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Halal fixed income investing in a ‘higher-for-longer’ market

Halal fixed income investing in a ‘higher-for-longer’ market

Recent Federal Reserve statements have hinted to investors that interest rates might not be coming down as quickly as we once thought. Persistent inflation means an interest rate policy that’s higher and lasting for a longer period than most would like. By holding steady, rates on fixed income all along the yield curve are expected to rise.

How can investors take advantage of a market like this?

Short answer: the Azzad Wise Capital Fund. It’s a mutual fund that deals primarily in high-quality, dollar-denominated issues. One of the main goals of the Azzad Wise Capital Fund is capital preservation, so the portfolio managers do not take significant interest-rate risk. But investors can still enhance returns through a combination of unique portfolio holdings.

The duration of the Fund, which is a measure of how sensitive it is to interest rates, is generally low. That’s achieved by investing in asset classes like sukuk and Islamic bank deposits, two types of Shariah-compliant securities that trade internationally.

Islamic bank deposits offer an attractive return, no interest-rate risk, and preservation of capital without too much credit risk because they tend to be short-dated–high-quality or sometimes just below investment-grade. They represent around 22% of the portfolio as of last quarter-end.

As for sukuk, the biggest part of the portfolio, those represent around two-thirds of the Fund. They are diversified globally, including many countries and companies in the Middle East, Southeast Asia, and Africa. And they give you a risk/return profile like a bond but without riba, or interest.

If you’re interested in potentially lower expected interest rate risk for an investment that can enhance overall portfolio returns, the Azzad Wise Capital Fund might be right for you in this market environment.

Azzad Asset Management

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