Templeton Shariah Investment

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Brief information: Templeton Shariah Global Equity Fund is an open-end fund incorporated in Luxembourg. The Fund’s objective is capital appreciation. The Fund invests principally in Shariah-compliant equity and equity-related securities including common stocks of companies located anywhere in the world, including emerging markets.

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Introduction to Franklin Shariah Global Equity Fund

This report provides an overview of the Templeton Shariah Global Equity Fund, a sub-fund of Franklin Templeton Shariah Funds. The fund operates in accordance with Shariah principles, offering investors an opportunity to invest in global equity markets while adhering to Islamic guidelines. This summary aims to provide a clear understanding of the fund’s key features, structure, and important considerations for potential investors, with a specific focus on Shariah compliance.

Fund Background:

The Templeton Shariah Global Equity Fund is one of the separate classes of shares offered by Franklin Templeton Shariah Funds. The fund aims to generate long-term capital growth by investing in a diversified portfolio of global equities that comply with Shariah guidelines. These guidelines are determined by the Shariah Supervisory Board, which consists of Islamic scholars and experts who ensure that investments are by Islamic principles.

Regulatory Information:

The Templeton Shariah Global Equity Fund is subject to regulation and oversight in Luxembourg, where it is incorporated. It complies with the laws and regulations governing undertakings for collective investment in transferable securities. The fund is registered in multiple European countries, including Austria, France, Germany, Spain, and the United Kingdom, ensuring compliance with applicable regulatory frameworks.

Minimum Investment:

The minimum initial investment in shares of Franklin Templeton Shariah Funds is USD 1,000 (or USD 1,000 for switches), except for Class I shares, which require a minimum investment of USD 5,000,000. Existing shareholders can add to their holdings with a minimum increase of USD 1,000. There is also a minimum holding requirement of USD 1,000. The company reserves the right to reject applications that do not meet the minimum investment requirements and may compulsorily redeem shares from shareholders who fall below the minimum holding amount or fail to meet eligibility requirements. These requirements aim to ensure compliance and accessibility to a wide range of investors. 

What are you investing in?

The benchmark of the Templeton Shariah Global Equity Fund is the MSCI AC World Islamic Index. The benchmark is used solely as a reference for Investors to compare against the Fund’s performance, and this benchmark is neither used as a constraint on how the Fund’s portfolio is to be constructed nor set as a target for the Fund’s performance to beat. The Fund is actively managed.

Top 10 Holdings	% of TNA
Microsoft Corp	9.45
USD cash	6.69
SAP se	3.46
Exxon Mobil Corp	3.06
Inpex Corp	3.02
Infineon Technologies	2.84
Galp Energia SGPS	2.80
Samsung Electronics	2.67
BP PLC	2.64
Hitachi Ltd	2.52

How do you grow your money by investing in Franklin Shariah Global Equity Fund?

Investors in the Franklin Shariah Global Equity Fund can benefit from global equity markets’ potential growth and returns while aligning their investments with their religious beliefs. It allows investors seeking a Shariah-compliant approach to diversify their portfolios and participate in the global economy.

What makes Shariah Compliant?

Business Activity Screening

Sharia investment principles do not allow investment in companies which are directly active in or derive more than 5% of their revenue (cumulatively)2 from the following activities (“prohibited activities”): 

• Alcohol
• Adult Entertainment
• Cinema
• Conventional Financial Services1
• Defense / Weapons
• Gambling / Casino
• Hotels
• Music
• Online Dating2
• Pork related products
• Tobacco

For Financial  Screening

Sharia investment principles do not allow investment in companies deriving significant income from interest or companies that have excessive leverage. MSCI uses the following three financial ratios to screen for these companies:

• Total debt over total asset
  33.33% 30.00%
• Sum of cash and interest-bearing securities over total assets
  33.33% 30.00%
• Sum of accounts receivables and cash over total assets
  33.33% 30.00%

ESG rating of Franklin Shariah Global Equity Fund:

ESG Overall Score: 76
Environmental Score: 74	Social Score: 82	Governance Score: 68
Controversies score: 56

With an environmental score of 74, the fund focuses on environmental sustainability and responsible resource management. This may include efforts to reduce carbon emissions, manage waste and pollution, and adopt sustainable practices.

The fund has a solid social score of 82, highlighting its commitment to social factors. This may encompass considerations such as employee welfare, community engagement, diversity and inclusion, and responsible supply chain management.

The governance score of 68 suggests that the fund has room for improvement in governance practices. Transparency, ethical practices, and risk management could be enhanced to strengthen the fund’s governance framework. The controversies score of 56 indicates that there have been some controversies associated with the fund. It is essential to delve deeper into the nature and impact of these controversies to understand the implications for the fund’s ESG performance.

Overall, the Franklin Shariah Global Equity fund demonstrates a moderate ESG profile, focusing on environmental and social factors. However, there is room for improvement in governance practices and addressing controversies. By addressing these areas, the fund can further solidify its position as a responsible and sustainable investment option.

Analysis of Franklin Shariah Global Equity:

 

Analysis	Over 1 Year	Over 3 Year
Alpha	0.34	0.11
Annualized Standart Deviation	13.56	13.49
Beta	0.91	0.80
Correlation	0.97	0.87
Information ratio	0.27	0.00
Max Drawdown	-5.19	-16.18
R/R Ratio	0.34	0.20
R-square	0.94	0.75
Sharpe ratio	0.24	0.14
Sortinio	0.24	0.15
Tracking error	1.04	2.09
Treynor ratio	1.02	0.69
Value at Risk normal	-5.10	-5.63
Value at Risk normal ETL	-6.74	-7.26
Value at Risk Quantile	-5.19	-5.79
Variance	15.32	15.16

• Alpha conclusion of Franklin Shariah Global Equity:

Alpha is like your “extra credit” in school. If the benchmark index (what you are comparing against) goes up by 5%, and your investment in Franklin Shariah Global Equity goes up by 6%, that extra 1% is your Alpha. An Alpha of 0.4% over one year means that  Franklin Shariah Global Equity did slightly better than what was expected based on its benchmark index  (Franklin Shariah Global Equity Fund

• Annualised Standard Deviation Conclusion of Franklin Shariah Global Equity: 

Think of this as a “roller coaster rating.” A higher number means the ride has more ups and downs, making it potentially riskier but also possibly more rewarding. A 13.56% one-year standard deviation means there have been significant ups and downs over that period.

• Beta Conclusion of Franklin Shariah Global Equity:

Beta tells us how closely Franklin Shariah Global Equity follows its benchmark index. If the index goes up or down, we can expect Franklin Shariah Global Equity to behave similarly. A Beta close to 1 means it’s behaving almost exactly like its benchmark.

In this case, the beta values for  Franklin Shariah Global Equity are 0.91% for one year and 0.80% for three years. This indicates that the fund is slightly volatile compared to its benchmark over the one year but generally has lower volatility over three years than its benchmark.

• Correlation conclusion of Franklin Shariah Global Equity:

Correlation is like a dance partnership. If Franklin Shariah Global Equity  and its benchmark are perfectly in sync, they correlate close to 1. A correlation of 0.99 is extremely high, meaning Franklin Shariah Global Equity and its benchmark move almost identically.

• Information ratio Conclusion of Franklin Shariah Global Equity:

This metric tells you how much extra return you’re getting for the extra risk you’re taking by not just investing in the benchmark. Positive numbers are good; they mean you’re getting rewarded for the extra risk you’re taking.

For the Franklin Shariah Global Equity fund, the Information Ratio is 0.27% for the one-year and 0.00% for the three years. This means that over the one year, the fund has generated excess returns of 0.27% per unit of risk taken compared to its benchmark. However, over the three years, the fund has not generated any excess returns relative to its benchmark.

• Maximum Drawdown Conclusion of Franklin Shariah Global Equity:

This is the “worst-case scenario” number. It shows you the biggest drop Franklin Shariah Global Equity experienced at any point in the given time frame. For instance, a -5.19% one-year maximum drawdown means that at its worst point in the past year, the ETF lost 5.19% of its value before recovering.

• Risk Reward Ratio Conclusion of Franklin Shariah Global Equity:

This is like the “value for money” metric of investing. A positive number means you get more rewards (returns) than risks, which is generally a good sign.

The Risk-Reward Ratios for Franklin Shariah Global Equity are 0.34% (1-year) and 0.20% (3-year). These ratios suggest a favourable trade-off between risk and reward for the one-year and three-year periods, indicating that the fund has provided more potential rewards (returns) than risks.

• R-Square Conclusion of Franklin Shariah Global Equity: 

An R-squared close to 1 means that most of  Franklin Shariah Global Equity’s performance can be explained by its benchmark’s performance. This is useful to know if you are considering whether to invest in  Franklin Shariah Global Equity or just stick with a fund that tracks its benchmark.

The Franklin Shariah Global Equity fund has an R-squared value of 0.94% for the one year and 0.75% for the three years. These values indicate a relatively strong correlation between the fund and its benchmark, suggesting that its performance significantly influences its returns.

• Sharpe Ratio Conclusion of Franklin of Shariah Global Equity:

This ratio measures how much reward you’re getting for each unit of risk. The higher the number, the better the risk-reward trade-off. Lower values indicate that the investment may not be worth the risks involved.

The Franklin Shariah Global Equity fund has a Sharpe Ratio of 0.24% for the one year and 0.14% for the three years. These values indicate a relatively lower risk-adjusted performance, suggesting that the fund may not provide significant returns per unit of risk taken.

• Sortino Ratio Conclusion of Franklin of Shariah Global Equity:

This is another way of looking at “risk vs. reward,” but it only looks at the downside, or negative risk, relative to the risk-free rate of return. In this case, the low Sortino Ratio of Franklin Shariah Global Equity  (0.24% / 0.15%) means that it is not doing as well in terms of generating returns when only considering the downside risk.

• Tracking Error Conclusion of Franklin Shariah Global Equity:

The Franklin Shariah Global Equity fund has a tracking error of 1.04% for the one year and 2.09% for the three years. These values indicate a moderate to larger deviation from the benchmark’s performance, suggesting that the fund’s returns may differ from the benchmark’s returns.

• Treynor Ratio Conclusion of Franklin Shariah Global Equity:

Consider this another “bang for your buck” measure, but consider how the market is doing. Higher numbers are better, showing you’re getting a good return for the market risk you’re taking.

The Franklin Shariah Global Equity fund has a Treynor Ratio of 1.02% for the one year and 0.69% for the three years. These values indicate a relatively favourable return per unit of systematic risk the fund takes, particularly over one year.

• Value at Risk Conclusion for Franklin Shariah Global Equity:

VaR is a measure used to estimate the potential loss an investment may experience over a specific period with a certain confidence level. A negative VaR value represents a potential loss, while a positive value indicates a potential gain.

In this case, a VaR of -5.10% for the one year suggests that there is a certain level of confidence (typically specified, such as 95%) that the fund’s potential loss will not exceed 5.10% over the one year.

• Value at Risk Normal ETL Conclusion for Franklin Shariah Global Equity:

VaR ETL is a risk measurement tool that estimates the average tail loss beyond normal based on historical returns, assuming an asymmetric normal distribution. A negative VaR ETL value indicates the potential average loss beyond normal that the investment portfolio may experience.

In this case, a VaR ETL of -6.74% for the one year suggests an estimated average tail loss beyond normal, while a VaR ETL of -7.26% for the three years represents the potential average tail loss beyond normal over the longer time frame.

• Value at Risk Quantile Conclusion for Franklin Shariah Global Equity:

In conclusion, the Value at Risk (VaR) Quantile is a method of estimating VaR by ordering the historical return series from lowest to highest. It measures the potential maximum loss of an investment portfolio at a specified confidence level. The Franklin Shariah Global Equity fund has a Value at Risk (VaR) Quantile ratio of -5.19% for the one year and -5.79% for the three years. These ratios represent the estimated potential maximum loss at a specified confidence level based on historical return data.

The effect of a negative VaR Quantile value implies the potential estimated maximum loss that the portfolio may experience at the specified confidence level based on historical return data.

• Variance Conclusion Franklin Shariah Global Equity: 

Variance is a statistical measure that quantifies the dispersion or volatility of a dataset. In the context of investment performance, higher variance indicates greater unpredictability or fluctuation in returns.

In this case, variance values of 15.32% for the one year and 15.16% for the three years suggest that the performance of the Franklin Shariah Global Equity fund has exhibited relatively lower dispersion or volatility around the mean compared to the SPUS example.

A lower variance may indicate a more stable or predictable performance pattern for the fund over the respective periods.

Is Franklin Shariah Global Equity regulated?

Yes, Franklin Shariah Global Equity is regulated by being listed on the Luxembourg.

Conclusion

The Franklin Shariah Global Equity fund offers investors exposure to a diversified portfolio of global companies that adhere to Shariah principles and consider positive ESG characteristics. With an ESG overall score of 76, the fund demonstrates a moderate commitment to environmental, social, and governance factors.

The fund’s environmental score of 74 indicates a focus on sustainability and responsible resource management. The social score of 82 highlights its attention to employee welfare, community engagement, and responsible supply chain practices. However, the governance score of 68 suggests room for improvement in areas such as transparency and ethical practices.

In terms of risk-adjusted performance, the fund’s Sharpe ratio and Sortino ratio indicate relatively lower risk-adjusted returns. However, it’s important to consider the individual investor’s risk tolerance and investment objectives when evaluating these metrics.

The fund’s shape alpha provides insights into risk-adjusted outperformance compared to a benchmark index. However, it’s crucial to assess the fund’s performance against relevant benchmarks and consider longer-term performance trends.

Overall, the Franklin Shariah Global Equity fund aims to provide investors with exposure to high-quality global companies while considering Shariah compliance and ESG factors. Investors should assess their own investment goals and risk tolerance to determine if the fund aligns with their preferences and objectives.

Happy Investing!