwan Semiconductor are very instrumental in that industry. Eli Lilly, which used to pay good dividends, now it’s becoming a growth story just because of the drug pipeline that they actually have. 

The last thing that I wanted to mention on this slide is the cash and equivalents, which is about 7%. We’ve averaged that throughout last year. And again, that’s actually helped us to protect on the downside. 

Now what I’d like to do is turn my attention over to another Fund which is Developing World. A little bit different makeup of the Fund itself, similar to our style of how we make investments.

This Fund has significantly outperformed in their index, which is the MSCI Emerging Markets.

So whether you look at it on any category, you’re going to find, except for the ten year that the Fund has actually done quite well. And again, it’s the same story. We’re looking for the best companies. We’re looking to hold them for a long time, because every time you make a change, there’s usually two decisions you have to make. You have to sell right? And also then buy right. It’s much easier to be able to pick the right companies in the beginning, hold on to them and let management do what they do best, which is manage the companies. And we’re just there to go along for the ride. Now, the Emerging Market Fund obviously is the Fund you want to own for non-US dollar exposure. And so we do that with companies that are in the developing world or developed world companies that actually have majority of their assets or their sales in emerging markets. So, for example, NVIDIA, we do own this in the Developing World and the reason is because, again, majority of their assets are actually based in emerging markets. 

If you go to the next slide, we can take a look at the industry that they’re in. Looking at the country exposure, Ford automotive is in Turkey, Southern Copper is in Chile, Mexico we own, a lot of technology companies are based in Asia. So we have a fairly diverse mix of where we own the companies. But at the same time, over the past decade or so, or maybe a little longer than that, there’s been a shift in developing world countries.

A lot more companies are in Technology where it used to be that they were dominated by banks, insurance companies, telecommunications, and oil and gas. That was what the developing world was. One thing also I want to highlight in this is that we’ve been able to have this performance without owning any oil and gas for economic, social, governance, ESG reasons. So we’ve been able to have this outperformance without owning any oil and gas and also keeping roughly between a 16 and 20% cash equivalent. And again, that speaks to the type of companies that are buying. We’re trying to keep them as solid as possible where the management knows what they’re doing and they’re going to do this over the long run.

You know, the last thing that I’ll say is that in the emerging markets, you know, we had really, really great returns in between 2000 to 2010. And then we pretty much had a dead decade between 2010 to 2020. And I think the emerging markets are due for somewhat of a rally. So I think that this is a diversification strategy. It’s a diversification strategy outside the US, and it’s a diversification strategy having non-US dollar exposure. This is not a Fund you want to own 50, 100% of, but it is a Fund that you want to have some exposure to to be able to capture that. So with that, I’ll close and I’ll turn it back over to Owaiz, so thank you very much.

Owaiz Dadabhoy:

Thank you, Monem. And one thing that you can do, you know, many of our clients are used to owning Amana Income Fund, Amana Growth Fund because those are the first two Funds that we started. And then we added the Growth Fund many years later and then the Participation Fund even after that. So if you go to and go to about midway down the page, you can go to the Amana Fund Selector and you can answer a few questions and figure out what type of risk profile and type of investor you are. You can do that as many times as you want and figure out what percentage you’d like to have your money in each of the different Funds. 

Now we’re going to talk about Amana Participation Fund, which did start in 2015. Patrick Drum, who’s the portfolio manager, joined Saturna in 2014 and helped to launch this particular Fund. He is a CFA and CFP holder and lives in the state of Washington, just like Monem and Scott do as well. So with that, I’ll turn it over to Patrick.

Patrick Drum:

And thank you Owaiz, and it’s a pleasure to be here. Assalamu alaikum. The Amana Participation Fund was launched as Owaiz indicated in September of 2015 and this year will mark its eighth year. And as we can see on the current slide deck, it’s performance. The objective of this Fund was to serve the community in providing a key and essential asset allocation component that is capital preservation and current income. As over the years, the equity Funds have served the community well, but more importantly, they’re equity. And there is some degree of volatility. The Amana Participation Fund complements the other three equity Funds and their different expressions of Growth, Income or Developing world to provide a place where I say, when things go bump in the night, this is where my goal is to be safe. I’m the boring guy.

And the returns may seem a bit boring, but relative to its peers, the Fund has held up extraordinarily well. We use Morningstar as a typical and favorite benchmark, but it’s just one of many different ways of evaluating. But end of 2022, it obtained a five star rating on a one year, three and five year. But relative to its peer group, we’ve been able to attain the primary objective of capital preservation while obtaining current income. 

And right now with the Fed Funds rate having rose 475 basis points or 4.75% to now 5%, fixed-income assets such as sukuk and murabaha deposits, these are assets that adhere to Islamic principles, providing very competitive and appealing returns.

And then the next slide. In part, what brought about this conversation in this webinar is to help address some of the volatility. Currently, there was quite a bit of attention after the banking crisis and it was a liquidity crisis very substantially different from a solvency crisis back in ’08. This liquidity crisis brought about certain fears and concerns. And Scott had mentioned earlier also about high debt and where the Participation Fund invests is parts of the world and the region that issue Islamic compliant securities.

And these tend to be in the GCC region or what is known as the Gulf Cooperation Council (Ed. Note: GCC = Gulf Cooperation Council) as well as Malaysia and Indonesia. There’s other issues, but that in part generally is where these are mostly issued from. And what I’m imparting through this slide is the credit rating of these countries that are the predominant issuers. As you can see, Qatar, is a double-A minus. These countries have a credit rating that’s enviable to the developed world with a fraction of its related debt obligations. For example, such as the United States, the UK, the end of 2021. Off the top of my head, United States had a debt to GDP of over 133%. I don’t know the number right off the top of my head as of last year, in 2022, Saudi Arabia was the only country that demonstrated the highest rate of growth of 8.7% with a debt to GDP of less than 25%. It was the highest among the G20 countries. 

What brings about this resilience is what is known as I call and qualify as plenty in the bank, and plenty in the tank. We’ll walk a bit further into that because as I was starting this process in the journey of learning this market and traveling frequently to get to know the issuers, to the broker dealers, the community, it is a relationship-oriented place. And so these frequent connections and ongoing contacts is essential in ensuring that we’re meeting the investment objective of capital preservation and current income. 

Where the key aspect is clearly a dramatic improvement in the financial standing due to the high oil prices. We know recently or may have heard that OPEC is now cutting oil by about a million barrels a day. A little over a year ago when oil prices were substantially higher, the IMF indicated that this region, the GCC region, which comprises of Bahrain, Kuwait, Oman, Saudi Arabia, Qatar, and the United Arab Emirates, was to anticipate the receipt a windfall of almost one and a half trillion dollars in assets over five years. And this has helped provide a very stable environment. Plenty in the bank, meaning they have a lot of capital resources - what gives them these high credit ratings and also a very friendly investor climate. While as we are transitioning to a low carbon economy, many of these countries are solution providers and that’s for a discussion a bit later. However, they have tremendous resources to continue to satiate the world’s energy needs.

In fact, the GCC provides over a third of the world’s energy needs. So the stability of this region is solid, and that’s characterized by improvement in their financial standings, by the stability of the financial markets and tremendous amount of energy and resources the world needs. One of my discoveries of covering this region was trying to understand how do US dollars sukuk originating from the GCC region and what are the behaviors for better lack of a term. And we typically look at just return but in the bond world as well as the investment world, we look at risk and risk is an expression of volatility.

And what I found is that this particular region demonstrates among some of the highest risk adjusted returns relative to developed fixed income and emerging market fixed income markets. And I’ll show one example in particular, if I can highlight under standard deviation, under a five year period, you’ll see in the gray box area what’s known as the FTSE Sukuk, it’s a benchmark of investment grade US dollar sukuk.

The standard deviation on that is 2.9%. That means it’s very low. And if we go all the way to the bottom, you’ll see crude oil (WTi) standard deviation is 43.7. This is just a dispersion, both highs and lows. It’s just a number of measuring risk. But what you’ll find there, the FTSE Sukuk is 2.9, which is even lower than the Bloomberg US Treasury Index, which is 4%.

So if I was to create one unit of risk, just as a way of measuring what we find on here, that the FTSE Sukuk demonstrates over a five year period, as well in the three year period for the period ending 2021, the lowest standard deviation. Under that five year, we measured it as being one unit of risk. And look to the WTi of crude oil. We’ll see that it has a number of 14.9. That means it’s 14.9 times more volatile than the FTSE Sukuk. A lot of times I have questioned in this journey as well, isn’t the performance of sukuk tied to oil? And the answer is not necessarily. And I have created a GCC sukuk primer, which now is a recent second edition that helps explain the characteristics and behaviors.

And I’ll end on this. This is just mathematically trying to understand and explain the behaviors and how to think about this is really designed to provide stability and resiliency in different markets. The FTSE Sukuk, as indicated, has the lowest standard deviation. The Bloomberg US Treasury Index below it at 4%. You’ll see in the blue it’s at 1.4 versus the 1 of the FTSE Sukuk.

So that means US Treasurys are 40% more volatile or 1.4 times more volatile than the FTSE Sukuk. So this is in part what’s really providing a lot of the stability and steady objective in maintaining capital preservation and current income. That’s a bit on the nerd side, but I’ve got to kind of learn and explain the attributes. It’s quite a unique area.

Owaiz Dadabhoy:

Yeah. This particular Fund is quite unique. And you know, the fact that we were able to bring it to the US market was a big step. And the reason is that, you know, mostly Muslim investors were only investing in stock Funds. They were starting when they were 25 years old. And then, you know, when they’re 70 years old, they need to take their foot off the throttle a little bit.

And, you know, the counterparts in America would be able to purchase bonds or buy CDs or put money into savings accounts, whereas Muslims are keeping away from interest. So this fixed-income type product, the sukuk, was able to help our clients be able to diversify properly. And I think this particular Fund, you do need to look it up a little bit more because it is different than what you’ve invested in before.

You can go to and click on the Amana Participation Fund and you’ll find an interview with Patrick that really explains what sukuk are. And there’s a short, illustrated video as well. I think it’s like two or 3 minutes that tells you exactly what a sukuk is. So I encourage everyone to take a look at that.

Just wanted to mention to you, because it’s come up a few times, you know, given what has happened with rising interest rates and, you know, the bank rescues and inflation rates and whatnot, people start to look at it and say, you know, is this the place for me? And if you take a look at, you know, since 1928, until December of 2020, if you were to put in $1,000 into the S&P 500, which we’ve mentioned several times on this call today, if you would have invested that money the entire time, that thousand dollars would have grown to $211,000 plus.

But if you would have missed just the five worst and best days. So we’re not just cherry picking and saying the first or the worst, the best five days. We’re saying the worst five days and the best five days during that time, you would have reduced your return by about $13, $14,000. If you would have missed the ten worst and the ten best days by market timing, you would have been down $171,000 because, you know, you just can’t time it yourself. You can’t pick which ones are going to come in and out of. And if you miss the best ones, you’re missing a lot of the return. Some of the best days are in a bear market and some of the worst days are in the bull market. And some of the best days follow the worst day and some of the worst days follow the best day. So, you know, don’t look at every day and say, you know, tomorrow something good or bad is going to happen. Instead, try to stay invested if you have a long time-horizon in mind. Forget the worst days. Now, if you were to just miss the five best days, your total value would have gone from $211,000 to $113,000.

You would have missed just the best ten days. You would have had $74,000 during this period of time instead of being invested, you know, the entire time you would have had $211,000.

So I hope that properly explains this. We do want you to ask a lot of questions, read research, contact us if you have questions about any of this as well.

And I’m going to turn it back over to Scott. He’s just going to go through this slide.

Scott Klimo:

Thanks, Owaiz. So when I was speaking previously, I mentioned how the Islamic guidelines had contributed to the performance of the Fund. But there are also some overall investment philosophies that we apply that that I think have also been integral to the long-term performance. And I was reading a piece by a guy named Charles Ellis that he had written back in 1975, so nearly 50 years ago, called The Loser’s Game.

And the argument he was making is that investing used to be a winner’s game, a game where you could do the best by doing the best work, uncovering the golden nugget that no one else had discovered yet by finding the best possible investments and getting into them before anyone else. But because of the emergence of professional investing, everybody had the resources, everybody had people, everybody had the computing power, maybe not so much in 1975, the computing power, but certainly today. And so that was not a viable path towards outperformance. But he did say that, even if you are determined to try, you have to approach it as a loser’s game rather than a winner’s game. Rather than trying to hit home runs, don’t make errors.

And so a couple of rules that he put forward were to be sure you’re playing your own game, know your policies and play according to them all the time. That is so integral to everything that we do. We have our Sharia guidelines. We do not deviate from those. We have our policies and we stick to them. Keep it simple, bring turnover down, fewer and better decisions. This one I cannot emphasize enough. Getting back to the information that Owaiz was providing on the previous slide and also at the beginning about market timing. It’s interesting to note that the average turnover amongst actively managed US equity funds is 60%. These people are engaging in nothing more than market timing. That’s not an investment. 60% - you’re turning your portfolio over less than every two years. You’re turning your portfolio over. Our turnover last year was actually up quite a bit because we made a few adjustments with the way that things were selling off, but our turnover was 7%, so it would take us well over ten years to turn over our portfolio. In a typical year, it’s more like 5%. So really that’s, I think one of the key things. We focus on investment ideas, investment themes, long-term themes. We don’t play the market, we don’t time the market. We try not to become susceptible to the animal spirits or the behavioral pitfalls that a lot of investors can fall into.

And then the final point is just on concentrating on your defenses. Just gets back to my earlier comments regarding upside and downside capture. The biggest problem is probably already in your portfolio. Given the level of turnover, we spend a majority of our time making sure that the investment thesis for everything we own remains compelling, rather than churning out new ideas into the pipeline, and doing that 60% turnover thing, that active equity managers are doing, on average. 

The easiest way to make money is not to lose it, said our founder Nick Kaiser. And quick illustration of that. If have a stock that goes down 50%, it’s got to go back up 100% to get back to where you were. That stock only goes down 20%, it only has to go back up to 25. That’s a very easy math that anybody can understand. So if you can minimize your downside, employ that downside protection, you’re going to be in a better position over the long term.

Owaiz Dadabhoy:

All right. That helps a lot. Scott, thank you. So, you know, we did talk about the S&P 500. Those are the 500 most widely held common stocks in America. We did mention the MSCI Emerging Markets Index and the FTSE. So you can read more about these as well. We didn’t really talk about it, but the Bloomberg Global Aggregate Index is part of this particular disclosure.

And we didn’t really get to because we didn’t have time to talk about Alpha Beta. Patrick touched on standard deviation a little bit, and then the main thing that we want to get across is that any investment, whether it’s stocks or sukuk or bonds or real estate or anything else, even precious metals, they all have risk. And you should know about those risks before getting in.

And any time you take risk, obviously it should be educated risk, not just risk for the sake of risk. And if you want to ask questions, get in contact with us, you can contact me. My contact information is there. And so with that, we’re going to now get to some of your questions. 

Owaiz Dadabhoy:

The income Fund has financial sector in the Fund. Is not the financial sector interest based? So that’s a question for Monem.

Monem Salam:

So thank you for the question. We actually don’t have any Financials in the Income Fund. You might be referring to one of the slides that talked about the Developing World. Now that they do have exposure to Financials. And as you know, many of the Muslim countries around the world are in developing world emerging market countries.

And so what we have done is we have added some Islamic banks to our portfolio, particularly in Malaysia. We own Bank Islam and we own a takaful company, an Islamic insurance company, called Syarikat Takaful. We’re watching these obviously very carefully. We have an office in Malaysia and so we can and are allowed to own Islamic banks. And so that’s where the exposure comes from.

Owaiz Dadabhoy:

Very good. How is the concentration of emerging markets sukuk in the Income Fund impacting its performance during crises? So really it’s in the Participation Fund that we have sukuk. So if Patrick, if you can address this one here. Is the concentration of emerging market sukuk impacting its performance during crises?

Patrick Drum:

No. In fact I would encourage… And thank you for the question. There is an extensive… I’ve written a couple of white papers, but probably the most relevant one is just as a resource, if you want to go to is going to go to the it’s on our website and it’s called the GCC Sukuk Primer, second edition. I started to explore that and what I found is in fact, no, the region, what I identified as having plenty in the bank, plenty in the tank as just a kind of short narrative, demonstrates its stability. In fact, during periods of heightened stress in global market turmoil, that region tends to be the most stable. And the reason is because it’s both its large capital reserves that they’ve accumulated over the decades, but also because of the large vats, large hydrocarbon resources. That tends to bring investors into them because that has its own financial stability and standing that most developed and emerging markets don’t have. And then that particular white paper I found that the returns are even better than that of the Chinese bond market. And the Chinese bond market is among some of the most-highest performing markets. So the answer is surprisingly no. It’s an extremely stable and resilient, and that was not something that I had anticipated in that journey. It’s why it’s documented, documented through math and the variety of other financial metrics.

Owaiz Dadabhoy:

Thanks, Patrick, but no. Yeah, thank you. We do have a question here. It was addressed, but I’ll just mention it real quickly. Do you have a Roth IRA or a Traditional IRA? You can open those up directly at Click open an account online. There are many types of accounts. I mean, education savings account. If you’re a business owner, you can start up a 401(k) with us or SEP IRA, SIMPLE IRAs and so forth, or just open up a regular investment account as well, for the long term.

If you want to learn about more about retirement or education savings or just, you know, market timing, we have an entire presentation on market timing and other unrelated presentations as well. You can look up webinars on our website on or Google Amana Mutual Funds webinars. You can also find the Halal Money Matters podcast on our website and in, you know, if you have iPhone or Android or whatnot, you can find it in those place under podcasts as well.

Okay. So I wanted to ask a question of Scott, how has news about bank rescues affected the Growth Fund one way or another. Like Silicon Valley Bank, for example?

Scott Klimo:

Well, it’s not really had a … it’s hard to say that it’s had any direct effect. Obviously, the companies we’re investing in are not reliant upon Silicon Valley Bank for their funding. That was a lot of VC and private equity cash that was that was in there, I guess in a roundabout fashion, the key issue is to what extent will the failures of Silicon Valley Bank and Signature Bank create additional tightening within the economy on top of the Federal Reserve’s interest rate actions. And by the additional tightening, I mean a less enthusiasm to provide loans. So if it becomes harder to access loans for business, that’s basically the same effect as if as if the Federal Reserve raises the interest rate by by some given percentage. And so that potentially has an effect on inflation and that eventually what is the path of Federal Reserve tightening going forward? We saw an inflation number today that was still pretty resilient. We’re still in the 5% neighborhood, still far from the 2% target. And I certainly would not rule out another 25 basis point hike by the Federal Reserve in May. But, you know, in general, I would say the market has looked past it pretty easily because of whether the government stepped in or whether because they really weren’t that big in terms of the overall banking picture in the US.

Owaiz Dadabhoy:

Okay. And, you know, we have, as you as you mentioned, about inflation. So this question for either Monem or, Patrick, or both. Inflation was at record numbers. It has come down to like 5% as of the report today, still a little bit higher than what we normally see. You know, I remember making presentations where I was talking about three and three and a half percent inflation and people didn’t even realize what inflation really was or how it was affecting them.

It became pretty clear last year. How if in any way is inflation or how did inflation affect either of the three Funds that you both manage?

Monem Salam:

So I’ll start I mean, I think that, you know, one thing to keep in mind is that the inflation story is much more pronounced in the developed world rather than the developing world, although they are seeing some signs of it as well. So they’ve been really quick to also raise interest rates, not probably as much as the Fed has done here or the European Central Bank has.

So that’s one thing. The other thing to keep in mind is generally, you know, the number one nemesis of the Fed, the one they focus on a lot is going to be interest inflation. And so they will do anything in their power, even taking the economy into a recession to be able to fight back on the inflationary numbers. And that’s what we’ve seen over the past year.

I think where it affects, you know, initially what happens is that as inflation creeps in, you know, there might not be pricing power with companies to be able to raise prices and so, you know, your margins on from companies get hurt. So that’s one where it does. And then eventually or, you know, depending on what cycle we’re in, companies are able to have that pricing power, raise prices to be able to, you know combat those margin pressures.

The problem is that you tend to have and this is where the vicious cycle comes in is that inflation goes up, they raise prices, inflation goes up more, they raise prices. So you’re getting into a very dangerous scenario and that’s what the Fed is trying to prevent. So more than inflation. So the inflation leads to the Fed raising interest rates. And I mentioned earlier, as interest rates go up, you know, the discount rates on growth companies have to be adjusted as well from zero, maybe up to 3, 4, 5%. So the value that you get out of a growth company diminishes and cash becomes more king. So dividend paying companies and companies that have strong balance sheets, those are the ones that tend to do well and those are the ones we own in the Funds.

Owaiz Dadabhoy:

Thank you, Monem. Patrick, did you have anything that you wanted to add to that?

Patrick Drum:

Yeah, there’s a lot to it. And Monem was right. The developed world  is struggling more with inflation than most emerging market countries. And today the CPI came out on a month over month of 0.1 versus expectations of 0.2. The annualized is really where the attention is. And they came in based on surveys at 5.6.

Another real challenge, inflation for goods and services is what’s being mentioned. But really it has to do with employment. And employment, particularly in the service sector, is still in high demand. And non-farm pay, which is the first Friday of the month, came out slightly higher than expectations. That’s where the Fed’s going to continue to feel this policy pressure and keep tightening financial conditions and this was what aggravated the banking liquidity crisis is because this really is a culmination of an extended tightening period.

And it’s not to be expected that we’re going to see some more bumps down the road as the Fed imparts a policy of bringing down overall inflation pressures. For example, the GCC region inflation average is 3.6%, wholly different than when we reached well over 9.6% back then last August of 2022. So the US and developed world, i.e. the United States and Europe, still got a ways to go.

In fact, that’s in part what makes Monem’s comments about emerging market allocations, from at least an equity, quite constructive.

Owaiz Dadabhoy:

Alright. Well, you know, I thank you, all three of you: Scott, Monem, and Patrick for doing that. I think that was the first time that we had you speak, all three of you, to Amana Mutual Funds share owners together. So we thank you for that and we thank all those that joined us today and have been joining us for webinars in the past as well. As I mentioned, we do have those on our website. We hope we answered your questions thoroughly enough and also provided you with value that we wanted to provide you. So we thank you and we wish you a great day. Take care.

NARRATOR: Please consider an investment’s objectives, risks, charges, and expenses carefully before investing. To obtain this and other important information, which you should carefully consider before investing, about the Amana Funds in a free prospectus or summary prospectus, please visit or call 1-800-728-8762.

Amana Funds Managers' Update Disclosure Slide 1


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Amana Funds Managers' Update Disclosure Slide 4


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