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In this episode of the Ghost Stories podcast, we welcome Old Mutual Investment Group to the platform for the first time. The Finance Ghost sits down with Maahir Jakoet, lead manager of the Old Mutual Global Islamic Equity Fund, to look back on a decade of top quartile performance.

As part of Old Mutual Investment Group’s Championing the Unseen campaign, this podcast lifts the lid on how Shari’ah-compliant investing can deliver unexpected outperformance vs. traditional funds. A constrained investment universe with tight rules can create a powerful framework for risk management and long-term returns. The result? A portfolio that has historically delivered lower drawdowns, faster recoveries and a compelling growth tilt, all while staying firmly within clearly defined guardrails.

In this episode:

• What Shari’ah compliance really means in practice and how the rules are applied
• The positive impact on portfolio risk and drawdowns of excluding highly leveraged businesses
• How the fund performed through the GFC, COVID and rate shocks
• The structural tilt towards tech, healthcare and capital-light businesses – and away from banks
• Sources of outperformance over the past decade
• When the strategy is likely to underperform (and why that’s okay)
• How a rules-based, systematic process helps remove emotional decision-making
• The role of Sortino ratios, factor scoring and portfolio construction discipline
• What differentiates this fund from passive Shari’ah ETFs

Transcript:

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. It’s the first in a partnership with Old Mutual Investment Group, something I’m very much looking forward to. There is a lot to learn from the smart people who run these funds and who participate in the markets at an institutional and professional level. 

And to do that with us here today, we have Maahir Jakoet. He is the lead manager of the Old Mutual Global Islamic Equity Fund, which is now celebrating its 10-year anniversary. So very cool; that’s a nice track record. And that’s obviously going to give us some fantastic data to look at.

Old Mutual Investment Group is championing the unseen at the moment. It’s a campaign that they are running. It’s more than just a cute tagline. They really do want to try to lift the lid on some of the more unusual elements of the markets. 

Something that I would agree is unseen is the appeal of these Shari’ah-compliant funds, not just to an audience who needs them for obvious reasons (those who need to follow this mandate) but actually to anyone who might be interested in the way these funds actually work.

And that’s because of the way they operate, because of the underlying nature of the portfolios, what Shari’ah compliance means in practice. We’re going to dig into all of that today.

So, Maahir, thank you so much for being on the show, and I firmly look forward to learning from you.

Maahir Jakoet: Awesome, man. Great to be here.

The Finance Ghost: Let’s start then with what makes a Shari’ah mandate different. I think we must absolutely cover the basics here, because there are specific rules that you have to follow, right?

What does that mean, practically? And what are you not allowed to own in the fund?

Maahir Jakoet: I think that’s a great place to start.

Often, people want to look at the Environmental, Social and Governance (ESG) angle, but it’s actually very different. There are definitely overlaps, but Shari’ah is rules based (instead of being score-based, where there are some inconsistencies).

There are two vital steps that investors need to understand.

The one is the core business activity screen. Core is what you’re making your revenue from, broadly speaking. We cannot own companies where the bulk of the revenue comes from alcohol, tobacco, gambling, conventional financial services such as banks and insurers, weapons manufacturing, adult entertainment, etc. So that really covers that list. 

Just to note, banks are a big one, because if you look at the MSCI World Index and you look at financials, whether it’s in that index or a different index, it’s roughly between 18% to 22%.

At a starting point, when you’re removing financials, it upweights something else. Keep that in mind. 

And then there’s the second test, which is actually a mathematical test. It’s a quantitative financial ratio screening test. There are four, but the important one is the debt ratio, and that is 33% debt to asset value, or market capitalisation.

Now, if you think about that, again, besides the conventional banks, when you take that out, you delever your universe by that rule. And that’s really the big one. So there are other rules, but that is definitely the most important one.

The Finance Ghost: Yeah, fascinating. And you’ve talked there about “core” business, so I just want to maybe confirm something there. And the “bulk” of revenue. 

So, for example, if a company is making, I don’t know, 5% of its money from something that is impermissible, that would technically be okay from a screening perspective, provided it also meets the quantitative debt screen, right? 

Just to be clear, it’s quite a practical test. It’s where do you make “most” of your money, right?

Maahir Jakoet: Yes. Well picked up – that’s what we call non-permissible income. And that essentially would have to be removed. And that’s a ratio, perhaps, that I didn’t mention that is in the quantitative screen as well. That’s a max of 5% of what we call non-permissible income. So it shouldn’t breach that, correct.

The Finance Ghost: Okay, interesting. It really is a fascinating world. I personally do actually find it very interesting. But more than that, I find it particularly interesting to see how this affects the underlying shape of the portfolio. And you’ve already made some great points there.

Stuff like banks are a big part of the indices, and this fund would be extremely underweight banks, if any at all actually – probably basically none – versus your traditional indices, which would have lots of banks. 

And it really does take out both sides of the coin, right? Because you take out the stuff that has high amounts of leverage as well. You mentioned the 33% debt-to-asset value or market cap test there.

Now, in a crisis period, that’s interesting, right? Because it means that when things are bad, number one, you’re not sitting with exposure to banks, I guess, which would normally suffer a lot of credit losses. And number two, you’re not sitting with exposure to companies that have a lot of debt on the balance sheet and might be at risk of handing the keys over to the bank.

What does this mean from a crisis perspective, a risk management perspective? Does this fund tend to be more resilient in a downturn?

Maahir Jakoet: I think I want to talk about that to the numbers. I’ve given you the rules, and now it’s very easy to implement and say, “Okay, well, let’s put that to the test”.

So, what are we observing?

Largely, we’re observing lower volatility because of interest rates that can fluctuate, shallower drawdowns, and faster recoveries. Now, when I say fast recovery, you’ll say, “Well, is that recovery back to zero, or is it peak to trough?” And we can talk about that.

But then let’s look at the actual crisis period. So the one we all know, and I’m sure your investors are a sophisticated audience, so they would have lived through the Global Financial Crisis (GFC), which is the 2008–2009 crisis.

You mentioned credit. So let’s see what happened at that time. Is it a credit event, is it a liquidity event? Because that can be very different.

The MSCI World fell through that time roughly about 54% peak to trough, right? Islamic indices didn’t fall as much. So why is that?

There’s a credit event happening. There’s higher leverage obviously, and you’ve taken the financials out. Okay, so that universe then does much better.

But what happened then in COVID? There was a sharp drawdown, but that was actually a liquidity event, not a credit event. 

But again, if we just look at that crisis period, Islamic indices again fell less, right? Slower to zero, but faster to the peak. Now you need to say, “Okay, well, now we’re also talking about recovery”, but that recovery is not to zero, it’s actually to the COVID peak.

And why was that? And that essentially was because when you take out financials, I mentioned that some other sector is going to be upweighted. Given the debt ratio, you have asset-light businesses, right? And then tech was soaring, and because of that upweighting in tech, you found that it recovered a lot better.

And then in 2022, there was the rate shock. Again, rates, there – you’re linking that to interest rates. There’s a credit event, so mildly better in terms of a drawdown. And when I say drawdown, we’re losing less.

And then also, if we look at the 2026 Middle East conflict, of course, there are high-quality, de-levered energy exposures which would have benefited.

But overall, I’ve mentioned four crises. We were really better in all of them.

It’s a higher rates play, but it has a meaningful benefit. So when rates are higher, or there are significant drawdowns, the fact that your opportunity set to choose from has been de-levered is definitely a meaningful benefit.

The Finance Ghost: Super interesting, right? Maybe just one point to understand a little bit more on that.

So when you say they did better, are we talking 5%? Is it 10%? Is it 25%? Not necessarily the numbers offhand for each crisis, but just the factor by which you are protected, I guess, by being in one of these funds from a typical crisis, as we’ve seen over almost 20 years now, shockingly! The GFC was almost 20 years ago. I feel very old now.

But what sort of outperformance are we seeing by this fund in those periods?

Maahir Jakoet: You’re looking at about – in the GFC, I mentioned the 54%, and then like-for-like, comparing apples to apples, you would have seen the MSCI World Islamic at 42%.

So both draw down, but 54% versus 42%. It can be meaningful because then after that, especially when I spoke about recoveries, you compound off a higher base, right? So that can be really meaningful.

The Finance Ghost: Yeah, it makes sense. You’re never going to have complete protection here because, at the end of the day, you’re still owning broad market stocks. But that is a pretty meaningful buffer. It kind of shows you how much trouble companies get themselves into when they have too much debt.

And it’s interesting, because it also feels like what people might not expect, right? I think a lot of investors who don’t need to follow Shari’ah principles would go with the conventional wisdom of, “Oh, the sin stocks are very defensive, and you want to own tobacco and alcohol in a time of need, in a time when the market is really tough”, etc. 

And maybe there’s some truth to that, although I have my own views on that, particularly where we are now with how much health focus the world has.

But it feels like, and it sounds like, all the other things you’re owning instead, and you’re upweighting instead, more than make up for the fact that maybe you’re losing out on one or two defensive stocks. Because you’ve got high-quality balance sheets in there and, like you say, capital-light businesses. I think that’s a really important point, right?

Maahir Jakoet: Absolutely.

The Finance Ghost: Let’s maybe have a look then at global equity performance, because I’m aware that there’s been some pretty strong outcomes by this fund, versus what I would call your traditional funds or your non-Shari’ah-compliant funds.

Let’s maybe talk a little bit about not just your global performance here, but also just performance attribution in terms of sectors.

You’ve already given us a clue in that you’ve held a lot of capital-light, techie kind of things. But where is that outperformance coming from?

Maahir Jakoet: If we can just focus first on the fund performance relative to the conventional. We’ve compared apples with apples in terms of index to index; same provider, same Shari’ah board. You’re just using the rules.

How does that look in a drawdown? How does that then recover?

Let’s focus on the fund. And if you look at our fund relative to that same MSCI World conventional benchmark, then you can see that, over three years, over five years, over 10 years, we’ve outperformed that benchmark.

And then just in terms of understanding the drivers, of course, yes, you said I mentioned the tech angle, but essentially the last decade has been a structural overweight to information technology.

That was definitely the largest contributor, but also, that would have been upweighted in your opportunity set.

The other interesting one was healthcare. One of the biggest contributors after tech, in absolute terms, came from Novo Nordisk and Eli Lilly.

You’ve got this quality company that’s making bucket loads of money, and it’s come off – GLP-1 drugs, competition is coming in, and that’s always going to happen. And the big lesson there is that nothing lasts forever.

But we had a phenomenal run with holding Novo. And just a little bit about Novo Nordisk: they control diabetes and weight-loss medication together with Eli Lilly. 

And if we just think about that growth theme. If I asked you, Ghost, is diabetes going to go away? Trends of convenience and what we’re eating and what we’re putting in our bodies, just that alone should make you think “Wow, there’s a theme there”.

The Finance Ghost: And it actually captures the other side of the sin stocks, right? It’s actually the health trend – you’re on the right side of it.

Maahir Jakoet: Exactly.

The Finance Ghost: As opposed to on the wrong side of it.

Maahir Jakoet: Yeah, so from a quality point of view, and you and I perhaps define quality differently. Just from a profitability point of view, a debt point of view, where the metrics on return on equity (ROE), return on invested capital sit: these are quality businesses. 

And then value, well, we can question what is expensive and what is cheap, but there’s also a good growth theme. And that’s really how we make money for investors, by looking at those components. Interestingly, after tech, it was definitely healthcare. 

The Finance Ghost: And bringing up return on equity is interesting, because that’s obviously one of the metrics that CFOs love to juice up, by putting more debt on the balance sheet, right? The more financial leverage you use, technically, the better your ROE will be in the good times. Not in the bad times – it’ll go the other way very quickly.

But to your point, you can own businesses that have a very strong ROE even without debt, because the underlying business is that quality, kind of growth metric. It’s like extracting that final bit of juice from that lemon that you’ve squeezed over your fish. That’s value investing, right? It’s how much juice is still left in that lemon.

Whereas with higher-quality stocks, it’s not like that. It’s the whole plate. They have a big growth story ahead of them. And so would it be fair to say that, because of the rules in this fund, it has a little bit of a growth slant more than a value slant? Would that be a fair statement?

Maahir Jakoet: Absolutely. But then, if you have that advantage of growth, then look for the underappreciated quality within that opportunity set. And actually, then you get a trifecta in terms of what you’re trying to do.

We were talking about performance and comparison against peers or benchmarks. It’s not that the fund was a one-hit wonder, and I think that’s very important, because sometimes in a year you can have exceptional outperformance.

Yes, while our mandate is a developed market mandate, if you look over a one-year period where emerging markets (EM) actually did very well, you would have seen funds or benchmarks that have EM in them, actually did slightly better.

But over the very long term, if we’re looking three years, five years, and of course, you mentioned our 10-year anniversary, then we stack up incredibly well.

So it’s not that in one year we shot the lights out, and now that’s coming through. That’s very important to understand. It’s rules-based. The way we make money in terms of portfolio construction as well: we’re going to put certain constraints that are more rules-based than narratives-based, if that makes sense.

The Finance Ghost: The rules-based stuff also does sometimes help with managing human emotion, right? When you’re managing the fund, you can’t break the rule.

Maahir Jakoet: Absolutely.

The Finance Ghost: You can’t be tempted to say, “Oh, I like this fund or this company – it has a lot of debt, or it does something that is, let me use the word, a little bit “naughty” from a Shari’ah perspective, something impermissible”.

You can’t do it because you have to operate within the guardrails. 

And that’s not a bad thing. It’s almost like a hybrid approach of a little bit of how ETFs work and then how active management works. And we’ll get to just now what differentiates this fund within the Shari’ah umbrella. 

But just before we get to that, something I do want to understand as well: where is the bulk of the equity exposure sitting in this fund?

Maahir Jakoet: In terms of domestic equity, we’ve got no South African equities in this fund. This is a pure global fund. And it’s also global developed markets.

From a sector point of view, predominantly US. And then you have Europe, a big part of it is Europe as well.

Interestingly, depending on if you’re a benchmark-cognisant manager, Korea is actually different if you’ve chosen MSCI as a provider or S&P as a provider. S&P believe that Korea is actually a developed market, whereas MSCI actually buckets that into emerging markets.

So that’s the one play that is on the edge. Is it a classification thing? Maybe. But actually, if you do bucket that as EM, then that’s where we’re getting a little bit of EM exposure. The companies and Korea have done exceptionally well over the one-year period.

The Finance Ghost: Yeah, that’s very interesting. And what does it look like in terms of US versus Europe versus some of the benchmarks? I’m guessing that the US stocks, which are very cash-flush, are probably going to get on the correct side of your debt screen more easily than some of the European names that haven’t necessarily had a few years of rapid growth. I mean, there are exceptions, obviously. Novo Nordisk is a perfect example.

But generally speaking, is there quite a US upweight here?

Maahir Jakoet: Absolutely. So in the fund itself, we are underweight the US, but that’s a diversification and risk management story.

The absolute amount within the opportunity set? You’re looking at about 68% US, so let’s call it 70% to round that up, and then the balance would be Europe and other developed markets.

The Finance Ghost: We’ll dig in a little bit more just now on some of the other differentiating points here.

But I do want to touch on one last question around Shari’ah funds more generically. Maybe you can speak about this one as well: the concept, the stream that people would be choosing to swim in here. 

We’ve heard about the protection on the way down in a crisis. There’s a good argument to be made that you’ll get a more buffered approach here, and you’ll be compounding off a better level going forward. Fair enough. 

You’ve got solid upside from the tech sector, so when that’s doing well, you do very well, and that makes sense.

When other sectors with low financial leverage are performing, that also helps, obviously.

So there will be times where this fund does underperform, though, obviously. Otherwise, it would be the perfect solution to invest in, right? Which nothing is.

Under what conditions would you expect to underperform traditional equity funds, if you are following a Shari’ah rules-based approach?

Maahir Jakoet: Definitely, in a bull market, this fund would have a bit of a headwind, and specifically in financial-led rallies. So absolutely. When you see a decline in interest rates, and inflation isn’t there, and then suddenly there’s free money on the table, and you’ve got this sharp uptick, right?

And while you mentioned the growth part of it, I don’t think there’s enough growth there, and then we tend to lag. 

But Ghost, I can tell you one thing from my experience in managing money – if somebody else is giving you 22% and I’m giving you 20%, I won’t even hear from you. The phones don’t ring in the office. Everyone’s happy.

It’s really on the downside, when something happens, that people start asking: “How much exposure do you have to this?” That is when people start panicking. 

2020 – even though it was a liquidity sell-off – what happens is that the market tends to look for more safe haven, more quality, and that’s why you get the high-leverage companies selling also.

So I think that was a bit of a nuance, because everything else I mentioned was really linked to credit and to interest rates.

I cannot sit here and say that this is, what do they say, “a fund for all seasons”. 

The Finance Ghost: Yes [Laughs]. 

Maahir Jakoet: I absolutely want to partake on the upside on an absolute level, but definitely on the downside, I think that’s the protection you want.

And the perfect investment is giving somebody great returns with zero risk. But that really isn’t out there, I would say, or definitely not out there in some equity product.

That’s exactly what we’re trying to do – give the clients the best return, but rules-based. Not just from how we make money for investors, but also at the outset with the Shari’ah-compliant rules.

The Finance Ghost: Yeah, it makes sense. It’s really looking to give people the best possible reward-to-risk ratio at the end of the day. There are lots of clever metrics that you guys use in your fund management careers to measure that stuff. And that really is the fundamental point of investing, and there’s a lot of portfolio management theory around that stuff.

So maybe for some of our listeners who are more familiar with some of this thinking, what ratio do you focus on in this regard, and how do you go about achieving that efficient relationship between risk and reward for your investors?

Maahir Jakoet: Very good question. And that’s more on the portfolio construction side. We manage the fund systematically, but it’s an actively managed fund. It’s not an index fund.

And our process is that, when constructing a portfolio, what we’ve learned is that actually we want to cap the downside risk. We’ve spoken a lot about that. We want to give the best return, but at a given level of risk. 

So we use a Sortino ratio within our model, and our research is really based on that over the very long term, and how that looks: the best Sortino ratio for the factors or characteristics that we’re looking for within a company. 

Characteristics in terms of the underlying: what’s in the value bucket, what’s in the quality bucket, what’s in the growth bucket, and what’s in the momentum bucket.

But essentially, we want the best Sortino ratio over the very long term, and then we weight it in a proprietary method with the short-term signals and the long-term signals. That’s partly why we’ve done better in the crisis periods, among other things.

The Finance Ghost: Yeah, I mean, you mentioned earlier, you know, your phone doesn’t ring if you slightly underperform on the way up, and there’s a lot of truth in that. People are risk-averse. They’re loss-averse. They don’t want to lose their money. They don’t mind not necessarily making quite as much in a good time, but they get very concerned when the world is on fire. That is an interesting point. 

One last point around how some of this rules-based stuff translates into what you actually buy. And I was just thinking while you were talking about energy stocks earlier. Is there some risk that you end up buying them at the top of the cycle when they are super cash-flush and they don’t have much debt and that debt ratio looks like they’ve made all their money? 

Because obviously that’s the one thing with energy stocks, is you want to be a little bit countercyclical, and sometimes that means you need to buy them when they are horrible [laughs]. And horrible can sometimes mean the debt ratio is not where you want it to be.

So, just curious there: how does that practically work in your life?

Maahir Jakoet: Again, I’m not going to sit here and say we get everything right, but I think it’s very important for you to understand: if I scored every company with a score, and it had a value score, and it had a growth score, and it had a quality score. Profitability, your return metrics, your debt levels would be in your quality score. 

Let’s say we have our scores. What happens in a scenario like that?

Let’s just actually work through that scenario. What happens to that score, that quality score? Well, the company becomes more profitable. The debt levels may be higher, so you’re getting a slight penalisation in your score from how much your debt is weighted in that score. 

But essentially, the company’s still printing a helluva lot of cash and actually is doing well, so quality? Great. But actually, in value, if you’ve got forecasted value metrics there, while this price has run, that’s a deterioration in value, right? That’s a deterioration in value. This thing’s becoming more expensive. So it either gets to its target price, or it actually goes way beyond its target price. So that’s a deterioration. 

Then, on the growth side, well, how much more can this company grow? And again, that’s where your forecast is actually very important, and the metrics and the data that you use. So maybe it’s at its peak. 

So you mentioned peak. So actually then, think we’re at the top of the cycle. There’s a deterioration in your growth score as well. That means two out of the three scores have actually deteriorated, which means that your overall score has deteriorated.

So actually, it might still be a hold, but we’re probably going to take some cream off the top.

The Finance Ghost: Maahir, exactly. That’s where you earn your active management fees at the end of the day, as you’re making those sort of calls, you’re doing those scorecards. 

And that’s actually a lovely way to start to bring this home then for my final question.

We’ve focus so much on the Shari’ah umbrella, which is the umbrella you’re standing under. It’s the one you have to stand under. 

But you can make a lot more decisions than that. You can choose what you’re wearing underneath that umbrella; that’s how you manage the fund is all those other little decisions.

So, what differentiates you and the way you manage this fund, from other Shari’ah-compliant investments? I guess at one extreme you’d have a rules-based ETF, which is just following a Shari’ah-compliant index, and then you’ve got the decisions that you can make to differentiate.

Maahir Jakoet: Because we are quantitative in nature and we’re a systematic fund, the process is always evolving. Evolving for the better. Because sometimes in this industry, you get bucketed: are you a value, or are you a growth manager? Are you a quality manager?

In a systematic style, there are new signals that have better signs, and we can track those, and we can add signals, and we can remove signals. From a process point of view, that’s really our edge. That’s on more of the bottom-up signal generation.

And then there’s the portfolio construction, where we have our constraints, we have our TE bands, we have our sector bands, we have our country limits. 

It’s more rules than narrative, and that keeps us out of the noise. And most importantly, it works, and it’s delivered over the long term.

So again, not a one-trick pony. It’s been done well for a very long time, and we’ve got the track record to prove that.

The Finance Ghost: So, Maahir, thank you so much. We’ve really dug into detail around how these rules work, what makes these funds really interesting. 

I think for anyone to consider as part of their portfolio, obviously all the usual stuff applies. Speak to your financial advisor, do the research, go and check out the Old Mutual Global Islamic Equity Fund on the Old Mutual Investment Group website. I will make sure that the links are available in the show notes and wherever you will find this podcast.

More than that, Maahir, just thank you for really lifting the lid on how this thing works. It’s championing the unseen, and I think it’s been a really cool way to see how you actually do what you do. Particularly some of that stuff around the ratios you use, the factors, the way you score things. 

Thank you very much. I hope you’ve enjoyed this as well, and all the best with managing the fund in a market that is always interesting. I always want to say “these interesting markets,” but they’re always interesting. So good luck with that.

Maahir Jakoet: Absolutely. Thanks so much. It was a pleasure.

Old Mutual Investment Group (Pty) Ltd is an authorised financial services provider, FSP 604. The contents of this podcast and, to the extent applicable, the comments by presenters do not constitute advice as defined in FAIS. Although due care has been taken in recording this podcast, Old Mutual Investment Group does not warrant the accuracy of the information contained herein and therefore does not accept any liability in respect of any loss you may suffer as a result of your reliance thereon. Past performance is not necessarily a guide to future investment performance. For more information, visit www.oldmutualinvest.com/institutional