Islamic Investment Strategies

 

The Importance of Asset Allocation

Non-Muslim investors can invest in a variety of actively managed equity styles, and can evaluate the performance of these actively managed portfolios against conventional benchmarks. They can take advantage of asset allocation between different equity styles to provide diversification and reduce risk. This is important because equity styles often behave differently in different market environments. In today’s investment world, quantitative methods of stock selection are being increasingly used to select conventional portfolios and provide discipline and objectivity. The MIZĀN Fund brings asset allocation to the Muslim investor, using a strategy that employs seven Shariah-compliant equity styles. In each equity style, stocks are chosen using objective, quantitative methods of stock selection.

 

The Fund’s Islamic Investment Objective

 

The MIZĀN Fund seeks long term capital appreciation, consistent with Islamic investment principles, by holding a portfolio of seven diversified equity styles. The Fund seeks to outperform the Russell 3000 Index over a three to five-year time period.

 

Principal Investment Strategy

 

The Fund invests in a portfolio of U.S. stocks. The portfolio consists of seven sub-portfolios in various equity styles. Each sub-portfolio is chosen using objective, quantitative selection rules, developed by Lightstone Capital Management, that are consistent with Islamic investment principles. Objective screens are used to eliminate stocks that are not allowed under Islamic Law from the selection universe. The screens follow generally accepted interpretations of Islamic Law, such as the Dow Jones Islamic Market Index Rulebook. Examples of companies not allowed under Islamic Law are those involved in gaming, pornography or alcohol, as well as companies that are significantly involved in paying or receiving interest, including banks. The Fund also uses best practice financial ratios to eliminate companies whose products or services are inconsistent with Islamic Law.

 

The Strategy uses a core group of seven sub-portfolios, with a 70% / 30% weighting between large capitalization and small capitalization stocks on each monthly rebalancing.  This achieves diversification across market size and equity styles, consistent with a moderate risk-return equity profile.

 

These seven sub-portfolios are:

Large Cap Dividend Growth – 30% Weight in Overall Portfolio

 

  • Diversified portfolio of Shariah-compliant stocks
  • expected to outperform the Russell 1000 Index through market cycles and show strong resistance to market declines
  • Disciplined and objective to avoid style drift
  • Selects from Russell 1000 universe
  • Select stocks with history of increasing dividends per share with strong Earnings PressureTM.

 

Large Cap Growth – 5% Weight in Overall Portfolio

 

  • Diversified portfolio of Shariah-compliant stocks
  • expected to show strong future growth and outperform the Russell 1000 Growth Index
  • Disciplined and objective to avoid style drift
  • Selects from Russell 1000 universe excluding stocks valued at less than $5.00 per share and stocks that do not pass a quality screen
  • Select stocks with good price momentum that show strong Earnings PressureTM

 

Large Cap Growth at a Reasonable Price (GARP) – 15% Weight in Overall Portfolio

 

  • Diversified portfolio of Shariah-compliant stocks expected to achieve a balanced outperformance of the Russell 1000 Growth Index in both up and down markets
  • Disciplined and objective to avoid style drift
  • Selects from Russell 1000 universe excluding stocks valued less than $5.00 per share and also excluding stocks that are not reasonably priced (as measured by their forward-looking price-to-earnings ratio)
  • Select stocks with good price momentum that show strong Earnings PressureTM

 

Large Cap Value – 20% Weight in Overall Portfolio

 

  • Diversified portfolio of Shariah-compliant stocks expected to outperform the Russell 1000 Value Index over market cycles
  • Disciplined and objective to avoid style drift
  • Selects from Russell 1000 universe excluding stocks less than $5.00 per share and also excluding stocks that do not pass a quality screen
  • Select stocks with low price-to-book and low price-to-sales ratios that show strong Earnings PressureTM

 

Small Cap Growth – 10% Weight in Overall Portfolio

 

  • Diversified portfolio of Shariah-compliant stocks expected to strongly outperform the Russell 2000 Growth Index in up markets, while showing smaller declines than the Benchmark in down markets
  • Disciplined and objective to avoid style drift
  • Selects from the Russell 1000 excluding stocks less than $5.00 per share and also excluding stocks that do not pass a quality screen
  • Select stocks that show strong Earnings PressureTM

 

Small Cap Growth at a Reasonable Price (GARP) – 10% Weight in Overall Portfolio

 

  • Diversified portfolio of Shariah-compliant stocks expected to out perform Russell 2000 Growth Index in both up and down markets
  • Disciplined and objective to avoid style drift
  • Selects from the Russell 2000 universe excluding stocks less than $5.00 per share and also excluding stocks that are not reasonably priced as measured by their forward-looking price to earnings ratio
  • Select stocks with good price momentum and that show strong Earnings PressureTM

 

Small Cap Value – 10% Weight in Overall Portfolio

 

  • Diversified portfolio of Shariah-compliant stocks expected to outperform the Russell 2000 Value Index over various market cycles
  • Disciplined and objective to avoid style drift
  • Selects from the Russell 2000 universe excluding stocks less than $5.00 per share and also excluding stocks that do not pass a quality screen
  • Select stocks with low price-to-book and low price-to-sales ratios that show strong Earnings PressureTM

 

By combining the above strategies, which utilize the proprietary research process employed by Lightstone Capital Advisers, the MIZĀN Fund provides new opportunities for Muslim investors to build wealth towards retirement.