Old Testament, Exodus 22:25: “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.”

Over the past 12 months, fixed interest managers have faced some of their darkest days. For those seeking solace in the Bible, the passages condemning the lending of money for interest as amongst the most heinous of sins are sobering reading.

As the write downs continue to decimate portfolios like a swarm of locusts in a bountiful crop, managers may assume that it is God’s angry hand that is punishing them for not living their lives to the letter of the Lord.

For devout Muslims, Allah’s word pervades all aspects of life – even investing. Islamic funds invest according to the principles of Shariah law, which forbids earning interest, and thus avoid bonds or any financial institution that lends. It would seem that God in His wisdom is all knowing…

This view on lending has led Islamic funds to largely avoid the banking meltdown and credit crisis. Some, such as the Amana Income Fund in the US, have even managed to perform well over the past decade (annualised return of 7.78 per cent) without the help of soaring financial stocks. Managers of Islamic funds say that complying with Sharia law enhances due diligence, discourages speculation, and promotes more committed buy-and-hold investing.

In addition to banking and insurance, such funds avoid companies involved in pornography, alcohol and gambling, pork products and armaments. And while the pure investment case for these screenings is debatable, the Islamic funds also steer clear of companies with large debt-to-equity ratios – an extremely insightful position of late.

It seems the answer to outperformance in an apocalyptic market is simple: trust in God.

Leave a comment