In this article, we'll provide an in-depth review of Saturna Capital's Amana Trust Growth Fund (AMAGX/AMIGX). Founded in 1994 in the U.S., this mutual fund has $4.1+ billion in assets under management (AUM) as of writing and is one of the most established mutual fund options for Muslim investors. By the end of this article, you will gain a clear understanding of the Amana Trust Growth Fund and be able to determine whether it is a worthwhile mutual fund investment for your needs.

Saturna Capital's Amana Mutual Funds Trust

Saturna Capital, founded in 1989, is the investment advisor responsible for managing the Amana Mutual Funds Trust, which includes the Amana Trust Growth Fund.

About Saturna Capital

Saturna markets itself as a value investor focused on long-term value creation, prudent risk management, and a focus on sustainable and responsible issuers.

As per its website, the firm strives to donate between 5 – 10% of its pre-tax profits to local, community-based organizations. Since 2007, Saturna has donated $11.3 Million to various charitable organizations.

About Amana Mutual Funds Trust

Amana Mutual Funds Trust favors proven businesses with low debt, strong balance sheets, and low price-to-earnings multiples. Further, the avoidance of bonds, conventional fixed-income securities, interest, and investments in businesses such as liquor, pornography, gambling, and banks are also standard within this fund.

The Amana Mutual Funds Trust consists of 4 different mutual funds:

• Amana Income (AMANX/AMINX)
• Amana Growth (AMAGX/AMIGX)
• Amana Developing World (AMDWX/AMIDX)
• Amana Participation (AMAPX/AMIPX)

This article will focus on reviewing Amana Growth (AMAGX/AMIGX).

Amana Growth (AMAGX/AMIGX) Overview

Investment Objective

The Amana Growth Fund seeks long-term capital appreciation, consistent with Islamic principles.

Investment Strategies and Style

The Growth Fund invests solely in common stocks, including foreign entities, while observing the following considerations:

• ESG factors including resource efficiency, community and labor relations, board composition, and business ethics
• Characteristics of financial sustainability include management strength, low debt, and strong balance sheets
• Screens exclude security issuers primarily engaged in higher ESG risk businesses; no alcohol, tobacco, pornography, weapons, gambling, or fossil fuel extraction
• Investments are made in accordance with Islamic principles
• Diversified across industries and companies
• Targeted to investors seeking long-term capital growth
• Generally large-cap, but can invest in any capitalization domestic and foreign stocks

Saturna Capital

The fund's primary criteria are past earnings, growth rates, and future potential, which is fairly standard for any investment fund really.

In Amana Growth's prospectus, they affirm their commitment to allocating a minimum of 80% of net assets to common stocks, retaining the flexibility to hold up to 20% in cash as circumstances dictate.

For further details on which accounts, brokerages, and/or countries the AMAGX/AMIGX mutual fund can be accessed, see their literature or contact their team.

Fund Fees and Investment Minimums

Fund Fees

The annual fund operating expense ratio for AMAGX and AMIGX are broken down in the table below:

As stated in the Fund's most recent Prospectus dated September 30, 2022.

The expense ratio of 0.91% is towards the higher end, as actively managed funds typically range between 0.50% - 1.0%. To illustrate the impact of this expense ratio, let's say you start with an initial investment of $100,000 in AMAGX, and assume a 10% average annual return. The results after 10 years are shown below:

• Future Value after 10 years (including fund fees): $238,698.35
• Total Fees Paid: $20,675.90

Now, let's compare this to an alternative fund with a 0.50% expense ratio (the norm for comparable halal ETF alternatives), assuming the same 10% annual return:

• Future Value after 10 years (including fund fees): $247,822.76
• Total Fees Paid: $11,551.37

The difference in fees paid over these 10 years is $9,124.53. This difference, albeit not monumental, can compound significantly over longer terms or with larger investments, underscoring the importance of fee considerations in long-term investment strategies.

Thus, it's crucial to assess Amana's fees-adjusted performance over time and whether it offers compelling value compared to a more affordable halal ETF alternative with a similar growth-centric equities emphasis.

• Related: How to Build Your Own Halal ETF

Investment Minimums

As of writing, the minimum initial investment for investor shares (in AMAGX) is $100. However, for tax-sheltered accounts, there's no minimum. Institutional shares (in AMIGX) are available with a minimum investment of $100,000.

Performance

Amana Trust Growth Fund's performance has been marked by generally consistent growth, and has done well to beat the S&P 500 Index over multiple time periods, as the table below shows:

Saturna Capital: Average annual total returns, load-adjusted. Month-end Performance, as of September 30, 2023

Note that the returns in the table above provide a picture of the fund's "load-adjusted return" performance, which includes the fund's expense ratio.

However, this calculation is missing the impact of taxes on the fund's trades.

Morningstar reports the 3-year tax cost ratio for the fund is 0.74%. This means, that on average each year over the last 3 years, investors lost 0.74% of their assets in the fund to taxes. Although Morningstar claims this is well below the category average of 1.93%, it's still worth mentioning as you would not experience this loss with a halal ETF alternative.

The more accurate tax-adjusted returns are shown in the table below:

Morningstar (1) (2): Tax-adjusted average annual total returns, load-adjusted. Month-end Performance, as of September 30, 2023

As you can see, AMAGX/AMIGX managed to beat the market (aka the S&P 500) over the 10-year, 5-year, and 1-year periods, but fell short over the 3-year period on an average annualized performance basis (after adjusting for taxes and fees).

It's also worth mentioning the 1.12% portfolio yield (dividends collected from portfolio holdings), which, although small, is above that of its category average and index (of 0.74% and 0.76% respectively, according to Morningstar).

While it's essential to understand that past performance is no guarantee of future returns, Amana has historically done well to outpace the market, even after accounting for fees and taxes. This track record, if anything, bolsters investor confidence in the fund's ability to generate alpha.

Portfolio

Amana Trust Growth Fund has 40 holdings in its portfolio, with ~44% of assets in its top 10 holdings, which is slightly top-heavy. 39 holdings are in equities (83.50% U.S. equities, 13.68% non-U.S. equities), with the other holding being cash (the remaining 2.82%).

The table below breaks down the fund's top 10 holdings:

Amana Trust Growth Fund: Top 10 Holdings (as of August 31, 2023)

Of their top 10 holdings, which is not to say we have any sort of monopoly on judging halal comfort levels, the % of Amana’s top 10 holdings which PIF is comfortable with is:

Amana Trust Growth Fund: PIF's Top 10 Holding's Comfort Levels

Their biggest holding aside, 9 out of 10 holdings being either Comfortable or Questionable suggests Amana is doing a decent job filtering for sharia-compliance.

The table below breaks down the fund's sector allocations:

Amana Trust Growth Fund: Sector Allocations (as of August 31, 2023)

The fund is relatively concentrated within technology and health care, which is typical of halal growth-oriented funds.

Turnover Rate

The fund's reported portfolio turnover on Morningstar is 6.0%, which is relatively low and good for investors, as this implies a more tax-efficient fund overall. This also means that only 6.0% of the fund's portfolio has been replaced over the past 12 months, which implies the fund's managers are comfortable with their investments and make trades with conviction.

Portfolio Metrics

There are multiple portfolio metrics investors can assess when evaluating the risk-adjusted performance of a fund. Amana, in its Fact Sheet, provides us with five metrics as detailed below:

Morningstar (1) (2): Fund Statistics and Explanations (as of September 30, 2023). *N/A = Not applicable.

As the table above shows, both AMAGX and AMIGX seem to be performing relatively well when compared to their category. They have better alphas, slightly lower volatility (as indicated by Beta and Standard Deviation), and higher Sharpe Ratios, suggesting better risk-adjusted returns. Their high R-squared values indicate they closely follow market trends. Overall, these statistics suggest that both funds are competitive within their category and have managed risks effectively.

Fund Managers

The three fund managers and their backgrounds are summarized below:

• Scott Klimo: Chief Investment Officer of Saturna Capital. Has 30+ years in the industry, and has been with Saturna since 2012. Was previously Deputy Portfolio Manager from 2012-2020. Received his BA in Asian Studies from Hamilton College.
• Monem Salam: Executive Vice President of Saturna Capital. Has 20+ years in the industry, and has been with Saturna since 2003. Received his BA from the University of Texas, Austin, and his MBA from the University of Texas, Dallas.
• Christopher E. Paul: Has 30+ years in the industry, and has been with Saturna since 2016. Received his BS in Computer Science from Syracuse University, and his MBA in Finance from New York University.

Conclusion

In conclusion, the Amana Trust Growth Fund (AMAGX/AMIGX) stands as an investment alternative that is, for the most part, aligned with Islamic principles, delivering decent performance but nothing to write home about.

I'd use it if I were aiming for a hands-off exposure to predominantly U.S. equities and slightly above-average capital appreciation over time. However, their expense ratios are high. These costs are hard to justify when the fund performs marginally better than the overall market, which becomes increasingly difficult to maintain over the long term.