2nd Quarter Market Recap
The second quarter of 2014 is behind us. Let’s take a look at how the markets—and the Azzad Funds—performed during the period.
After a rocky start, the quarter eventually made up for domestic equities' earlier losses. As winter weather finally lost its chokehold on the U.S. economy, investors also grew increasingly comfortable with the Federal Reserve's slow-and-steady approach to unwinding quantitative easing. As a result, they were willing to take on risk again, handing the Dow and S&P 500 their 11th and 22nd all-time record closes of the year. As tech and biotech stocks rebounded from their early-spring slump, they helped push the Nasdaq back to a level not seen since March 2000. By June, the small caps of the Russell 2000, which suffered the most in April, had managed to climb back into positive territory for the year, and the Global Dow's year-to-date performance was more than triple that of its U.S. counterpart.
Bond investors continued to confound Fed-wary pundits, sending the benchmark 10-year Treasury yield down as demand pushed up prices. With Iraq joining Ukraine as a source of geopolitical anxiety, concern about oil supplies helped send the spot price above $107 a barrel. And despite some volatility that took the price of gold down to roughly $1,240 an ounce, a June rally allowed it to end the quarter at roughly $1,320.
Azzad Ethical Fund (ADJEX)
The Azzad Ethical Fund gained 2.01% during the second quarter, trailing the Russell Midcap Growth’s 4.37% return. Index outperformance was concentrated in stocks in the “low-quality” space, characterized by high valuations on an earnings and cash flow basis. These names outperformed those with more reasonable valuations, where we tend to concentrate our holdings. In addition, our out-of-benchmark positions underperformed, leading us to reduce much of our exposure there.
The quarter saw numerous signs that the U.S. economy has rebounded from its first quarter GDP contraction. Investors also seem comfortable with the timeline that the Fed has laid out to remove its stimulus measures from the economy. All this leads to a complacent mood that is reflected by various market risk measures.
On a sector basis, the Fund failed to keep up within the resurgent energy sector, where our services stocks performed well, but could not match the returns driven by several exploration and production names that we did not own. Positive contribution came from stock selection in the semiconductor space, as well as in the food and beverage industry. We recently added to our allocation within the information technology sector at the expense of the materials space, where fewer opportunities were present.
Azzad Wise Capital Fund (WISEX)
The Azzad Wise Capital Fund returned 0.72% for the quarter, outperforming the benchmark BofA Merrill Lynch US Corporate and Government Master Index, which returned 0.37%.
During the period, global bond markets built on gains made in the first three months of the year. Data broadly improved, and central banks reinforced their commitment to accommodative monetary policy. Credit indices advanced, and government bond yields remained low. The yield on the 10-year Treasury note dropped from 2.72% to 2.52%. Fund outperformance was helped by our Sukuk allocation, which continued its solid performance from last quarter, in addition to high dividend-paying stocks. Turkish banking deposits added value by providing stable profits and diversification.
On June 17, we announced the selection of Federated Investment Management Company, a subsidiary of Federated Investors, Inc., as the Azzad Wise Capital Fund’s new sub-advisor. With more than half a century of investing experience and the resources of a global fixed-income team, we are excited about the opportunities this agreement affords our shareholders.
Thank you for your continued trust and investment in the Azzad Funds. If you haven’t already done so, be sure to sign up for our monthly e-newsletter at www.azzad.net for investment commentary, educational pieces, news, and more.
The performance quoted represents past performance, which does not guarantee future results.This summary represents the views of the portfolio manager as of June 30, 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.