Namal leads Sharia stock fund returns

Singapore:  Islamic stock funds in Sri Lanka, Thailand and Pakistan provided the biggest returns among global counterparts investing in Sharia-compliant securities as accelerating economic growth pushed shares higher.

Namal Amana Equity Fund, based in Sri Lanka, rose 71 per cent in the last 12 months, beating all the other 299 funds tracked by Bloomberg.

MFC Islamic Long Term Equity in Thailand increased 55 per cent and Al Meezan Mutual Fund of Pakistan gained 51 per cent in the period.

Investor confidence is improving as Sri Lanka emerged from a 26-year civil war, Thailand prepared to lift a state of emergency in Bangkok and Pakistan's government predicted the fastest pace of economic growth in three years.

Sri Lanka and Thailand have yet to sell bonds that comply with the religion's ban on interest, limiting investment options for Muslims in those countries.

"Sri Lankan stocks did very well as the climate was right for investment," S. Jeyavarman, chief executive officer of National Asset Management, of which Namal Amana is a unit, said in an August 3 interview from Colombo. "Investor interest will pick up as they see these kinds of returns."

Portfolio

Namal Amana holds shares of Nestle Lanka, a local unit of Switzerland's Nestle, which rose 103 per cent in the last 12 months, and tea processing company Tea Smallholders Factories, which gained 89 per cent, said Jeyavarman, who manages the equivalent of $60 million (Dh220 million) at National Asset, of which less than $1 million are Islamic funds.

Sharia forbids gambling, payment of interest, smoking and alcohol, so fund managers have to select investments deemed as halal, or permissible. Companies and products are screened by a board of scholars to ensure they don't violate religious principles.

Namal Amana, MFC Islamic and Al Meezan Mutual beat the average return of 36 per cent among the top 20 funds.

The Dow Jones Islamic Market World Index, which tracks shares that meet Sharia guidelines and has a market capitalisation of $12 trillion, climbed 11 per cent in the past 12 months, the same as the Dow Jones Global Index. The Colombo All-Share Index reached a record high of 5,225.60 on August 3, after more than doubling in the past year.

MFC Asset Management's Islamic fund beat the 36 per cent gain in Thailand's SET Index by avoiding banking stocks that generally don't comply with the religion's ban on interest, Supakorn Soontornkit, chief investment officer at the Bangkok- based company, said in an interview on August 3.

Banking shares carry a 20 per cent weighing in the SET Index, the second-biggest after energy and utilities, Bloomberg data show.

Growth accelerates

"Apart from Sharia-compliance, the main criteria for picking those stocks are strong earnings growth and high liquidity of the shares," said Bangkok-based Supakorn, who oversees $7.5 billion at MFC Asset Management.

The fund holds Delta Electronics, Thai Union Frozen Products, PTT Chemical and Hemaraj Land & Development, according to the company's website.

Thailand's central bank expects the economy to expand 6.5 per cent to 7.5 per cent in 2010, the most in at least seven years, Assistant Governor Paiboon Kittisrikangwan said.