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Amana Complies With Laws of Koran
Sharia scholars on the council prohibit investments in businesses that charge interest or have a debt ratio greater than a third of their assets. Industrial companies that have financing units, such as Ford Motor Co. and General Electric Co., are among those failing the test.
The funds also can't invest in companies that generate more than 5 percent of operating income from un-Islamic activities, including pork processing, tobacco, liquor, pornography and gambling operations.
For the income fund, Kaiser favors companies that pay above-average dividends. Energy stocks, including Exxon Mobil and BP, account for 12.4 percent of assets. Utilities such as FPL Group Inc. are his biggest industry holding at 16.4 percent.
The S&P 500 Energy Index has jumped 25 percent this year, the best performance among the benchmark's 10 industry groups. Utility stocks, whose index has climbed 14 percent, are second best. The gains compare with a 2.8 percent loss in the S&P 500 Financial Index and a 0.6 percent drop in the overall index.
Amana Income's stake in utilities is almost five times the industry group's 3.4 percent share of the S&P 500. The fund's holding of energy producers is about a third higher than their 9.1 percent weighting in the benchmark.
Shares of FPL Group Inc., the biggest U.S. generator of electricity from wind, have a dividend yield of 3.3 percent, above the index's 2 percent average. The Juno Beach, Fla., company's stock has climbed 35 percent in the past year.
Exxon Mobil, based in Irving, Tex., has gained 17 percent this year. American depositary receipts of BP, based in London, have risen 13 percent. The fund also owns shares of USEC Inc., the world's largest producer of enriched uranium for nuclear power, which have jumped 55 percent this year.
The market-beating performance in 2005 contrasts with that of the second half of the 1990s, when the fund trailed the S&P 500 as financial stocks rose faster than the benchmark. The fund had an average annual return from 1995 to 1999 of 17 percent, below the index's average of 28 percent for same period.
Kaiser said the difference in those years amounted to what he called "the cost of being a Muslim." "If you want to invest socially responsibly, there are costs involved for the performance," he said.
This year, the costs have turned into benefits.