Amana Funds: Smart Investment Strategies For Beginners

Amana Mutual Funds Trust is a mutual fund company that offers investment products in line with Islamic banking principles. The company was founded to meet the needs of Muslim investors, who are traditionally unable to invest in traditional mutual funds due to securities forbidden by Sharia law. Amana Funds are managed under strict guidelines to comply with Islamic principles, avoiding investments in companies that produce or sell alcohol, tobacco, or pornography, among other restrictions. The funds are designed for those seeking long-term capital growth, with a focus on companies demonstrating both Islamic and sustainable characteristics. The company's basic philosophy is to be sure you know your business, and invest for the long term.

Islamic principles and investment

Islam makes no division between the spiritual and the secular, and as such, financial decisions are heavily influenced by religion. Islamic investments are a unique form of socially responsible investment, and investors must adhere to Sharia law, which is based on the Quran, the Sunnah, Qiyas, and Ijma.

Islamic investment is based on a few key principles:

• No interest: Lending with interest is considered exploitative and is strictly prohibited under Sharia law, known as "riba".
• Avoiding prohibited activities: Activities such as gambling, alcohol, and pork production and sales are forbidden in Islam and therefore, investing in such businesses is also forbidden.
• No speculation: Sharia law prohibits gambling and any form of excessive risk or uncertainty, known as "gharar".
• Profit and loss sharing: Islamic finance promotes partnerships where all parties share profits, losses, and risks. No one party can benefit more than the other.

These principles shape the types of investments that are permissible for Islamic investors. For example, equity investing is encouraged, as long as the company's business practices are Sharia-compliant. Islamic investors can also invest in company shares, as long as the company does not engage in prohibited activities. Additionally, there are Sharia-compliant bonds, called "sukuk", which represent partial ownership in an asset rather than a debt obligation.

The Amana Growth Fund is an example of an investment fund that follows Islamic principles. The fund invests in common stocks, including foreign stocks, and diversifies its investments across industries and companies. It seeks long-term capital growth and tends to hold investments for several years, in line with Islamic principles that discourage speculation.

Amana's history and background

Amana Mutual Funds Trust is a mutual fund company offering investment products consistent with Islamic banking principles. The company is headquartered in Bellingham, Washington, and was founded in 1986 by Unified Management Corporation, Indianapolis, IN, with the creation of the Amana Income Fund. The Amana Growth Fund was created in 1994, and the Amana Developing World Fund in 2009.

The Amana Funds are unique in that they were specifically conceived to meet the needs of Muslim investors. Traditional mutual funds are off-limits to Muslims because they typically contain securities that are forbidden by Sharia law. The Amana Funds are managed under strict guidelines to comply with Islamic principles. Investments that are forbidden (haram) include companies that produce or sell alcohol, tobacco, or pornography; process or sell pork products; generate revenue from gambling or interest (riba); or maintain a debt ratio of greater than one-third of their assets.

The funds are managed according to a value investment style, with a focus on companies with low price-to-earnings multiples, strong balance sheets, and proven businesses. They follow a long-term approach that corresponds with a distaste for risk-taking and speculation. The funds have a preference for companies with low debt and established, dividend-paying names with clear business models and attractive prices.

The Amana Funds' portfolios have been managed since 1989 by Nicholas Kaiser, who founded Saturna Capital in 1989 after selling his controlling interest in Unified Management Corporation. Scott Klimo has been the deputy portfolio manager of the Amana Funds since 2012.

Amana's performance and returns

Amanas Performance and Returns

Amana Funds are advised by Saturna Capital and managed by Nicholas Kaiser, who has been with the fund since its inception, and Monem Salam, who joined as co-manager in 2008. The funds are designed for long-term capital growth, consistent with Islamic principles. As such, they avoid investing in companies associated with alcohol, pornography, gambling, pork processing, and interest-based banks or financial associations.

The Amana Income Fund has returned 7.45% over the past year, 9.41% over the past three years, 10.16% over the past five years, and 8.60% over the past decade. As of November 27, 2023, the fund had assets totalling almost $1.64 billion invested in 35 different holdings.

The Amana Growth Fund has a 5-year average return of 15.56%. The fund's best 1-year total return was 33.07%, and its worst 3-year total return was 6.91%. The fund's performance is measured against the S&P 500 Total Return and the Russell 1000 Growth Index.

The Amana Funds' strong buy-and-hold discipline and low turnover ratio have contributed to their solid performance over the years. The funds' focus on established, dividend-paying companies with clear business models and low debt has been a key factor in their success. Additionally, by adhering to Islamic principles, the funds avoided risky investments in the financial sector, which helped them during the 2008 downturn.

However, it is important to note that adhering to Islamic principles and avoiding certain sectors can also limit investment opportunities and adversely affect performance. There is a chance that the funds' restrictions could cause them to lag when there is a rally in sectors in which they are not allowed to invest.

Amana's investment strategy

Amana Mutual Funds Trust is a mutual fund company offering investment products consistent with Islamic banking principles. The company was founded to meet the needs of Muslim investors, who are traditionally unable to invest in traditional mutual funds due to securities forbidden by Sharia law. Amana's investment strategy is therefore centred on compliance with Islamic principles, which include:

• No investment in companies that produce or sell alcohol, tobacco, or pornography.
• No investment in companies that process or sell pork products.
• No investment in companies that generate revenue from gambling or interest (riba).
• No investment in companies that maintain a debt ratio of greater than one-third of assets.
• A focus on companies with low price-to-earnings multiples, strong balance sheets, and proven businesses.
• A value-oriented approach.
• A preference for companies with low debt.
• A long-term approach with a strong buy-and-hold discipline.
• A tendency to favour cyclical sectors.
• A focus on domestic and international stocks.

Amana's portfolio managers

Amanas Portfolio Managers

Amana Mutual Funds Trust is a mutual fund company offering investment products consistent with Islamic banking principles. The company's portfolio managers are responsible for ensuring that all investments align with Islamic principles and adhere to strict guidelines.

The Amana Income Fund, founded in 1986, was the first fund established by the Trust, followed by the Amana Growth Fund in 1994 and the Amana Developing World Fund in 2009. All three funds are managed according to Islamic principles, avoiding investments in companies that produce or sell alcohol, tobacco, or pornography, process or sell pork products, generate revenue from gambling or interest, or maintain a debt ratio above one-third of their assets.

Nicholas Kaiser, who has an economics degree from Yale College and a master's in business administration from the University of Chicago, has been the portfolio manager of the funds since 1990. He founded Saturna Capital, the investment adviser to the Amana Funds, in 1989. Scott Klimo, who holds a BA in Asian Studies and has over 30 years of experience in the financial industry, is the deputy portfolio manager and has been with Saturna Capital since 2012.

The Amana Funds' investment decisions are made in accordance with Islamic principles, which require investors to share in profit and loss, receive no interest, and avoid businesses prohibited by these principles. This includes companies in industries such as alcohol, pornography, gambling, and banking. The Funds also tend to hold investments for several years, as Islamic principles discourage speculation.

The Amana Funds' unique approach to investing, tailored to meet the needs of Muslim investors, has resulted in strong performance. By adhering to Islamic principles, the Funds have benefited from avoiding risky investments, such as those in the financial sector, and by favouring companies with low debt levels. This long-term, disciplined, and conservative investment strategy has proven attractive to investors, both Muslim and non-Muslim, seeking a more stable approach to investing.

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