Morningstar Magazine - June/July 2017 - 103

When Azzad launched in 1999, the firm recognized
that Muslims had few options to invest within
the bounds of Shariah, including prohibitions on
alcohol, tobacco, gambling, weapons, pornography,
and usury. To address this need, Azzad launched
the Ethical Fund ADJEX, a mid-cap growth
offering, in 2000. The fund opened to all investors
in 2003.
"When my parents were trying to invest years
ago, there weren't any of these options,"
says Iqbal, 34. "They would tell their broker, 'Don't
buy any alcohol or tobacco,' and just did the
best they could, but they were never sure that their
investments were pure."
More observant adherents of Islam sat on
the sidelines, Iqbal says. One solution adopted by
many Muslims was to keep their money in
checking accounts, because unlike savings
accounts, they do not earn interest, or riba, which
is prohibited by Shariah. "I've had clients who
before they came to us would have five checking

Fatima Iqbal, CFP, Azzad Asset Management.
How she caught our eye: She helps Muslim
clients create investment portfolios that
are Shariah-compliant.
Career path: Iqbal has worked at Azzad since
completing her master's degree in finance
from Rochester Institute of Technology. She also
has a Bachelor of Science in applied economics
and management from Cornell University.
Personal: Iqbal lives in the suburbs of Chicago
with her husband, a radiologist, and her two
children, ages 7 and 4. She is a board member of
Diwan Foundation, a not-for-profit that supports
Muslim life programming at Cornell University, her
alma mater. She also volunteers for the
Cornell Alumni Admissions Ambassador Network
and at her children's school.
Favorite funds: The Azzad funds, because of her
personal ethical and religious values.

accounts, and they were using them as savings
accounts," Iqbal says. Other investors opted
for socially responsible funds because they were
the closest thing to Shariah-compliant investments. And some chose not to participate in 401(k)s
altogether, even if that meant forgoing their
company's match.
Since those early days, Azzad, which has $373
million under management, has steadily built
a full portfolio solution. In 2007, the firm began to
introduce investment styles to supplement
the Ethical Fund. It now has eight model portfolios
across market caps and investment styles
through a wrap program, which are managed
by subadvisors. The outside managers, who
have expertise in their investment style, follow
Azzad's screens.
In 2010, Azzad Wise Capital WISEX, a fixedincome fund, was added to address the need for
stability during time of market upheaval.
Instead of buying regular bonds, the fund invests
in sukuk, which gives holders an ownership
of a company's underlying cash flow. "The income
is not based on borrowing or interest," Iqbal says.
"It is generated by an asset." To attract
Muslim investors, even large companies such
as General Electric GE have issued sukuk.
Screening Is Just the Beginning

To build its portfolios, Azzad screens to find
securities that are halal, or permissible.
Naturally, businesses in the prohibited industries
are excluded. But so, too, are those that
derive more than 5% of revenue from those
activities, even if it's not a major business
line. Iqbal says that most real estate investment
trusts are weeded out because of their extensive
use of leverage.
When clients come from another firm, Azzad
assesses their portfolios to comply with these strict
screens. Using Morningstar Office, Iqbal is
able to easily see which of the holdings violate
a tenet of Islam. "We are able to see what
are the weaknesses," she says.
Once the initial screening is in place, Azzad
then applies additional principles to portfolios.
Among them is a three-part verification process

to ensure that the securities truly meet Islamic
guidelines. There is also ongoing monitoring
and shareholder advocacy.
In addition, clients are able to "purify" any trace
amounts of illicit activities in their portfolios
from companies that derive less than 5% of their
revenue by them. Azzad helps clients calculate
what benefit they personally derived from
those activities. "Then, it's up to the client to
redistribute that amount back to the community
through charity," Iqbal says.
Finally, because Muslims are required to donate
2.5% of their earnings toward charity-
something many choose to do during Ramadan-
Azzad helps them calculate the right amount.
It's an important service, Iqbal says, because it's
difficult to tabulate earnings in any given year.
It's not just investments that need to be
vetted to make sure they're halal. Other areas need
to be addressed for Muslims. Mortgages, for
example, are difficult for observant Muslims to use
because they are prohibited from either paying
or receiving interest. Some avoid this prohibition
by renting or saving up to pay cash for properties.
Recently, financial institutions have created
products for Muslims in which a bank buys the
property and then leases it back to the homebuyer
until the purchase price is repaid.
Some areas are simply off limits and despite
the innovations in Islamic finance, don't
meet a strict standard of Shariah. For example,
Azzad has been unable to find any U.S.-based life
insurance carriers whose products don't
contain some element of gambling, in this case
betting on life expectancy. Clients either
choose to buy a policy anyway or self-insure
with savings.
Because of the labor-intensive nature of investing
the Islamic way, Azzad's fees aren't cheap.
The firm charges 1.75% to 2% of assets under
management. But for Muslims who take
their religious obligations seriously, there are few
other options. K
Ilana Polyak is a freelance financial journalist.

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