We try to invest according to the tenets of Islam, sometimes referred to as Sharia law. A core part of this is not investing in companies engaged in prohibited activities or products, including gambling, alcohol, pork, and weaponry. However, a lesser-known core element entails the avoidance of conventional financial activities, such as banking, due to the prohibition on interest (sometimes called usury).
An added element is a limit on the amount of debt a company may carry for it to be investable. Finally, Islamic investing is just that – investing. It condones neither active trading nor speculation. We invest for the long term, viewing ourselves as partners in the companies with which we invest. These three stocks exemplify how Islamic guidelines translate into a portfolio.
Inventing life-saving procedures
Edwards Lifesciences (NYSE: EW) demonstrates the importance of investing rather than speculating. The shares are volatile, but the long-term returns greatly exceed broad indices. Despite its $58bn market capitalisation, its debt totals only $595m. It aggressively invests in research and development (R&D), allocating 17% of revenue last year.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
EW leads the world in transcatheter aortic valve replacement (TAVR), a technology that treats severe aortic stenosis without open heart surgery. Instead, a valve is inserted in a vein at the top of the thigh and threaded to the heart. Originally designed for older patients, the pool has widened to include younger, moderate-risk patients as TAVR has demonstrated its durability. The procedure has clearly shown benefits in terms of length of time in hospital, surgical risk and cost.
Securing the food of the future
Russia’s recent invasion of Ukraine has stressed agricultural markets, which were already upended by the pandemic. Together, Russia and Ukraine account for around 30% of wheat exports. Longer term, climate change will pressure crop yields, requiring an evolution in farming practices and technologies. Enter Corteva (NYSE: CTVA), a global player in crop protection and seeds.
Led by innovation, Corteva spends around 8% of revenues on R&D, driving gross margins above 41%. For instance, its integrated rice seed and training programme allows farmers to raise yields without flooding fields, saving water while cutting methane emissions. Regardless of developments in Ukraine, our food-system challenges will remain and Corteva will be central to food security.
A video-game sector staple
Family-friendly video-game maker Nintendo (Tokyo: 7974) has produced some of the most-beloved characters, games, and consoles. Nintendo has seen its share of peaks and valleys, but despite that it has rewarded shareholders over the last decade. Business uncertainty drives prudent balance-sheet management, with zero debt and 24% of its market capitalisation held in cash and short-term investments.
Aiming to reduce revenue volatility, video-game makers have introduced new in-game monetisation strategies and subscriptions. Nintendo, initially hesitant about using such tactics, now embraces the opportunity. The company benefits from increasing levels of recurring revenue, higher gross margins and a platform on which to release future entertainment.
-
‘My estate faces a £214,000 tax bill unless I get married’ - the perils of the inheritance tax pension reformsThe chancellor's plans to charge inheritance tax on unused pension wealth could be bad news for cohabiting couples
-
Investec enters cash ISA market with top rate for saversThe bank and wealth management group's new fixed-rate deal is one of the best on the market.
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
-
Buy-to-let returns fall 59% amid higher mortgage ratesBuy-to-let returns are slumping as the cost of borrowing spirals.
