Amana Complies With Laws of Koran

By Ludwig Marek
Bloomberg News
Sunday, July 10, 2005

Nicholas Kaiser's Amana Income Fund is outperforming the U.S. stock market this year by following the laws of the Koran. Managed in compliance with Islamic principles known as sharia law, the fund was the best performer of 19 U.S. mutual funds tracked by Bloomberg that are governed by social or religious principles.

The fund can't own shares of financial institutions such as banks that charge interest. Banking stocks are trailing the Standard & Poor's 500-stock index in 2005. Energy stocks, the benchmark's top performers, aided by record oil prices, are among its largest holdings.

"Under the current circumstances, the restricted selection helps us to look for good stocks," Kaiser, 59, said from his office in Bellingham, Wash. The $41.6 million fund owns shares of Exxon Mobil Corp. and BP PLC, the world's two largest publicly traded oil companies.

Amana Income, named for an Islamic term meaning "to have faith," gained 25 percent in the past 12 months, almost triple the S&P 500's 9 percent return.

The assets of the Amana Income Fund and the Amana Growth Fund, also run by Kaiser, increased 64 percent in the 12 months ended May 31 to a combined $95 million. The growth fund climbed 24 percent in the past year.

Inflows into so-called socially responsible funds rose 40 percent faster than net investments in professionally managed funds between 1995 and 2003, according to a study released by the Social Investment Forum, a Washington-based trade group. Updated figures are due in November.

"There is still very strong interest in socially responsible investing," said Amy Domini, chief executive of Domini Social Investments LLC in New York. Her firm oversees the Domini Social Equity Fund, the category's largest, with $1.26 billion in assets.

Kaiser, a Bellingham native, doesn't practice Islam, has never been to the Middle East and doesn't speak any Arabic. Kaiser said he was approached in 1984 by the North American Islamic Trust, a Burr Ridge, Ill., group that oversees assets of the Islamic Society of North America, the Muslim Students Association of the United States and Canada, and other organizations.

"I had no idea about Islamic funds then," he said.

Two years later, after working with the trust's directors and scholars to form an investment strategy based on Islamic law, he helped start the Amana Mutual Trust Fund.

He screened 3,700 companies at the direction of Fiqh Council of North America in Leesburg, an advisory board of the Islamic Society. About 45 percent passed.

Aside from a six-month break in 1989, Kaiser has managed the Amana funds since then. Some of his own money is invested in the funds, advised through Saturna Capital Corp., a firm he founded in 1989.

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