With so many Arab states swimming in petrodollars, it's not surprising that financial institutions are offering more investments with an Islamic spin. Welcome to the world of shariah-compliant mutual funds, which are only allowed to invest in companies that fit with Muslim ethical precepts. That means barring companies that carry high levels of debt, or profit from the charging of interest like most financial institutions. Or those that trade in all manner of 'vice' investments like gambling, alcohol or pornography.
It sounds like significant handcuffs for a fund manager, but it's not as limiting as it sounds. The DJ Asia-Pacific Islamic Index tracks 1,085 stocks with a market cap of $3.5 trillion. And Western-based shariah funds, like the Nicholas Kaiser-helmed Amana Growth, have boasted surperior returns (in the top 2% of large-cap growth peers, over 10 years). One of Kaiser's home runs: Potash Corp. of Saskatchewan, bought at 32 and now in the 160s.
Indonesia's Batasa Capital, for one, currently offers the country's only shariah-compliant mutual fund. But look for more and more shariah-oriented financial products to crowd the market, as burgeoning sovereign wealth funds look for Muslim-approved areas to place their bets.
Learn more about the niche from this Investor's Business Daily article, http://www.investors.com/editorial/IBDArticles.asp?artsec=19&issue=20080820.
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