Chimera Capital unveils Shariah-compliant UAE equity ETF

Jul 22nd, 2020 | By | Category: Equities

Abu Dhabi-based asset manager Chimera Capital is set to launch the United Arab Emirates’ first ETF to track a Shariah-compliant index providing exposure to the federation’s domestic equity market.

United Arab Emirates

The fund will be the first ETF to provide Shariah-compliant exposure to equities listed in the United Arab Emirates.

The Chimera S&P UAE Shariah ETF will list on the Abu Dhabi Securities Exchange with an accumulating share class (CHAESH UH) and on the Dubai Financial Market with a distributing share class (CHAESHIN UH).

The fund will debut in August and will come with an expense ratio of 1.00%. It will track the S&P UAE Domestic Shariah Liquid 35/20 Capped Index through direct physical replication.

The index consists of stocks listed on the Abu Dhabi Securities Exchange, Dubai Financial Market, or Dubai International Financial Exchange that have had no more than ten non-trading days over the previous quarter.

Index provider S&P Dow Jones Indices has contracted Ratings Intelligence to provide the Shariah screens and to filter the stocks. Ratings Intelligence is a London/Kuwait-based consulting company specializing in solutions for the global Islamic investment market.

The first level of Shariah screens excludes companies operating in non-compliant areas such as alcohol, tobacco, pork, pornography, gambling, cloning, banking, and finance (except specific Shariah-compliant institutions) and advertising and media (except certain news and sports segments).

After removing companies with non-compliant business activities, the rest of the companies are examined for compliance in financial ratios, as certain ratios may violate compliance measurements. Three areas of focus are leverage, cash, and the share of revenues derived from non-compliant activities.

The index is weighted by float-adjusted market capitalization while capping the weight of the largest constituent at 35% and the weight of any other constituent at 20%. Rebalancing occurs on a quarterly basis.

There are currently ten stocks in the index which is heavily exposed to the communication services (33.9%), financials (29.5%), and real estate (24.5%) sectors.

Syed Basar Shueb, Chairman of Chimera Capital, commented, “The ETF will open up a new wholesale investment opportunity to a unique investor profile. The Chimera S&P UAE Shariah ETF allows investors to capitalize on the prospects of the UAE’s economy while staying true to the principles of Shariah and with the added flexibility of choosing between regular portfolio returns or maximizing future investment returns thanks to the ETF’s dual share class option.”

“Our strategy will see us fully capitalize on this unique opportunity while simultaneously contributing to the development of the UAE’s asset management space through continued collaboration with the various regulators.”

H.E. Khalifa Al Mansouri, Chief Executive of the Abu Dhabi Securities Exchange, added, “Abu Dhabi Securities Exchange congratulates Chimera Capital for developing this product, the first in the UAE to offer a tailored Shariah-compliant index for investors. With a primary listing on ADX, it is a new opportunity for them to add variety to their portfolios and manage risk more effectively.

“Influential investment firms such as Chimera Capital continue to be attracted by the well-regulated status of Abu Dhabi Securities Exchange and the number of companies applying to be listed is undoubtedly on the rise. They will benefit from improved access to capital to fund their strategic ambitions and growth plans under our well-established market and regulatory infrastructure, facilitating the ease of listing of a variety of asset classes.”

Hassan Al Serkal, Chief Operating Officer and Head of Operations Division of Dubai Financial Market, said, “In line with our strategy to provide investors with diversified investment products, the Dubai Financial Market is delighted to welcome this significant step from Chimera Capital. The diversification of our product offering, including the rapidly growing global ETF sector, is one of the key pillars of our strategy, which enabled us to list the first ETF in 2016. We look forward to seeing this drive gain further momentum supported by our world-class infrastructure as well as our favourable and attractive regulations for the listing and trading of ETFs and other asset classes in cooperation with the regulatory authority and investment institutions.”

The ETF will be supported by HSBC Middle East, which will act as local custodian; BNY Mellon, which will act as global custodian; and EFG Hermes UAE, Shuaa Securities, and BH Mubasher, which will act as authorized participants.

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