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Investing Specialists

Four Buy Ideas from One of Our Ultimate Stock-Pickers

Investment restrictions have not limited Amana's success.

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By Vishnu Lekraj | Stock Analyst

Could you beat the market if you were able to invest in only 40% of its equity assets? It would be like playing the college football National Champion Florida Gators with only 40% of the required players on the field. This may seem like a huge handicap, but impressively, fund manager Nick Kaiser has done precisely this, and not with just one portfolio but two separate funds. Kaiser has managed both the  Amana Trust Growth (AMAGX) and the  Amana Trust Income (AMANX) funds to impressive returns, beating the S&P 500 Index (SPX) handily over the past 10 years. The truly unique feature about the Amana funds, however, is that they are tailored to Muslims and, as such, have to adhere to strict Islamic laws.

This means that neither fund can hold the stock of any firm that generates more than 5% of its revenue from alcohol, tobacco, pork processing, gambling, or the borrowing or lending money. At first glance, it might seem like a nearly impossible task to manage a portfolio (let alone two) with such extremely tight restrictions, but we believe that these restrictions have actually been more of a blessing than a curse in that they have forced Kaiser and his team to be much more disciplined about stock selection as they work to keep their portfolios in line with their investment philosophy. This is borne out by the fact that the funds have relatively low turnover, which is not only a byproduct of Amana's commitment to a more disciplined research process but an adherence to its no-gambling mandate, which limits the amount of short-term buying and selling that can be done by the fund managers.

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.