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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Religious Correctness

An Islamic conscience drives the Oasis Fund


THE RAPID INCREASE IN the number of stock markets and publicly owned companies worldwide has paved the way for a wide array of mutual funds that satisfy an equally broad range of investment strategies and, increasingly, social requirements. One of the most recent is the $17-million Oasis Fund, which is managed by one of the oldest investment banks in London, Robert Fleming. Since it was launched in Feb-ruary, Oasis positions itself as a diversified portfolio of stocks that conforms to the Shariah or Islamic law. The fund has put together an independent committee of Islamic scholars called the Shariah Supervisory Board to advise on matters of Islamic law and investing. Neil Honebon, manager of the fund, spoke recently with Asiaweek's John McArdle about how the fund maintains its purity while seeking good results for investors.

Why did Robert Fleming decide to launch this fund?

We think there is between $50 billion and $100 billion invested in Islamic products of all kinds. Thus, in order to have a decent-sized business, one needs only a small share of that overall market. The demand is there.

The Shariah proscribes usury of all kinds. How do you square that prohibition with your fund?

The Islamic injunction against interest precisely directs one toward the concepts of partnership and risk-sharing, ideas inherent in equities as an asset class, as opposed to bonds and debt. We don't invest in banks or insurers, and we avoid companies with high levels of debt. Furthermore, we "purify" our portfolio by accounting for even small amounts of revenue that represent interest income. If, for example, we own 10% of a company, we assume our portfolio profited by 10% of that company's interest receipts. We then add those amounts for all the companies and donate the total to Islamic charities. Right now, these "purification deductions" amount to about 6% of profits. This is a relatively low figure, and we make up for that loss through the value we add through our investment services and selection process.

What is the selection process?

After consulting with our board of Shariah advisers, we screen the investment universe -- in our case developed equity markets around the world -- in accordance with Shariah rules. By doing this, we reduce the investment universe by about two-thirds. We start with the Morgan Stanley Capital Index (MSCI) of 2,500 companies and work from there. That's an index of some of the world's biggest blue chips. We end up discussing each potential company individually with our board. Then we screen again for investment quality and we are left with about 300 companies. From that group we choose just under 100.

How have you been performing?

We're pleasantly surprised. Our portfolio hasn't differed much from the MSCI world index overall -- all in an Islamic-ally correct way. For the first five months, our performance was ahead of the MSCI by a little more than a half a percent. After deducting the purification amount, we were about even with the MSCI.

How do you decide whether a stock is Islamically correct?

We don't pretend to be experts. We rely on our board of Shariah scholars. In addition to conventional financial service companies, we avoid those engaged in brewing or distilling alcohol or those dealing in proscribed meats and foodstuffs. If a company is found to be engaging in some marginal unIslamic activity -- for instance, airlines that serve alcohol -- we estimate how much profit is owed to these activities and put that amount into the purification fund. In practice, we have avoided these kinds of situations. A company would have to be very attractive to us from an investment point of view to go to that trouble.

What is the geographic distribution of your investments?

The portfolio is dominated by U.S. investments, which make up about 38% of the fund. Japan has about 20%, and the rest of Asia-Pacific about 10%. Europe is about 30%.

Who are your main in-vestors?

Institutions and high-value investors in the Persian Gulf, Malaysia, Indonesia and Brunei. The minimum subscription to the fund is $50,000. The fund was launched in the U.K., but it is also registered in Luxembourg and available in all the main European markets. As such, the fund is of interest particularly to Muslims in Britain. We're planning to go over soon to Malaysia and try to drum up interest among investors there.

What companies do you like in Asia?

Among others, China Light & Power in Hong Kong, Hitachi of Japan and Telekom Malaysia. We prefer utilities, petroleum, ports. Not the most exciting in the region, but they're solid -- and religiously correct.


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