GLOBAL ISLAMIC EQUITY FUND
Aim: Growth by investing in blue chip international stocks through Shar'iah.
Minimum investment: Lump sum £1,000, monthly £50.
Investment split: 100 per cent blue chip international funds.
Isa link: Yes.
Pep transfers: Yes.
Charges: Initial 5.75 per cent, annual 2 per cent.
Commission: Initial 3 per cent, renewal 0.6 per cent.
Tel: 0800 1831786.
The panel: Steve Elgin, Ethical investment & research consultant, Equus,
Lee Coates, Director, Ethical Investors Group,
Peter Liebich, Director, The Ethical Investment Co-Operative.
Suitability to market 9.0
Investment strategy 9.0
Past performance 8.0
Company's reputation 8.0
Product literature 8.0
Muslim financial specialist Parsoli UK has introduced the Parsoli global Islamic equity fund, an Oeic that complies with Shari'ah. This means the fund will not invest in companies that are not compliant with the religious principles of Islamic law and the Koran.
Looking at how the fund fits into the market, Liebich says: “This fund is a welcome addition to the range of specialist funds available, which take into account more than just financial factors in their investment strategy.” Elgin says: “It adheres to Shari'ah rules. It is suitable for a strict Muslim requiring zero profit from porn, alcohol, gambling and banned meats. It is the only UK fund of its type.” Coates says: “The fund provides welcome competition to the Amanah fund via HSBC. The market for Shari'ah products is underdeveloped so this product is most welcome.”
Identifying the type of client the fund is likely to suit, Elgin says: “Muslims who cannot afford the minimum contribution to existing Islamic funds overseas. Also, for Muslims requiring Isas, it has a regular and lump sum facility, which is unique.” Coates says: “It is a very market-specific product, aimed at those who adhere strictly to Shari'ah law. However, given the restrictions applied, it may also appeal to the wider ethical investment community.” Liebich says: “The fund is ideal for followers of Islam who are looking to invest in a collective equity fund for medium to long-term growth.”
Assessing the marketing opportunities the fund could provide, Coates says: “Providing IFAs bother to identify Islamic and ethical clients, the market is considerable. Assuming no advisers deliberately avoid the Islamic community, then all IFAs need to be aware of the potential to market this fund.” Liebich points out the fund opens up the possibilities for marketing to the Muslim community. Elgin says: “There are 2.5 million Muslims in the UK and there is no suitable asset-backed investment. This has a low entry of £50 a month or a £1,000 lump sum.”
Pointing out the useful features of the fund, Liebich says: “Access to the fund is available through a maxi Isa or straightforward Oeic investment with a minimum investment of £1,000. Advisers can confidently recommend the fund to followers of Islam in the knowledge that companies whose shares are held within the fund; are screened by the Shari'ah supervisory board, and are deemed to be acceptable under Shari'ah.” Elgin says: “It adheres strictly to Islamic rules regarding investments, for example, receiving no interest. It has a respected committee of reference that approve stocks for Shari'ah compliance and it is available as an Isa for smaller investors.”
Coates says: “The criteria are well defined which is critical in such a fund. Investors know what they are buying.”
Discussing the investment strategy, Liebich says: “The investment objective of the fund is to provide capital appreciation through investment in a diversified portfolio of equities and the fund will normally have in excess of 40 holdings to spread risk. In that sense, the strategy is similar to a large number of other Oeic funds or unit trusts. Coates says: “Given the restrictions, it is an advantage that the fund invests globally. This should provide more than enough opportunities for investment to mitigate the restrictions.” Elgin says: “The fund manager, Fiona Offord-Williams, submits potential stocks to the committee for cleansing - applying ethical criteria according to Islamic principles. The scholars of the Koran give Fiona her stock universe, eliminating unsuitable equities. This provides expertise and experience from both points of view. But if, for example, British Airways makes more than 5 per cent of its money from the sale of alcohol on board, this would be excluded.”
Turning to the fund's disadvantages, Coates says: “Although I am no expert on Shari'ah law, I do question the ethical caveat that exclusions only apply where an activity is greater than 5 per cent of gross revenue. It seems to me that one either applies a religious law or one doesn't. Can one be 95 per cent Islamic and 5 per cent floating?” Liebich says: “Muslims would previously have had problems with most ethically screened funds because of possible investment in life assurance companies or banks, for example, which is not permissible under Shari'ah.” Elgin can see no drawbacks for Muslim investors.
Examining the reputations of the companies behind the fund, Liebich says: “City Financial Managers has designed the fund and the investment management skills are provided by Gerrard. This means that the fund has some reputable names behind it.” Coates thinks City Financial Managers has a good reputation for offering packaged products. He also feels Gerrard's expertise in ethical investment management is one of the best in the UK. Elgin says: “Parsoli, the sponsors of the fund, is a genuine Islamic faith company. City Financial Management has 130 funds, with £2bn under administration and an interest in Muslim funds. Gerrard is top quality.”
Looking at investment past performance, Coates says: “Gerrard's past performance in running ethical portfolios is extremely good.” Elgin believes Gerrard has a good record of performance and diversification.
Identifying the likely competitors, Coates cites the Amanah Sicav from HSBC. But Elgin and Liebich think the fund will face no competition.
Assessing the charges, the panel adopt the same views. Liebich says: “The initial charge is a little on the high side but certainly not in excess of many other funds. The annual management charge however, is higher than almost any other fund on the market. But allowance should be made, I suppose, for the additional level of research and monitoring costs involved in running a fund of this kind, with such strict investment criteria.”
Elgin thinks the charges are high but fair because of the specialist nature of the fund. Coates says: “The charges are on the high side, even for such a product. It is a problem associated with a packaged product where a number of organisations are involved.”
Looking at commission, Coates says: “The initial commission of 3 per cent is average but I feel that the renewal commission is unnecessarily high. The maximum should be 0.5 per cent, although with a 2 per cent annual management charge, renewal commission should be 0.4 per cent.” Elgin thinks 0.5 per cent should be sufficient for client service as it is standard with most funds. Liebich says: ” Commission is on a par with the rest of the market, which will normally pay 3 per cent plus 0.5 per cent renewal.”
Discussing the product literature, Elgin says: “It is clear and attractive. It is nice that green, the prime Islamic religious colour, has not been used. That would have been too obvious.” Liebich thinks the product literature is simply and traditionally designed and presented, with important information easy to find. He adds:”This is not bad practice when presenting specialist screened funds, as sometimes clients see expensive glossy literature as excessive and wasteful of natural resources.” Coates thinks it is sombre but adequate and would like the see a non-English version.”
Summing up, Coates says: “I am sure most IFAs will ignore the fund, but it should succeed in its target market, subject to acceptance of the 5 per cent investment compromise.”