Quarterly Azzad Funds Shareholder Letter

July 16, 2019

Dear Azzad Funds Shareholder,

Enclosed is your second quarter Azzad Funds statement. It shows the performance of your account over the last quarter.

For markets overall, stocks notched solid gains in the second quarter, with the S&P 500 advancing 3.8%. Halfway through 2019, the index has risen 17%, its best first half of the year since 1997. The rally in fixed income continued through the second quarter as well. Those assets were spurred on by expectations of possible rate cuts in the U.S. and a heightened dovish tone from the European Central Bank. Government bond yields fell throughout the quarter, while corporate bond markets also continued to post positive total returns.

Equities overcame a trade fight with China during the quarter, extending a more than decade-long bull market for stocks and erasing steep losses that jarred investors at the end of last year.

The second quarter saw an extension of the volatility that has plagued the stock market since October. The bulk of the market’s gains occurred during April after positive news on earnings and China trade. In May, markets slumped following a breakdown in trade talks. But the Federal Reserve stepped in to boost markets in early June by hinting at a possible interest rate cut if conditions deteriorate further.
During the quarter, more than 60% of the companies in the S&P 500 rose, with technology firms notching some of the biggest gains. Shares of smaller companies, which are typically touted as safe havens during turmoil overseas, lagged behind broader indexes, a move some blamed on fears that the U.S. economy’s growth is cooling. The benchmark small-capitalization index Russell 2000 rose 1.7% in the second quarter.

As the U.S. enters its 121st straight month of economic expansion in July (a post-1900 record for the country), the question facing investors is where we go from here. Earnings expectations for stocks are trending steadily lower. While lower interest rates should help support stocks, investors should discuss their financial goals with an advisor and make sure allocations are appropriate for the future. Contact an Azzad investment advisor at 888.86.AZZAD to review your risk tolerance, investment goals, and time horizon.

Thank you for your continued trust and investment,


Joshua A Brockwell, CSRIC™
Investment Communications Director
Azzad Asset Management


Azzad Ethical Fund (ADJEX)

The Azzad Ethical Fund returned 3.56% for the second quarter of 2019, underperforming the Russell MidCap® Growth Index’s 5.40% return over those same three months. Equities continued their upward trend on the year, moving past the prior year’s volatility and approaching all-time highs. According to ADJEX sub-advisor Ziegler Capital Management, the portfolio has a number of holdings that were hurt by the increased risk of a prolonged trade conflict with China. This affected the Fund’s capital goods, semiconductor, and technology hardware names, but also had repercussions in the materials and consumer space. Investors flocked towards stocks with the best perceived short-term growth prospects, regardless of valuation, while the Fund tends to favor growth stocks that are trading at more reasonable valuations in order to control risk.
This quarter was marked by two distinct phases, Ziegler notes. The first, seen through most of May, was a sell-off precipitated by increased concerns over trade war rhetoric. Investors flocked to the perceived safety of real estate, staples, and health care. June saw more constructive rhetoric out of the United States, China, and Mexico. As trade war worries faded, more cyclical areas of the market like materials, industrials, and consumer discretionary companies outperformed, and defensive sectors like real estate and staples lagged. The end of the quarter saw one last move upwards, as investors anticipated action by the world’s central banks due to slowing global growth.

Top Contributors to Total Return (3/31/2019 to 6/30/2019)


Top Detractors from Total Return (3/31/2019 to 6/30/2019)


Although the information technology sector underperformed the broader index on the quarter, the Fund had a number of tech winners. Part of the appeal of the mid cap growth space, according to Ziegler, is that it contains a number of companies that larger entities will acquire as a way to jump-start their own prospects. That occurred with some Fund holdings during the quarter. Tableau Data, a long-term holding in the portfolio, attracted a bid from Salesforce.com, which will integrate Tableau’s best-in-class data visualization tools into its platform. Cypress Semiconductors received an attractive takeover bid from German firm Infineon Technologies.

There was also some recognition of the solid, steady earnings growers in the Fund, as often happens during periods of volatility. Booz Allen Hamilton continues to win new government contracts and has an impressive accumulation of future work. Verisign is not a household name, but its domain registry service contracts are a good source of earnings growth, according to Ziegler. Outside of the information technology sector, Dexcom was a strong performer, as its competitive position in the glucose monitoring market was solidified.

When a market has had a sustained upward movement, Ziegler notes that earnings expectations for growth stocks can reach levels that are difficult to sustain. One example, Palo Alto Networks, had earnings guidance fall short of expectations during the period; it sold off accordingly. Arista Networks also disappointed as a large client took a pause in spending on cloud infrastructure.

Fears about a slowing global economy hurt a couple of the Fund’s larger holdings as well. JB Hunt is a best-in-class trucker/intermodal operator, but the pricing for freight contracts is starting to come down as capacity rises. Steel Dynamics has undertaken some strategic initiatives that Ziegler believes will pay off over time, but has fallen victim to near-term fears of market saturation as demand slows. Waters Corp posted its first earnings miss in two and a half years, hurt by slowing demand for its life science tools in China and Europe.

The mid cap growth space has been the best performing category during the 2019 rally, according to Ziegler. Ziegler’s analysts remain conscious of the fact that late in a market cycle, the growth style is often in favor as investors search for increasingly scarce earnings growth, which can offer impressive returns. Ziegler will continue to look for these types of companies when with reasonable valuations, seeking to take advantage of the opportunities the market provides without subjecting shareholders to undue risk.


Azzad Wise Capital Fund (WISEX)

The Azzad Wise Capital Fund returned 0.89% for the second quarter of 2019, underperforming its benchmark, the ICE BofAML 1-3 Yr. U.S. Corp. & Govt. Index, which returned 1.49%.

According to WISEX sub-advisor Federated Investment Management Company, the sukuk portion of the Fund returned 1.63%. In line with the strong performance witnessed in emerging market sovereign bonds, the Fund’s Indonesia 2024 sukuk, Oman 2025 sukuk, and Sharjah 2021 sukuk each contributed a healthy 8 basis points to the Fund’s overall performance. The inclusion of sukuk, including GCC sovereigns and quasi-sovereigns, in the JPMorgan emerging market indices has provided the sukuk markets with a positive tailwind, notes Federated.

Despite the ongoing trade war and softening of global growth dynamics, emerging markets remain strong as investors gravitate towards yield. On the corporate front, top performers include the Fund’s Equate 3.944% 2024 sukuk, the Sharjah Islamic Bank 2.843% 2021 sukuk, and the quasi-sovereign DIFC 4.325% 2024 sukuk, all contributing 7 basis points each to the gross return. The collapse in U.S. Treasury yields, which propelled longer-dated sukuk performance, contributed to short-dated sukuk underperformance. Federated states that this was born out in the modest returns generated by the Fund’s short-dated, high-quality sukuk names, such as Qatar Islamic Bank 2.754% 2020 sukuk, Qatar Islamic Bank 3.251% 2022, and Fly Dubai Airline 3.776% 2019. As we head into the third quarter, Federated still expects strong issuance in the sukuk market from traditional issuers such as Egypt, Saudi Arabia, and Malaysia.

The Fund’s Islamic bank deposit portfolio comprised 23% of its assets at quarter-end with an average yield of 2.7%, while Islamic trade finance held steady at 8% of assets with an average yield of 5.1%. Going forward, Federated expects to see a pick-up in issuance at the holiday season as issuers look to take advantage of both the low rate environment and investor appetite for yield.



The performance quoted represents past performance, which does not guarantee future results. This summary represents the views of the Azzad Funds portfolio managers and sub-advisers as of June 30, 2019. Those views may change, and the Funds disclaim any obligation to advise investors of such changes. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. 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/prospectus or by calling 888.350.3369. The ICE Bank of America Merrill Lynch 1-3 Yr. U.S. Corporate & Government Master 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. Both indices are unmanaged and an investment cannot be made directly in this or any other index.