Good question Jonathan. I'm not sure what is used in place of things such as bonds in this case. I guess that would make a good topic for further research.
In the past two installments of fund reviews I have profiled specialty funds. This week I take a look at a relatively common looking fund style with an interesting twist. What makes the Amana Trust Income Fund (AMANX) different is the philosophy behind it. The Amana Funds invest according to Islamic principles, or Sharia. Generally, these principles require that investors avoid interest (riba) and investments in businesses such as liquor, pornography, gambling, and banks. The Funds avoid bonds and other fixed-income securities. The Funds seek protection against inflation by making long-term equity investments. This fund in particular is classified as a Large Value fund which generally makes up a core position in many portfolios.
- Manager: Nicholas Kaiser (16 year tenure)
- Min. Initial Investment: $250
- Front-Load: None
- 12(b)-1 Fee: None
- Expense Ratio: 1.49%
- Net Assets: $111 million
- Average Market Cap: $2.4 billion
- Turnover: 10%
With relatively strong competition in the large-cap value arena over the past few years this fund has held up very well generally among the better funds in this category.
With respectable 3 and 5-year annualized returns it has outpaced the S&P 500 by a reasonable margin during this time. With the exception of 2002 the fund has also done very well against its peers.
While I don’t want to dwell on past results you can see that strong management has put together a solid fund even while following constraints imposed by the strict adherence to Islamic principles, especially with no exposure to certain industries altogether.
- No load
- Very low minimum investment ($250)
- Socially responsible based on Islamic beliefs
- Solid performance
- Stable management
- Morningstar 5-star rated
- Expense ratio of 1.49% is a bit high
- Very small asset base
- Lack of exposure to interest bearing investments and certain industries reduce diversification
The Bottom Line
I wanted to highlight this fund for a few reasons. First, good things can come in small packages. With only just over $100 million in assets this fund is quite small yet packs a punch. Second, this fund company can maintain sold investment returns even when adhering to a strict set of cultural guidelines. This philosophy is important to many people and it is good to see that there are options available. Finally, with an incredibly low minimum of $250 this fund opens the doors to new investors who otherwise don’t have the relatively high minimums required by most no-load fund companies.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.