We are intrigued by news out of Malaysia that the local asset-management arm of Nomura is now rolling out its Global Shariah Sustainable Equity Fund. Given that a new investment fund can take as long as a year to work through marketing issues and regulatory approvals, this product development team either hit the ground running when Malaysia began to move beyond the pandemic in the third quarter of 2021 or the fund was part of a marketing plan that was put on hold while the nation battled Covid-19.
One reason this announcement caught our attention is the current state of global markets. The Nomura offering centers on US and European stocks. Both of these regions have been pummeled this year. Through the end of June, the S&P 500 Index was down about 21% and the Stoxx Europe 600 Index declined almost 17%. Fund marketers could argue “buy low, sell high.” Still, there may be material opportunity costs associated with holding a general equity product amid a global recession.
Even in the best of times, stock funds with broad market exposure are tough to sell. They tend to be positioned alongside other core portfolio holdings, competing with myriad choices available to everyday investors. Highly-diversified funds usually gain notable traction only on the back of superior distribution. We will credit the Nomura team with realistic expectations. According to an article in The Edge Markets, the firm is looking to reach a modest RM 50 million (US$11 million) in assets under management, presumably over the year ahead.
Nomura has no doubt invested heavily in the development of this fund, expecting a reasonable return on its internal budget outlays. Given sour market conditions, though, some may argue that the roll out is irrational. Or not. We admit that the asset base in the fund could surprise on the upside, especially if key features are re-cast as major benefits:
Shariah Compliance. The pull of faith affinity in selecting investment products is ever-powerful in Malaysia, a nation with some 18 million adherents to Islam. Government authorities have paved the way for Malaysia to be a global leader in Islamic finance since the Asian currency crisis in 1997. There are more than 50 local asset management companies that are either focused exclusively on Shariah-compliant strategies or have a divisional commitment to the discipline.
ESG Strategies. The Malaysian government now embraces a net-zero transformation that will create material opportunities in a nation traditionally dominated by high-carbon industries. As a prominent domestic theme, local investors are likely to use this viewpoint as a filter on international holdings, mitigating cross-border biases. Additional ESG concerns addressed by the fund align with the United Nations’ Sustainable Development Goals.
In the Nomura fund, we are less enthusiastic about the global focus. The label is derived from positions largely in the US and Europe. Few market strategists are arguing for broad allocation to these regions at this time. The US behemoth Fidelity Investments released a commentary in mid-June entitled, “Is Winter Coming for the Stock Market?” Throat clearing aside, their answer is “yes.”
As part of its shift to a knowledge-based economy, Malaysia is in the midst of a financial literacy upturn, driving more and more investors into equities as long-term investments. Bursa Malaysia indicates that retail participation in the local exchange is reaching 35% of stock-trading activity. For new-to-market individual investors, an affinity-based, trend-oriented product that likely offers lower volatility than more narrow funds may be an ideal portfolio holding.
Large asset-management companies also have different priorities in launching an investment fund, than boutique firms. Profitability metrics are not driven by discrete products, but rather by an entire suite of products. One reason that Nomura may be offering the Global Shariah Sustainable Equity Fund is to ensure that client churn in favor of competing funds from other companies is as low as possible. ■
Our Vantage Point: The success of an investment fund is not always driven by the ebb-and-flow of the market cycle. Especially for asset-management enterprises, their business priorities may be to better position their brand or to fill a gap in their overall product line.
Learn more at The Edge Markets
© 2022 Cranganore Inc. All rights reserved.
Unauthorized use and/or duplication of any material on this site without written permission is prohibited.
Image shows the Masjid Selat Melaka. Credit: Rex Wholster at Adobe Stock.
The Qur'an and 
