First Quarter Market Recap
Let’s take a look at the markets’ performance last quarter—and its impact on the Azzad Funds.
Profit-taking from last year’s strong run, as well as currency and credit problems in several emerging markets, threatened to derail the stock market as 2014 began. Those factors, combined with the prospect of less support from the Federal Reserve, a slowing Chinese economy, and renewed Cold War tensions, led to a volatile quarter for equities. After a dismal January, equities regained some strength once Congress avoided a fight over raising the debt ceiling limit. By early March, the S&P 500 had hit a new all-time closing high; on the bull market's fifth anniversary, the S&P was only a couple of hundred points away from having tripled since its March 2009 low. At that point, the NASDAQ was up more than 4% for 2014, well ahead of the S&P 500 for the year and more than 5 percentage points ahead of the Dow industrials, which spent much of the quarter in negative territory.
However, the rest of March was a great equalizer, narrowing the gaps between the various indices. A slump in tech and biotech stocks handed the NASDAQ its worst month since October 2012 and cut its year-to-date gain to half a percent. The small caps of the Russell 2000 also suffered in late March. However, the S&P 500 proved more resilient, managing to hang on to its 2014 gains.
Azzad Ethical Fund (ADJEX)
The Azzad Ethical Fund gained 0.98% in the first quarter, trailing the Russell Midcap Growth index’s 2.04% return by 1.06%. Equity markets appeared to take a respite after 2013’s outsized advances, and the end of the quarter saw a couple of the sectors that spurred the rally give back some of their gains. The recent sell-off in the growth space could give us attractive entry points on a number of names. The prospect of the Fed ending its stimulus measures and eventually raising rates has been a boon for growth stocks. As long as the central bank stays the course, we expect this dynamic to continue.
During the first quarter, our stock selection hurt us in a number of sectors. In the retail industry, some of our names blamed the harsh winter for underwhelming sales figures. In capital goods, several of our names finished lower as the industrial sector recovery appears to be slower than expected. However, the portfolio did see a number of successes. Technology was our best performing sector, recovering from a subpar 2013, as our hardware and semiconductor names rallied. The materials sector was another source of strength, notably chemical makers.
Azzad Wise Capital Fund (WISEX)
The Azzad Wise Capital Fund returned 1.37% for the quarter, outperforming the benchmark BofA Merrill Lynch US Corporate and Government Master Index, which returned 0.25%. Fed chair Janet Yellen reiterated the need for "extraordinary" commitment to support the U.S. economy during the period. As a result, the yield on the 10-year Treasury note dropped 31 basis points to end the quarter at 2.72%. The Dow Jones Sukuk Index gained 2.61%, whereas the Fund’s Sukuk holdings performed slightly better at 2.90%. The Fund’s performance was further boosted by a 15.72% gain in Kuwait Finance House stock during the quarter. Turkish banking deposits continued to add value to the Fund by providing stable profits and increased diversification.
We remain focused on adding high-quality corporate and sovereign Sukuk with attractive coupons in order to generate stable income and preserve capital for shareholders. Looking ahead, we are building new relationships with key Islamic banks around the globe to diversify the Fund’s portfolio with bank deposits and notes.
Thank you for your continued trust and investment in the Azzad Funds.
The performance quoted represents past performance, which does not guarantee future results.This summary represents the views of the portfolio manager as of March 31, 2014. Those views may change, and the Funds disclaim any obligation to advise investors of such changes. 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 or by calling 888.350.3369. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. 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 Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks measuring the performance of those Russell mid-cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Dow Jones Sukuk Index is designed to track the performance of global Islamic fixed-income securities, also known as Sukuk. The index includes U.S. dollar-denominated, investment-grade Sukuk that have been screened for Shari’ah compliance.