Smart Investing with Shariah-Compliant Funds
05 October 2021
Did you know that Malaysia is the third-largest market for global Islamic finance products as well as the world’s largest sukuk issuer? 

This explosive growth has brought about tremendous opportunities for investors who are not only seeking higher returns, but also looking to stay true to their own personal beliefs and values.

However, irrespective of religious beliefs, all investors can benefit from greater diversification in their portfolios through Shariah-compliant funds. 

But if you’re not familiar with these types of funds and what they invest into, here’s a primer for you:-
What are Shariah-Compliant Funds?
Shariah-compliant funds are a type of unit trust fund that complies with Islamic principles, where the investments need to be free from riba (interest), gharar (speculation), maysir (gambling), and other non-halal elements.

Shariah-compliant funds may employ different strategies to achieve its stated objective such as investing in growth stocks for long-term capital appreciation or an income strategy by investing in dividend stocks or sukuk papers to produce consistent income.

What do Shariah-Compliant Funds Invest In?

Whilst a conventional fund has almost no restrictions in what it can invest into, a Shariah-compliant fund undergoes a rigorous screening process to filter out sectors that are not Shariah-compliant. These include industries that are not deemed ethical such as alcohol, gambling and tobacco. 
Besides that, the screening process would also take into account financial factors such as gearing levels. For example, a company which has more than 33% of its liabilities in interest-bearing debt compared to its total assets would not be considered Shariah-compliant. As such, companies with high debt ratios are excluded.

What are its Advantages?
Due to this screening process, the nature of the underlying assets of Shariah-compliant investments tend to be more defensive in nature by focusing on companies with stronger balance sheets and excluding those with high levels of debt.

By also avoiding companies that are operating in unethical industries that are not well positioned for the future, a Shariah investment strategy places added emphasis on sustainability factors which have now become performance drivers.

In the past years, we have seen an increasing overlap between Shariah and environmental, social and governance (ESG) principles that have created greater awareness of such modern concerns afflicting the planet and society. 

This convergence of principles has also blurred the line between sustainability and Shariah investing, by commanding greater appeal to investors of all faiths. 

However, these advantages does not impede the return potential of Shariah investing despite a smaller investment universe. A Shariah-compliant fund can also be skewed towards a growth-oriented strategy such as through exposure in the technology sector. Not many are aware that well-known global technology companies like Microsoft, Tencent and Nintendo are Shariah-compliant stocks. 

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This article has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

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Managing Director
Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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