Q2 2023
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In our 2022 year-end commentary we noted the remarkably consistent track record of stock market gains in every year that followed a midterm election dating back to World War II. We also noted the rare instances of the US stock market declining over two consecutive years. History was setting up 2023 to be a good year and, reviewing the first half of 2023 performance, the track record appears likely to remain intact. Year-to-date, the S&P 500 Index rose a healthy 16.89%, while the more Tech-heavy NASDAQ Composite Index soared 32.32%. Such figures, however, belie a darker picture just below the surface, as index performance was driven by a handful of mostly mega-cap stocks: Alphabet, Amazon, Apple, Meta (Facebook), Microsoft, Netflix, Tesla, and Nvidia. Together these stocks account for 30% of the S&P 500 Index’s market capitalization, up from 22% at the start of the year. As a market capitalization-weighted index, larger capitalization stocks have a greater effect on index performance. To see the result, we need only compare the performance of the S&P 500 Index to the performance of the S&P 500 Equal Weight ETF as a proxy for an equal-weighted S&P 500 Index, as shown in Heavyweights Rule.
Following the March collapse of Silicon Valley Bank, Signature Bank, and Credit Suisse, the S&P Equal Weight ETF moved into negative territory, remaining lackluster until June 2023. Over the same period, the large-cap Tech stocks continued appreciating, receiving a boost in mid-May from Nvidia due to demand for Artificial Intelligence (AI) chips.
While Nvidia’s year-to-date 189.54% appreciation helped pull the benchmark higher, a reversal could shave points off the S&P 500 Index while other stocks appreciate. The six-month performance gap of 9.44% between market capitalization and equal-weighted indices registered over the first half of 2023 ranks as the third-widest gap over the past 25 years. The widest gap was 10.71% in March 2000 during the height of the dot-com bubble, a period that bears more than a passing resemblance to the current AI frenzy. That March 2000 spread was wiped out and reversed over the following 15 months, as the collapse in online stocks dragged the Index down and obscured the solid performance of stocks that had been neglected during the dot-com bubble. Whether history will rhyme remains to be seen, but a longer-term view shows that the two versions of the S&P 500 rarely deviate more than a few percentage points from each other on an annualized basis.
Outlook
In early September of 1939, Germany invaded Poland, and Britain and France declared war on Germany. However, for eight months, there was minimal fighting; it wasn't until May 1940 when the German Panzerdivision rolled into the Low Countries and France that the war took off. The eight-month interregnum came to be known as “The Phoney War.”1 Market observers could be forgiven for thinking the same of the yet-unrealized recession that was assumed to be an inevitable consequence of the Federal Reserve’s aggressive rate tightening in the wake of high post-pandemic inflation. Economists are generally a sunny lot, rarely forecasting downturns in advance of their arrival. For 2023, however, consensus strongly favored a global recession.2 In the first half, European economies were certainly weak, while the removal of China’s COVID-19 restrictions released a burst of activity that subsequently cooled to the point of spurring officials to take stimulative measures. Meanwhile, Japan demonstrated surprising strength, while the US economy soldiered on with first-quarter gross domestic product (GDP) growth of 2.0%, 339,000 new jobs in May, and an unemployment rate of 3.7%.3 What now?
Just as May 1940 brought an end to the Phoney War, we cannot dismiss future economic contraction based on it not having arrived. Inflation remains elevated and earlier hopes of a Fed pivot have evaporated. Indeed, the Fed has indicated the possibility of two additional rate hikes by year-end, following the June pause. Higher-for-longer, in terms of inflation and interest rates, does not bode well for growth. And what of that genie of economic prognostication, the yield curve? While boasting an impressive record of predictive success, it provides little guidance regarding timing. A general rule of thumb looks for a recession to begin within a year of the curve inverting, although the lag has been as great as two years. Disconcertingly, the two-year and 10-year yield curves inverted for good almost exactly a year ago, while the Cleveland Fed currently estimates the probability of recession within one year at 79%.4
What this means for stock market returns remains anyone’s guess, but so far, activity in 2023 indicates that bad economic news may be interpreted as good stock market news if investors believe lower rates are just around the bend. Valuations may prove problematic for the architects of this year’s index gains, but most stocks performed meekly, as described above. It may be that investors have already discounted the risks of lower earnings for companies not involved in AI, creating an opportunity for the first-half wallflowers to move to the center of the dance floor.
Amana Income Fund
For the second quarter of 2023, the Amana Income Fund Investor Shares returned 7.84% and the Institutional Shares returned 7.89%. The S&P 500 returned 8.74% for the same period. For the first half of 2023, the Investor Shares returned 10.70% and the Institutional Shares returned 10.83%, trailing the S&P 500 return of 16.89%.
Returns in 2023 were driven in large part from optimism about Artificial Intelligence (AI). Indeed, the investment community is fond of coining catchphrases to capture the spirit of the narrow group of Tech-oriented market leaders; the latest is “the Magnificent Seven,” expanded from the five "FAANG" companies — Facebook (now Meta Platforms), Amazon, Apple, Netflix, and Google (now Alphabet) — to include AI leaders such as Microsoft, Nvidia, and Tesla. Most of these companies do not pay a dividend, while the two that do (Apple and Microsoft5) offer yields too small to qualify for the Amana Income Fund’s objective of current income. While these companies have promising prospects, they also account for a significant degree of market concentration.6 We believe the Fund offers investors some diversification from this group of companies, with the prospect of future growth complemented by dividends paid in the present.
Amana Income Fund’s largest holding, Eli Lilly, was the strongest performer during the quarter, with a return of 36.92%. Microsoft also contributed with a return of 18.38% as it took an early lead in deployment and integration of AI.
Those strong contributions from the Amana Income Fund's two largest holdings were more than enough to offset a lackluster quarter for the Fund's other pharmaceutical holdings such as AbbVie, Pfizer, and Amgen, and helped the Fund keep pace with the overall market.
Much of the economic story over the fiscal year ended June 30, 2023 has been elevated inflation and the extent to which the Federal Reserve's interest rate increases would succeed in slowing inflation without derailing economic growth altogether. With inflation easing and light at the end of the tunnel for interest rate hikes, prospects for a soft landing have improved. The third year of a presidential cycle also tends to support benign political and regulatory conditions. Surprises are inevitable, but for now, the economic outlook appears more favorable at present than at any time in the past 12 months.
As of June 30, 2023
| 10 Largest Contributors | Return | Contribution |
| Eli Lilly | 36.92% | 3.56 |
| Microsoft | 18.38% | 1.38 |
| Rockwell Automation | 12.76% | 0.70 |
| W.W. Grainger | 14.80% | 0.51 |
| Taiwan Semiconductor ADS | 8.95% | 0.44 |
| PPG Industries | 11.52% | 0.37 |
| Nintendo | 17.42% | 0.30 |
| Honeywell International | 9.15% | 0.29 |
| Johnson Controls | 13.79% | 0.25 |
| Linde | 7.60% | 0.22 |
| 10 Largest Detractors | Return | Contribution |
| Pfizer | -9.12% | -0.26 |
| Bristol-Myers Squibb | -6.99% | -0.20 |
| Amgen | -7.29% | -0.16 |
| AbbVie | -14.69% | -0.15 |
| UPS, Class B | -6.71% | -0.12 |
| Intel | -3.38% | -0.11 |
| Texas Instruments | -2.50% | -0.09 |
| 3M | -3.34% | -0.06 |
| Cisco Systems | -0.28% | -0.01 |
| Unilever, ADR | 1.28% | 0.02 |
| Top 10 Holdings | Portfolio Weight |
| Eli Lilly | 12.05% |
| Microsoft | 8.05% |
| Rockwell Automation | 5.84% |
| Taiwan Semiconductor ADS | 4.92% |
| Illinois Tool Works | 4.43% |
| Genuine Parts | 3.82% |
| W.W. Grainger | 3.73% |
| PPG Industries | 3.32% |
| Honeywell International | 3.19% |
| Linde | 2.93% |
| 30-Day Yield | |
| Investor Shares (AMANX): | 0.88% |
| Institutional Shares (AMINX): | 1.11% |
Asset-weighted average debt to market cap: 12.9%
Amana Growth Fund
Considering the avoidance of behavioral influences — the eternal struggle of greed and fear — is one of the advantages of our investment philosophy and approach, which features low turnover, long-term holdings, and concentration among a small number of stocks — 38 as of June 30, 2023. Over the years, our approach has served us well. Nonetheless, there are times when exuberance, irrational or not, leaves us on the outside looking in as individual industries or even companies drive index performance, leaving Amana Growth Fund lagging if we lack exposure.
Given Amana Growth Fund's underexposure to the mega-cap highflyers — Apple being one exception — the Investor Shares trailed comparable benchmarks, appreciating 7.34% for the second quarter, and 15.59% over the six-month period ended June 30, 2023, versus 10.97% and 24.20%, respectively, for the Morningstar Large Growth category average.
Apple stands as the world’s largest company by market capitalization and as the largest position in the Amana Growth Fund. Apple’s 50% year-to-date appreciation, however, pales in comparison to what we have seen among the holdings in the 10 Largest Contributors. Unsurprisingly, Technology dominates the list. Discount household goods company Church & Dwight spent the first six months of 2023 recovering from a difficult 2022, when it dropped to a price level not seen since early in the pandemic. Eli Lilly and Novo Nordisk were among the best performing stocks of 2022 as investors saw the potential of their dual-use diabetes and weight loss treatments, and they have continued to build on those gains.
In contrast to soaring Technology stocks, Health Care generally performed poorly year-to-date, partially due to having outperformed in 2022. The business performance for Agilent, Elevance, and Zoetis was acceptable, but investors have had more exciting businesses to chase. Johnson & Johnson remains tangled in uncertainty concerning asbestos exposure, while Amgen encountered legal obstacles in their attempted acquisition of Horizon Therapeutics. Cosmetics remains a fine business, as demonstrated by the performance of L’Oreal, but Estée Lauder has encountered execution issues in its important China business.
Since the end of the previous quarter, Estée Lauder dropped out of the Top 10 Holdings due to performance and Microsoft entered.
As of June 30, 2023
| 10 Largest Contributors | Return | Contribution |
| Apple | 17.79% | 1.56 |
| Eli Lilly | 36.92% | 1.21 |
| Adobe | 26.89% | 0.88 |
| Oracle | 28.71% | 0.53 |
| Microsoft | 18.38% | 0.44 |
| Advanced Micro Devices | 16.22% | 0.42 |
| Church & Dwight | 13.69% | 0.38 |
| ASML Holding | 6.78% | 0.38 |
| Alphabet, Class A | 15.40% | 0.32 |
| ServiceNow | 21.37% | 0.30 |
| 10 Largest Detractors | Return | Contribution |
| Estee Lauder, Class A | -20.05% | -0.64 |
| Agilent Technologies | -12.77% | -0.44 |
| Amgen | -7.29% | -0.17 |
| Corteva | -4.72% | -0.11 |
| Elevance Health | -3.07% | -0.07 |
| Cisco Systems | -0.28% | -0.02 |
| AutoZone | 1.43% | -0.01 |
| Idexx Laboratories | 0.43% | 0.00 |
| Trimble | 0.99% | 0.01 |
| Union Pacific | 2.35% | 0.04 |
| Top 10 Holdings | Portfolio Weight |
| Apple | 9.36% |
| ASML Holding | 5.42% |
| Microsoft | 4.13% |
| Eli Lilly | 3.97% |
| Novo Nordisk ADS | 3.93% |
| Adobe | 3.80% |
| Intuit | 3.18% |
| Taiwan Semiconductor ADS | 2.97% |
| Church & Dwight | 2.85% |
| Agilent Technologies | 2.63% |
Asset-weighted average debt to market cap: 9.8%
Amana Developing World Fund
In the second quarter of 2023, the Amana Developing World Fund Investor Shares outperformed the benchmark, returning 1.60% versus 0.90% for the MSCI Emerging Markets Index. This builds on a strong first quarter, and year-to-date the Fund has bested the benchmark, with Investor Shares returning 7.98% compared to 4.89% for the Index.
The Amana Developing World Fund's performance in the second quarter was supported by Technology companies, which represented six of the 10 Largest Contributors. Along with industry concentration, top contributors were predominantly exposed to Asian economies. Year-to-date, performance was supported by a more diverse group of sectors with Technology, Consumer Staples, Health Care, Materials, and Telecommunications all represented. Similarly, year-to-date performance reached across geographies with companies from Asia, the Middle East, and Latin America all among the top contributors.
Across the Amana Developing World Fund's holdings, Nvidia’s 52.31% return for the quarter and its 189.54% return year-to-date was particularly impressive. Nvidia is an example of a US-headquartered company that is held in the Fund because more than 50% of revenues come from emerging markets. This combination of well-understood governance standards combined with exposure to emerging market growth is why we hold such companies. After a strong run in the first quarter, Nvidia showed in the second quarter that the Artificial Intelligence (AI) frenzy, which took the market by storm, has substance. Nvidia surprised investors when it reported first-quarter revenues more than 10% above consensus estimates, and guided for second-quarter revenues that were more than 50% above consensus estimates.7 While AI has immense potential to myriad aspects of how business is done and how people interact, this isn’t the first time Nvidia has been exposed to market exuberance. Still, the company’s ability to generate disruptive innovation with a capital-light model supports our view that Nvidia remains an attractive long-term holding.
Although the Developing World Fund's largest contributors were concentrated in sector and geography, the largest detractors were more diverse, with companies from the Consumer Staples, Materials, Consumer Discretionary, Health Care, and Technology sectors. Similarly, companies from around the world were represented. LG Household & Health Care was the Fund’s largest detractor for the second quarter and year-to-date, losing -19.49% and -39.20%, respectively. The Korean cosmetic company continues to suffer from a slower-than-expected reopening in China that has seen limited return to international travel for many Chinese citizens. This has presented a challenge to what has historically been one of the company’s most attractive sales channels of luxury travel retail.
As markets attempt to weigh the implications of higher interest rates for longer with recession risks, valuations and earnings quality remain front of mind. With the MSCI Emerging Markets Index trading at 12.08x forward earning and the MSCI All Country World Index at 16.33x, we continue to see emerging markets as attractively valued.8 Combine this with the Amana Developing World Fund’s focus on maintaining and increasing exposure to economies with faster growing populations, expanding middle classes, and improving governance, and we see a bright future for many developing markets.
As of June 30, 2023
| 10 Largest Contributors | Return | Contribution |
| Nvidia | 52.31% | 1.48 |
| Delta Electronics | 15.21% | 0.42 |
| Jabil | 37.09% | 0.41 |
| Hikma Pharmaceuticals | 16.13% | 0.38 |
| Fleury | 21.97% | 0.35 |
| Samsung | 11.37% | 0.34 |
| Indofood CBP Sukses Makmur | 12.93% | 0.28 |
| Sercomm | 13.96% | 0.28 |
| Saudi Telecom | 9.64% | 0.27 |
| ASML Holding | 14.56% | 0.23 |
| 10 Largest Detractors | Return | Contribution |
| LG Household & Health Care | -24.48% | -0.47 |
| Wilcon Depot | -20.75% | -0.41 |
| KCE Electronics | -16.85% | -0.36 |
| Unicharm | -9.26% | -0.27 |
| Samsung SDI | -10.14% | -0.27 |
| Bangkok Dusit Medical Services | -9.25% | -0.24 |
| Barrick Gold | -8.29% | -0.21 |
| Quimica y Minera Chile ADS | -6.46% | -0.19 |
| Rio Tinto ADS | -6.94% | -0.19 |
| Ford Otomotiv Sanayi | -4.21% | -0.16 |
| Top 10 Holdings | Portfolio Weight |
| Nvidia | 3.98% |
| Samsung Electronics | 3.05% |
| Delta Electronics | 2.94% |
|
Ford Otomotiv Sanayi |
2.82% |
| Kimberly-Clark de Mexico, Class A | 2.72% |
| Saudi Telecom | 2.71% |
| Hikma Pharmaceuticals | 2.67% |
| Advantech | 2.66% |
| Unicharm | 2.63% |
| Unilever ADS | 2.60% |
Asset-weighted average debt to market cap: 17.9%
Amana Participation Fund
For the first half of 2023, central banks around the world continued to tighten benchmark interest rates to quell inflationary pressures. While these measures have successfully slowed the acceleration of rising inflation, it remains high and resilient. Some central banks, such as those in Australia and Canada, made hopeful efforts to incorporate a policy pause, choosing to wait and see what would happen. Later, they had to scramble with a subsequent rate hike that surprised investors. With the Federal Reserve's decision to pause in June 2023, investors' attention will be front and center.
Asia tells a different story. Inflation trends remained largely contained, although with averages that were historically higher compared to the rest of the world. The region experienced a notable softness in economic growth over the first six months of 2023. Some central banks, such as Bank Malaysia Negara, opted to take proactive measures to raise benchmark rates while rationalizing prudence for their actions – a decision that appears wise considering global trends. Other countries, such as China, took a different stance by initiating a series of reductions in their benchmark rates, hoping to stimulate economic activity.
The byproduct of global central banks raising benchmark rates is a tightening of financial conditions and softening of economic outlook. This can be noted with the press wires continuing to capture downward revisions of economic growth forecasts for 2023; the International Monetary Fund (IMF) just announced another reduction in global gross domestic product (GDP) outlook. On April 11, 2023, the IMF revised their semi-annual global baseline forecast for growth to fall to 2.8% from 3.4% for 2023, with 2024 forecasted at 3.0%. Advanced economies are projected to experience the greatest weakness, with growth slowing down from 2.7% in 2022 to 1.3% in 2023.9 This forecasted weakness in advanced economies by the IMF may, in part, explain why China is experiencing a pronounced weakness in economic activity in the manufacturing industry, motivating the government to initiate another reduction in benchmark rates. China’s Purchasing Manufacturing Index (PMI) for May of 2023 fell below forecasts by coming in at 48.8, below projections of 49.2 in April and below the 50-point mark that separates expansion from contraction. China’s PMI in May also marked a five-month low.10
Despite the challenges facing the rest of the world, the Gulf Cooperation Council (GCC)11 remains in a far better position. The difference can be attributed to an extended period of high oil prices which have helped the region improve the GCC members’ financial standing. This tends to be supportive for financial assets in the region. According to the IMF, high oil prices and low headline inflation will make the Gulf economies an additional $1.4 trillion in revenue over the next four to five years.12
These factors have improved the financial standing of the countries of the GCC. For example, the GCC members with a below-investment grade rating, such as Bahrain and Oman, have been able to materially improve their fiscal budgets. According to credit rating agency Fitch, Bahrain’s fiscal deficit decreased by 85% in 2022.13 Meanwhile, Oman reported a fiscal surplus of 1.15 billion rials ($2.98 billion) in 2022, after ending 2021 with a budgeted deficit of 1.55 billion rials.14 The reversal of Oman’s fiscal budget led credit rating agency Standard & Poor's to upgrade its credit rating to to "BB", from "BB-" due to improved fiscal performance and lower public debt in December of 2022.15
This improvement in the GCC’s financial standing is noted in Selected benchmark comparisons of yield-to-worse and oil (WTI). GCC investment-grade issues traded at lower yields than US corporate and emerging market investment-grade benchmarks. The lower yields show that investors view these securities to have less elevated risk.
Year-to-date, the Amana Participation Fund Investor Shares returned 0.71%, and the Amana Participation Fund’s Institutional Shares returned 0.73%. When compared to the FTSE IdealRatings Sukuk Index which returned 2.08%, both share classes underperformed the benchmark by 137 basis points (bps) and 135 bps, respectively. Over the trailing 12-month period ended June 30, 2023, the Investor Shares returned 0.14%, and the Institutional Shares returned 0.39%. The Index returned 1.88% for the same period, outperforming the Investor Shares by 174 bps and the Institutional Shares by 149 bps.
The Amana Participation Fund’s underperformance can be attributed to differences in composition relative to the Index. For example, the benchmark tends to retain high concentration among a few issuers such as the Indonesian and Saudi Arabian sovereign sukuk of 21.74%, and 21.43%, respectively. The benchmark’s combined balance in these two issuers is 43.17%. The Amana Participation Fund held 7.01% in Indonesian sovereign sukuk and 4.98% in government sukuk issued by Saudi Arabia. The Fund’s combined balance in these two issuers is 11.99%.
As of June 30, 2023, the 30-day yield of the Amana Participation Fund Investor Shares was 2.40%, and the 30-day yield of the Institutional Shares was 2.65%. The Amana Participation Fund reported a modified duration of 5.17 years. The Fund is diversified among 35 securities, excluding cash, to meet its investment objective of capital preservation and current income while being entirely invested in US dollar denominated securities.
The top two performers issues during the six-month period ended June 30, 2023 were Malaysian sovereign sukuk and the Investment Corporation of Dubai, the sovereign wealth fund of Dubai. The two lowest performers were Saudi Electric Utility Operator and Islamic Development Bank.
As of June 30, 2023
| Top 10 Holdings | Portfolio Weight |
| ICD Sukuk | 4.46% |
| DIB Sukuk | 4.15% |
| KFH Tier 1 Sukuk | 3.92% |
| Riyad Sukuk Limited | 3.87% |
| TNB Global Ventures | 3.80% |
| SA Global Sukuk | 3.72% |
| EMAAR Sukuk | 3.69% |
| Saudi Telecom Sukuk | 3.66% |
| DP World Salaam | 3.48% |
| DAE Sukuk | 3.29% |
| 30-Day Yield | |
| Investor Shares (AMAPX): | 2.40% |
| Institutional Shares (AMIPX): | 2.65% |
Performance Summary
As of June 30, 2023
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| Average Annual Total Returns (Before Taxes) | YTD | 1 Year | 3 Year | 5 Year | 10 Year | 15 Year | Expense RatioA |
| Amana Income Investor Shares (AMANX) | 10.70% | 17.48% | 13.24%% | 11.75% | 10.56% | 9.28% | 1.01% |
| Amana Income Institutional Shares (AMINX) | 10.83% | 17.78% | 13.50% | 12.00% | n/a | n/a | 0.77% |
| S&P 500 Index | 16.89% | 19.59% | 14.60% | 12.29% | 12.85% | 10.87% | n/a |
| Morningstar "Large Blend" Category | 13.35% | 16.88% | 13.43% | 10.72% | 11.38% | 9.72% | n/a |
| Amana Growth Investor Shares (AMAGX) | 15.59% | 21.81% | 15.42% | 16.44% | 15.07% | 11.82% | 0.91% |
| Amana Growth Institutional Shares (AMIGX) | 15.73% | 22.10% | 15.70% | 16.71% | n/a | n/a | 0.64% |
| S&P 500 Index | 16.89% | 19.59% | 14.60% | 12.29% | 12.85% | 10.87% | n/a |
| Morningstar "Large Growth" Category | 24.20% | 22.89% | 9.53% | 11.37% | 13.02% | 10.74% | n/a |
| Amana Developing World Investor Shares (AMDWX) | 7.98% | 10.49% | 6.19% | 4.93% | 1.83% | n/a | 1.21% |
| Amana Developing World Institutional Shares (AMIDX) | 8.14% | 10.77% | 6.43% | 5.13% | n/a | n/a | 0.99% |
| MSCI Emerging Markets Index | 4.89% | 1.75% | 2.32% | 0.93% | 2.95% | 1.81% | n/a |
| Morningstar "Diversified Emerging Markets" Category | 7.11% | 5.39% | 3.40% | 1.48% | 2.89% | 1.90% | n/a |
| Amana Participation Investor Shares (AMAPX) | 0.71% | 0.14% | -0.15% | 1.76% | n/a | n/a | 0.80% |
| Amana Participation Institutional Shares (AMIPX) | 0.73% | 0.39% | 0.07% | 1.98% | n/a | n/a | 0.56% |
| FTSE IdealRatings Sukuk Index | 2.08% | 1.88% | -0.10% | 3.02% | 3.21% | 3.68% | n/a |
| Morningstar "Emerging Markets Bond" Category | 3.77% | 7.71% | -1.82% | 0.61% | 1.94% | 3.83% | n/a |
A Expense ratios shown are as stated in the Funds' most recent Prospectus dated September 30, 2022.
Performance data quoted represents past performance, is before any taxes payable by shareowners, and is no guarantee of future results. Current performance may be higher or lower than that stated herein. Performance current to the most recent month-end is available by calling toll-free 1-800-728-8762 or visiting www.amanafunds.com. Average annual total returns are historical and include change in share value as well as reinvestment of dividends and capital gains, if any. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Shares of a Fund may only be offered for sale through the Fund's prospectus or summary prospectus.
The S&P 500 is an index comprised of 500 widely held common stocks considered to be representative of the US stock market in general. The MSCI Emerging Markets Index, produced by Morgan Stanley Capital International, measures equity market performance in over 20 emerging market countries. The FTSE IdealRatings Sukuk Index measures the performance of global Islamic fixed-income securities, also known as sukuk. The Bloomberg Emerging Markets Hard Currency Aggregate Index is a flagship hard currency emerging markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate emerging markets issuers. This index includes the Bloomberg GCC USD Credit Total Return Index. The JP Morgan Emerging Markets Global Core Index is composed of US dollar-denominated government bonds issued by emerging market countries. When available, Saturna uses total return components of indices mentioned. Investors cannot invest directly in the indices.
Institutional Shares of the Amana Funds began operations September 25, 2013. The Amana Participation Fund began operations September 28, 2015.
Income, Growth, Developing World, and Participation Funds: The value of the shares of each of the Funds rises and falls as the value of the securities in which the Funds invest goes up and down. The Amana Mutual Funds limit the securities they purchase to those consistent with Islamic principles. This limits opportunities and may affect performance. Each of the Funds may invest in securities that are not traded in the United States. Investments in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of US issuers. These risks include currency and market fluctuations and political or social instability. The risks of foreign investing are generally magnified in the smaller and more volatile securities markets of the developing world.
Growth Fund: The smaller and less seasoned companies that may be in the Growth Fund have a greater risk of price volatility.
Participation Fund: While the Participation Fund does not invest in conventional bonds, risks similar to those of conventional nondiversified fixed-income funds apply. These include: diversification and concentration risk, liquidity risk, interest rate risk, credit risk, and high-yield risk. The Participation Fund also includes risks specific to investments in Islamic fixed-income instruments. The structural complexity of sukuk, along with the weak infrastructure of the sukuk market, increases risk. Compared to rights of conventional bondholders, holders of sukuk may have limited ability to pursue legal recourse to enforce the terms of the sukuk or to restructure the sukuk in order to seek recovery of principal. Sukuk are also subject to the risk that some Islamic scholars may deem certain sukuk as not meeting Islamic investment principles subsequent to the sukuk being issued.
Morningstar Ratings™
As of June 30, 2023
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| Morningstar Ratings™ A | 1 Year | 3 Year | 5 Year | 10 Year | 15 Year | Overall |
| Amana Income Fund — "Large Blend" Category | ||||||
| Investor Shares (AMANX) | n/a | ★ ★ ★ | ★ ★ ★ ★ | ★ ★ ★ | n/a | ★ ★ ★ |
| % Rank in Category | 58 | 65 | 35 | 79 | 72 | n/a |
| Institutional Shares (AMINX) | n/a | ★ ★ ★ ★ | ★ ★ ★ ★ ★ | ☆ ☆ ☆ | n/a | ★ ★ ★ ★ |
| % Rank in Category | 55 | 60 | 27 | 74 | 69 | n/a |
| Number of Funds in Category | 1,424 | 1,280 | 1,175 | 872 | 660 | 1,280 |
| Amana Growth Fund — "Large Growth" Category | ||||||
| Investor Shares (AMAGX) | n/a | ★ ★ ★ ★ ★ | ★ ★ ★ ★ ★ | ★ ★ ★ ★ ★ | n/a | ★ ★ ★ ★ ★ |
| % Rank in Category | 59 | 2 | 4 | 14 | 22 | n/a |
| Institutional Shares (AMIGX) | n/a | ★ ★ ★ ★ ★ | ★ ★ ★ ★ ★ | ☆ ☆ ☆ ☆ ☆ | n/a | ★ ★ ★ ★ ★ |
| % Rank in Category | 57 | 2 | 3 | 12 | 18 | n/a |
| Number of Funds in Category | 1,219 | 1,117 | 1,032 | 791 | 582 | 1,117 |
| Amana Developing World Fund — "Diversified Emerging Markets" Category | ||||||
| Investor Shares (AMDWX) | n/a | ★ ★ ★ ★ | ★ ★ ★ ★ ★ | ★ ★ ★ | n/a | ★ ★ ★ ★ |
| % Rank in Category | 18 | 27 | 10 | 63 | n/a | n/a |
| Institutional Shares (AMIDX) | n/a | ★ ★ ★ ★ | ★ ★ ★ ★ ★ | ☆ ☆ ☆ | n/a | ★ ★ ★ ★ ★ |
| % Rank in Category | 17 | 26 | 8 | 53 | n/a | n/a |
| Number of Funds in Category | 816 | 723 | 646 | 385 | n/a | 723 |
| Amana Participation Fund — "Emerging Markets Bond" Category | ||||||
| Investor Shares (AMAPX) | n/a | ★ ★ ★ ★ ★ | ★ ★ ★ ★ ★ | n/a | n/a | ★ ★ ★ ★ ★ |
| % Rank in Category | 98 | 16 | 26 | n/a | n/a | n/a |
| Institutional Shares (AMIPX) | n/a | ★ ★ ★ ★ ★ | ★ ★ ★ ★ ★ | n/a | n/a | ★ ★ ★ ★ ★ |
| % Rank in Category | 97 | 13 | 17 | n/a | n/a | n/a |
| Number of Funds in Category | 257 | 234 | 211 | n/a | n/a | 234 |
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Performance data quoted herein represents past performance and does not guarantee future results.
© 2023 Morningstar®. All rights reserved. Morningstar, Inc. is an independent fund performance monitor. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
A Morningstar Ratings™ ("Star Ratings") are as of June 30, 2023. The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance (not including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
% Rank in Category is the fund's percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.
Unshaded stars indicate extended performance. Extended performance is an estimate based on the performance of a Fund's oldest share class, adjusted for fees.
The Amana Mutual Funds offer two share classes – Investor Shares and Institutional Shares, each of which has different expense structures.
Footnotes
1 British spelling is generally used on both sides of the Atlantic, rather than the American “phony.”
2 “Chief Economists Say Global Recession Likely In 2023, But Pressures On Food, Energy and Inflation May Be Peaking.” World Economic Forum. January 16, 2023. https://www.weforum.org/press/2023/01/ chief-economists-say-global-recession-likely-in-2023-but-costofliving- crisis-close-to-peaking/
3 “The Employment Situation – June 2023.” Bureau of Labor Statistics. July 7, 2023. https://www.bls.gov/news.release/pdf/empsit.pdf
4 “Yield Curve and Predicted GDP Growth.” Federal Reserve Bank of Cleveland. June 2023. https://www.clevelandfed.org/en/indicatorsand- data/yield-curve-and-predicted-gdp-growth
5 The Amana Income Fund was able to purchase Microsoft when its dividend yield was considerably higher than its current level of approx. 0.8%.
6 The combined weight of the “Magnificent Seven,” which were the seven largest companies by weight in the S&P 500 Index as of June 30, 2023 was 27.5%.
7 "Nvidia Stock Soars on Earnings Beat. AI Is Even Bigger Than You Thought." Barrons. May 25, 2023. https://www.barrons.com/articles/ nvidia-earnings-stock-price-f2f143e4
8 MSCI Emerging Markets Index (USD) Factsheet. July 31, 2023. https://www.msci.com/www/fact-sheet/msci-emerging-marketsindex/ 07149641
9 "A Rocky Recovery." International Monetary Fund. April 2023. https:// www.imf.org/en/Publications/WEO/Issues/2023/04/11/worldeconomic- outlook-april-2023
10 "China's factory activity falls faster than expected as recovery stumbles." Reuters. May 30, 2023. https://www.reuters.com/markets/ asia/chinas-factory-activity-falls-faster-than-expected-weakdemand- pmi-2023-05-31/
11 The GCC is an acronym for the Gulf Cooperation Council, a political and economic alliance of six countries in the Arabian Peninsula. Its members include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). The GCC was established in 1981 to promote security and stability for its members5 and has an estimated population of 54 million. (https://worldpopulationreview. com/country-rankings/gcc-countries)
12 " GCC economies set to reap $1.4tn in additional oil windfall in 5 years, IMF says." The National News. May 24, 2023. https:// www.thenationalnews.com/business/economy/2022/05/24/gcceconomies- set-to-reap-14tn-in-additional-oil-windfall-in-5-yearsimf- says/
13 "Bahrain says preliminary estimates for 2022 show deficit decreased by 85%." Zawya By Refinitiv. February 20, 2023. https://www.zawya. com/en/economy/gcc/bahrain-says-preliminary-estimates-for- 2022-show-deficit-decreased-by-85-xyluv6d3.
13 "Bahrain says preliminary estimates for 2022 show deficit decreased by 85%." Zawya By Refinitiv. February 20, 2023. https://www.zawya. com/en/economy/gcc/bahrain-says-preliminary-estimates-for- 2022-show-deficit-decreased-by-85-xyluv6d3.
14 "Oman's State Budget 2023." KPMG Lower Gulf. January 2023. https://assets.kpmg.com/content/dam/kpmg/om/pdf-2023/01/ Omans-state-budget-2023.pdf
15 " Oman ok's 2023 budget, had $2.98bln 2022 surplus." Zawya By Refinitiv. January 1, 2023. https://www.zawya.com/en/economy/ gcc/oman-oks-2023-budget-had-298bln-2022-surplus-e45qtkvz
Important Disclaimers and Disclosure
This publication should not be considered investment, legal, accounting, or tax advice, or a representation that any investment or strategy is suitable or appropriate to a particular investor's circumstances or otherwise constitutes a personal recommendation to any investor. This material does not form an adequate basis for any investment decision by any reader and Saturna may not have taken any steps to ensure that the securities referred to in this publication are suitable for any particular investor. Saturna will not treat recipients as its customers by virtue of their reading or receiving the publication.
The information in this publication was obtained from sources Saturna believes to be reliable and accurate at the time of publication.
All material presented in this publication, unless specifically indicated otherwise, is under copyright to Saturna. No part of this publication may be altered in any way, copied, or distributed without the prior express written permission of Saturna.
Asset-weighted average debt to market capitalization: This ratio represents the average debt to market capitalization of the portfolio. It is calculated by taking the debt to market capitalization for each company (its debt divided by its market capitalization), then weighting these values (multiplying each by the company's percent share of total portfolio assets), then totaling the weighted values.
Effective maturity, modified duration, and effective duration are measures of a fund's sensitivity to changes in interest rates and the markets. A fund's effective maturity is a dollar-weighted average length of time until principal payments must be paid. Longer maturities typically indicate greater sensitivity to interest rate changes than shorter maturities. Modified duration differs from effective maturity in that it accounts for interest payments in addition to the length of time until principal payments must be paid. Longer durations tend to indicate greater sensitivity to interest rate changes than shorter durations. Call options and other security specific covenants may be used when calculating effective maturity and modified duration.
A fund's 30-Day Yield, sometimes referred to as standardized yield, current yield, or SEC yield, is based on methods of computation prescribed in SEC Form N-1A. Calculated by dividing the net investment income per share during the preceding 30 days by the net asset value per share on the last day of the period, the 30-Day Yield provides an estimate of a fund's investment income rate, but may not equal the actual income distribution rate.
We note that unlike many funds, the Amana Funds' expenses are not subsidized by its adviser, Saturna Capital, therefore the 30-Day Yields presented are actual, according to the SEC's calculation methodology.
About the Authors
Scott Klimo CFA®
Chief Investment Officer
Portfolio Manager, Amana Growth Fund
Deputy Portfolio Manager, Amana Income & Developing World Funds
Monem Salam MBA
Executive Vice President
Portfolio Manager, Amana Income & Developing World Funds
Deputy Portfolio Manager, Amana Growth Fund
Patrick Drum MBA, CFA®, CFP®
Senior Investment Analyst
Portfolio Manager, Amana Participation Fund
Bryce Fegley MS, CFA®, CIPM®
Senior Investment Analyst
Deputy Portfolio Manager, Amana Income Fund
Elizabeth Alm CFA®
Senior Investment Analyst
Deputy Portfolio Manager, Amana Participation Fund
Levi Stewart Zurbrugg MBA, CPA®, CFA®
Senior Investment Analyst
Deputy Portfolio Manager, Amana Developing World Fund