Quarterly Azzad Funds Shareholder Letter

July 13, 2017

Dear Azzad Funds Shareholder,

Enclosed is your statement for the quarter ending June 30, 2017. We hope it will help you better understand the performance of your investments.

The second quarter proved to be a bit bumpy for equities, but major benchmarks finished ahead of their first-quarter closing values. Large caps outperformed small caps by 0.60%, with midcaps in between. Growth outperformed value by a little over 3%, bringing the year-to-date gap between the two to 9.30%, a difference that is starting to draw media attention. There is some debate over whether the post-election bounce in certain industries has unwound, or if we are seeing a continuation of the slow-but-steady economic growth playbook. Long-term bond prices increased in the second quarter, with the yield on 10-year Treasuries falling 8 basis points.

Azzad Ethical Fund (ADJEX)

The Azzad Ethical Fund gained 2.28% during the second quarter of 2017, trailing the Russell Midcap® Growth Index’s return of 4.21%. Here is a look at the top contributors and detractors, according to ADJEX sub-advisor Ziegler Capital Management:

Top contributors to the Fund’s total return had varied themes, according to Ziegler. Tech company NVIDIA fared well as a maker of chips that go into some of the most talked about technologies such as artificial intelligence, self-driving cars, and video games. Intuitive Surgical and Waters Corporation, two companies in the health care tools space, continue to build on their market-leading technology, driving further advances. Expedia posted solid gains on positive growth rates expected in the second half of the year. Lam Research continued its impressive run, and according to Ziegler, appears to offer good exposure to continued demand for semiconductors.

A story that drew headlines during the quarter was the continued growth of online retail and its effect on traditional “brick and mortar” companies. Ziegler points out that this can be seen in some of the Fund’s largest detractors from total return. Foot Locker had been one of the best performers in the mall space, but finally saw a drop in store traffic. AutoZone, another name that had been a relative safe haven in retail, gave back gains during the period due to new threats from a large online competitor as well as a quarter of disappointing sales. Bed Bath & Beyond continued to struggle with finding ways to drive meaningful sales increases. W.W. Grainger, an industrial products distributor, has been forced to compete more on price than they have in the past thanks to the changing nature of the online marketplace.

Truck freight firm C.H. Robinson posted a disappointing quarter as net revenue margins declined for the third straight quarter.

This quarter marked the transition of the Fund to an enhanced index fund. Accordingly, the Ziegler Capital Management team recently rebalanced the portfolio to account for the annual change in the Russell Midcap® Growth benchmark. During this process, Ziegler decreased the Fund’s exposure to lower valuation names, but reportedly kept exposure to names with solid cash flow growth profiles that trade at what they believe to be a reasonable price. Ziegler continues to favor companies that generate revenue growth, and ultimately turn that into profit for the Fund’s investors.

Azzad Wise Capital Fund (WISEX)

The Azzad Wise Capital Fund returned 0.36% for the first quarter, outperforming the Bank of America Merrill Lynch U.S. Corp. & Govt. 1-3 Yr.® Index, which returned 0.30%.

According to Fund sub-advisor Federated Investment Management Company, the Fund’s best performing sukuk in the second quarter were the Goldman Sachs 2019 sukuk, generating 6 basis points of return, and the Turkey 2023 sukuk, returning 5.9 basis points of return. Following a downgrade by Moody’s last year after an aborted coup, Turkish assets have outperformed their emerging market peers. The economy overall has seen an impressive rebound from last year, due in part to the Turkish government’s credit guarantee scheme, which has seen an increase in the supply of credit. Other notable Fund contributors were the Saudi Arabia 2027 sukuk (5 basis points) and the Indonesia 2022 sukuk (4 basis points).

The Fund’s Oman 2024 sukuk detracted from performance (-2 basis points), owing largely to a sovereign credit rating downgrade from Standard & Poor’s. Oman’s rating of BBB at Fitch was put on negative outlook in the second quarter. The Fund’s Qatar-based telecom sukuk, Qtel 2018, contributed -4 basis points to return for the period. Although many were taken aback by the pace of events surrounding the Arab blockade of Qatar, Federated remains confident in the standalone fundamentals of the nation and its quasi-sovereign sector. So far, both U.S. and regional attempts at mediation have failed, and according to Federated, it is hard to see a short-term solution. Their base case is thus a stalemate situation over the medium term. They take the view that Qatar’s sovereign credit metrics are of primary concern, and with $340 billion in reserves at its central bank and with the Qatar Investment Authority, Federated is confident in the Fund’s allocation to Qatari deposits and sukuk.

Looking forward to the third quarter, Federated expects a more subdued summer with limited new issuances likely until autumn.

Thank you for your continued trust and investment in the Azzad Funds.

Azzad Asset Management


The performance quoted represents past performance, which does not guarantee future results. This summary represents the views of the portfolio managers as of June 30, 2017. 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 NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. Market indices listed are unmanaged and are not available for direct investment. The Bank of America Merrill Lynch U.S. Corporate & Government 1-3® Year Index tracks the performance of U.S. dollar-denominated investment grade Government and Corporate public debt issued in the U.S. Domestic bond market, excluding collateralized products. The Russell Midcap® Growth Index measures the performance of the mid cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price to book ratios and higher forecasted growth values. The index is unmanaged and an investment cannot be made directly in this or any other index.