Sustainable, Responsible &/or ESG Policy:

The fund adheres to Shariah investment principles. Shariah is what governs the day-to-day life of people following Islamic tradition, including financial activities. Shariah Investing is different from conventional investing because there are many requirements that must be adhered to.

For example, Islam discourages debt and charging interest is forbidden, which means we do not invest in banks or financial companies. We also do not invest in companies that derive the majority of their revenue from the sale of alcohol, pork products, pornography, gambling or weapons. Other requirements include an annual Shariah audit and donating to charity any earnings from unintended holdings in prohibited businesses.

Our Global Islamic Equity Fund can only invest in stocks that belong in the Dow Jones Islamic World Index. This index has over 3,500 global companies that have been screened for Shariah compliance.

In addition, our entire investment process is reviewed and approved by an independent shariah supervisory board. This board of shariah scholars also provides ongoing monitoring services to ensure continuous adherence and validation to shariah principles and standards. Finally, we make sure that any tainted earnings we receive is set aside and donated to charity.

Process:

Our portfolio construction process can be summarised by these 5 steps:

• We define our Shariah compliant investment universe and apply additional environmental screens
• We calculate scores for each stock based on each signal (both conventional and ESG)
• We optimise to maximise style factor exposure for a given level of active risk, while ensuring diversification across stocks and sectors, and penalising turnover and illiquidity.
• We test to ensure the resultant portfolio delivers the desired characteristics
• We purify dividends and our entire investment process is monitored and audited by an independent Shariah Supervisory Board to ensure continuous adherence to Shariah principles and standards

Further colour is provided below:

The investment universe for this strategy are all stocks in the Dow Jones Islamic World Index; accordingly, permitted investments include all stocks with membership in the index. This index of shariah compliant stocks spans large, mid and small cap companies across Developed and Emerging Markets countries. We also exclude certain industries such as thermal coal and tar sands extraction to improve the environmental profile of the Fund.

We restrict our investment universe to members of the Dow Jones Islamic World Index to ensure Shariah compliance. The index employs sector-based exclusions to avoid companies that derive more than 5% of their total income from: alcohol, tobacco, pork-related products, conventional financial services, weapons and defence; and entertainment. In addition, the index uses accounting-based measures to exclude companies where total debt, cash and interest bearing securities or accounts receivables exceed 33% of the market capitalisation.

At each rebalancing date, factor scores are calculated for each stock in the filtered investment universe. By targeting stocks that appear attractive across multiple conventional and ESG signals, we can maximise the likelihood of generating excess return across a broad range of market environments. Moreover, building a portfolio on a bottom-up instead of top-down basis means that we can hold fewer securities as well as reduce portfolio turnover while not sacrificing exposure to the factors we target. Ultimately, we are seeking Shariah compliant stocks with low risk, sustainable growth, positive momentum and that trade at a discount to their intrinsic values.

To balance these preferences, we combine each stock’s specific signal scores into a composite. This process begins by forecasting the expected active risk (tracking error) and correlation of each signal. We then allocate to the signals based upon the expected contribution to active risk. This risk-based approach allows us to allocate to the signals based upon their expected impact on the portfolio, rather than simple capital allocation.

A key feature of the Fund is the focus on diversification at all levels. We strongly believe that diversification is the best way to ensure a smoother investment ride. As such, this Fund is managed with a low tracking error to its benchmark and, in addition to the factor diversification described above, we apply strict limits on stock, sector and country exposures to ensure that we minimise unrewarded risks.

The resultant portfolio will be broadly diversified and exhibit benchmark-relative risks that can be easily quantified and understood. The portfolio is tested using internal and external risk management tools to ensure that it delivers the desired characteristics and is robust to the constraints that have been applied to the Shariah compliant investment universe. On a daily basis, we accrue the proportion of dividends received that are derived from business activities incompatible with Shariah principles. This amount is then segregated and paid to our designated charity annually.

Our entire investment process is reviewed and approved by an independent shariah supervisory board. This board of shariah scholars provide both an annual audit and ongoing monitoring services to ensure continuous adherence and validation to shariah principles and standards.

Dialshifter

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by…

• Working in partnership with asset owner clients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets under management;
• Setting an interim target for the proportion of assets to be managed in line with the attainment of net zero emissions by 2050 or sooner; and
• Reviewing our interim target at least every five years, with a goal of ratcheting up the proportion of assets covered until 100% are included, as efforts to structurally decarbonise economies play out.