With the first half of 2020 already in the books for ShariaPortfolio as a firm in Canada, now might be a good time to get an update on how the firm and its portfolio’s have performed. Nadeem Mian, Portfolio Manager for ShariaPortfolio Canada is off to a hot start with their actively managed portfolios outperforming their benchmarks and peers by a wide margin.
We sat down with Nadeem for a one-on-one on ShariaPortfolio Canada’s Performance for 2020. Prior to joining ShariaPortfolio Canada in in 2019, Nadeem began his career in New York City with Oppenheimer & Co. – a mid tier Wall Street firm in 1998. During this time, as an investment professional he navigated through the tech bubble, 9-11, a global financial crisis and of course most recently the current COVID-19 pandemic. We checked in with Mian with a look back, how the markets are today and what he’s forecasting for investors.
Salaudeen: First off, you’re a veteran of the industry but this is and has been a new experience with ShariaPortfolio Canada and Islamic investing in Canada – tell us why you decided to take this opportunity and how has the firm done in its first 6-7 months in?
Nadeem: I spent 20 years in roles advising clients and managing investments at various traditional financial institutions before joining ShariaPortfolio Canada in February 2019. However I’ve been a believer of Sharia compliant investing and its potential in Canada over the past many years but unfortunately in Canada their wasn’t a situation where I felt it was being done at a high and a proper way that met the Islamic requirements and didn’t come at the expense of client performance or service.
Just when I had almost given up hope on Islamic investing in Canada, I crossed paths with our CEO/Founder Naushad Virji via a WhatsApp chat group. Naushad had been running ShariaPortfolio Inc. in the U.S. for over 15 years at that time and was exploring at expanding into Canada and the rest is history. Our clients invest according to their beliefs and it was also important that the firm I worked for shared this belief and not viewed it as another revenue pipeline in its business.
Since receiving our Canadian registration in January 2020, the response and interest has been great! We’ve been actively onboarding clients on a daily basis and getting the word out. Of course, the pandemic came at very unfortunate time during our campaign but we’ve adjusted our marketing strategy to more digital focus through webinars, social media and Teams/Zoom sessions.
Salaudeen: As a Portfolio Manager, can you walk us through what your portfolio construction strategy and how you manage money?
Nadeem: We use a Core-Satellite portfolio strategy which consist of using a combination of ETF’s and individual stocks. The ETF’s make up the core and gives us a low-cost exposure to the overall market and asset classes like fixed income and commodities. The satellites are consisting of individual stocks with a goal of outperforming the market and capitalizing on opportunities and managing risk. The core positions are more buy and hold with minor adjustments and are centered around the asset allocation of the portfolio. The individual stocks are the satellites and is where we do research and stock picking to help drive the alpha of the overall portfolio. Of course all ETF’s and individual stocks are screened for sharia compliance prior to being added or even considered.
Salaudeen: Speaking of alpha, tell us a little about how the portfolios have performed YTD?
Nadeem: As of July 31st, 2020 the S&P 500 was up +0.8% while the S&P/TSX Composite was still down -5.5%, During that same time our 4 model portfolios – Conservative, Moderate, Growth and Aggressive – were up 4.4%, 12%, 16.2% and 25.1% respectively.
Salaudeen: Those are some impressive numbers, what do attribute the outperformance to?
Nadeem: There are multiple factors – 1) a Disciplined Strategy 2) Our overall asset allocation position at the start of the year (pre-pandemic lockdown) 3) Ability to take action and 4) Investment themes and stock selection.
Salaudeen: Ok, let’s start with the first one – A Disciplined Strategy?
Nadeem: An investment strategy or philosophy is useless unless you’re disciplined in sticking to it. A failure to do so can disrupt decision making and overall management. For example, one of the requirements we look for in stocks is that they must maintain a debt to market capitalization ratio of at least 30% – which we consider is a measure of the strength of a balance sheet and a positive attribute to have in a stocks valuation. Stocks who fail to meet this criteria are either not considered or sold from the portfolio.
There’s a great quote by the father of value investing, Benjamin Graham, where he states, “The essence of investment management is the management of risks, not the management of returns”. I think this summarizes our investment approach and has helped us remained focused during these volatile markets.
Salaudeen: How has asset allocation been a source of return?
Nadeem: After a very strong 2019 in equity markets, we started 2020 playing defence by being overweight in gold and lightened up on equities in our portfolios. Of course we didn’t predict the pandemic and economic shutdown but when it did happen it did help cushion the blow.
Salaudeen: What do you mean by “Ability to take action”?
Nadeem: We’re an investment boutique firm that manages portfolios on a discretionary basis and that can be a huge advantage especially in a year like 2020. When you get major events in the economy and markets like these, it’s an opportunity to revisit investment thesis and positions. We are nimble enough to adjust and take the necessary action for our investors whereas a major institution with huge positions might not find it that east to make drastic moves. To use a metaphor, a large oil tanker can’t turn on a dime whereas a smaller ship can easily adjust it sails and make that move.
At the trough of the market drop, we quickly positioned our portfolios to secular growth stocks and stocks that we felt would thrive in a COVID-19 world and exited ones that we felt had a longer road to recovery and greater pain. So that meant we bought into technology, healthcare and keeping a decent position in gold while getting rid of energy, industrials and leisure stocks like airlines.
The great influential investor, Benjamin Graham has a quote – “The essence of investment management is the management of risk, not the management of returns” and I’m a firm believer in that saying.
Salaudeen: Let’s talk stocks – what have been some of your best performing stocks?
Nadeem: Sure, Zoom Communications (ZM) has been a big winner for us and one of top holdings. This is a company that saw its business explode (in a positive way) during the pandemic. They went from 10M daily meetings in December to 300M daily meetings by April, which is unprecedented growth for any company. It’s a technology disruptor and is becoming synonymous with videoconferencing. Another name that’s been a winner has been Shopify (SHOP) which is an eCommerce company that is capitalizing on the retail shift from bricks and mortar to online especially amid the pandemic. In terms of sales, it’s a distant second to only Amazon and there’s plenty of room to grow and narrow that gap. The last stock I’ll mention is Proctor & Gamble (PG) which although isn’t one of top yielding stocks but has been a solid performer. It’s not the most exciting name out there because we are talking about the largest seller of household goods and consumer staple products but business is thriving and the stock is up almost 9% YTD plus pays a 2.5% dividend yield.
Salaudeen: What’s your outlook for the rest of the year and into next? And how are you positioning your portfolios?
Nadeem: As if COVID-19 wasn’t enough (and still not over), we will be closing the year with a U.S. election. Although we may still not be out of the woods on COVID-19 it looks like the worst it behind us so we could see the opening of the economy take fruition which will be a positive. The U.S. election will be great for headlines and not so good for short term market volatility. A U.S. President really doesn’t have a major impact on the stock market which even the empirical evidence will confirm. Some sectors may do better than others but overall it tends to be offset. However a Biden victory may ease China-US relations which has been somewhat of a dark cloud that has been hanging over the market.
Ultimately, we believe earnings growth will be a driver of stocks so as economic conditions improve and company’s get back to business this helps. Of course the opposite is true as well and that is the risk and potential headwind in the market. We believe that markets bottom before the data bottoms which is another way of saying that the market is looking ahead and not focusing on today’s headlines.
Having said that, risks in the marketplace will always be there at any given time and our job as portfolio managers is to manage that risk. My favorite investing quote is from one of the greatest investors of all time, Benjamin Graham, when he stated – “The essence of investment management is the management of risk, not the management of returns” and that’s the mindset I have as a portfolio manager positioning portfolios.
Salaudeen: Thank you very much Nadeem!
Nadeem Mian can be reached on 604-260-7150 or nadeem@shariaportfolio.ca
