Quarterly Azzad Funds Shareholder Letter

January 15, 2021

During a period marked by a resurgent pandemic and political uncertainty, the fourth quarter of 2020 was a robust one for stocks, with each of the major indexes posting double-digit gains. Despite the turmoil and early-year losses, all major benchmark indexes closed 2020 well ahead of their 2019 closing marks. On the last day of the year, the S&P 500 ended at an all-time high.

The November presidential election resulted in the defeat of President Donald Trump by former Vice President Joe Biden, with the post-election period dominated by attempts to overturn the results through federal courts and state legislatures. Nevertheless, positive news came at the end of the year with the development and initial dissemination of COVID-19 vaccines and additional legislation that provided $900 billion in pandemic-related stimulus. Those developments, coupled with a low interest-rate environment, made stocks a viable option.

Less uncertainly in the fourth quarter of 2020 supported the rally in emerging market fixed income, including in the sukuk sector. Putting the U.S. elections and Brexit negotiations in the rearview mirror had a positive effect on credit markets. Investors shifted their focus towards the recovery in the year ahead.

The new year brought with it a sense of hope for a return to some form of normalcy in our daily lives. Although that hope is now being tested in the aftermath of a riot at the U.S. Capitol during the January 6th certification of Joe Biden’s electoral victory, markets continue to show their resilience. Investors would be wise to stick to their strategic asset allocation and not attempt to make changes to a portfolio in anticipation of a specific event or outcome. Investing is a long-term proposition and requires patience.

Thank you for your continued trust and investment.

Azzad Ethical Fund (ADJEX)

The Azzad Ethical Fund returned 16.01% compared to the Russell MidCap® Growth Index, which returned 19.02% for the period ended December 31, 2020.

Throughout much of last year, mid-cap stocks were among the best performers following the market bottom on March 23. Research by SPDR Americas Research showed that mid-cap stocks have consistently been the top performers during long recoveries after major stock-market declines, defying the conventional wisdom that large-cap companies will fall the least during a panic and that small-cap companies will lead the comeback.

Looking at the Fund, the information technology, consumer cyclical, and consumer defensive sectors contributed most to overall portfolio returns while health care, communications services, and real estate were the largest detractors to performance.

Teradyne, Inc., which makes advanced test solutions for semiconductors, electronic systems, and wireless devices to bring them to market faster benefited from a positive earnings outlook. It was the Fund’s top contributor for the period. Quanta Services, a specialty provider of infrastructure solutions for the electric power, energy, and communication industries, also contributed. Square, Inc., the payment processing provider, benefitted from increased market share and an expanding customer base thanks to last year’s Cash App acquisition. Top detractors during the period included DexCom, Inc., Citrix Systems, and Skyworks Solutions.

Last year, Azzad trustees and the Fund’s shareholders approved Ivy Investment Management Company to serve as the new sub-adviser to the Azzad Ethical Fund. Ivy was founded in 2002 and has mid-cap growth strategy assets under management of more than $7 billion. Ivy’s bottom-up research approach to investing and experience with a mid-cap growth strategy that seeks to achieve its objective by investing primarily in common stocks of mid-capitalization companies were deemed to be the right fit for the Azzad Ethical Fund.

We welcome Ivy Investment Management Company to the team.

Azzad Wise Capital Fund (WISEX)

The Azzad Wise Capital Fund returned 1.60% for the fourth quarter period ended December 31, 2020, outperforming its benchmark, the ICE BofAML 1-3 Yr. U.S. Corp. & Govt. Index, which returned 0.27%.

According to Fund sub-adviser Federated Investment Management Company, top-performing securities for the period came largely from the higher-beta, lower-duration category, including Bahrain 2027 and 2025, Oman 2025, Turkey 2023 and Saudi real estate developer Dar Al-Arkan Sukuk 2023. Lower-performing sukuk came from higher-quality, duration sensitive names and included Islamic Development Bank 2024, Dubai Islamic Bank 2021, Malaysia 2021, and KSA 2022. The Fund’s allocation to Islamic trade finance saw no new projects during the quarter but remained active in Djibouti, Burkina Faso, Indonesia, Egypt, and Tunisia. As profit rates on Islamic bank deposits remain below their historic levels, Federated continues to look for more attractive opportunities in the sukuk market.

Looking forward, Federated is optimistic about increased sukuk issuance for 2021 and beyond. In particular, they expect to see an increase in the number of sukuk issuance targeting social needs and a sustainability agenda as a response to the pandemic and a transition to clean energy in the Middle East.

Growth in the Gulf Cooperation Council, Malaysia, Indonesia, and Turkey will likely recover from last year’s recession, according to Federated. But given the slump in property prices in the GCC and risks in the commercial sector, they remain cautious on overall asset quality. They do, however, expect a stabilization in energy prices throughout the year.

In terms of rate risk, Federated also sees the future as less certain. Despite the outlook for longer-term accommodative fiscal policy in the United States, a Democrat-controlled Congress raises the possibility of an unanticipated increase in deficit spending. In their view, this could put pressure on long-term interest rates. They therefore believe it prudent to evaluate any extension in duration with caution.

The performance quoted below represents past performance, which does not guarantee future results. This summary represents the views of the Azzad Funds portfolio managers and sub-advisers as of December 31, 2020. Those views may change, and the Funds disclaim any obligation to advise investors of such changes. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. The Azzad Funds are self-distributed and available by prospectus only. A free copy of the prospectus, which contains information about the Funds’ risks, fees, and objectives, and other important information, is available at www.azzadfunds.com/prospectus or by calling 888.350.3369. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The ICE Bank of America Merrill Lynch 1-3 Yr. U.S. Corporate & Government Master Index tracks the performance of U.S. dollar-denominated investment grade government and corporate public debt issued in the U.S. domestic bond market, excluding collateralized products. The Russell MidCap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell MidCap® Index companies with higher price-to-book ratios and higher forecasted growth values. Market indices listed are unmanaged and are not available for direct investment.

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