Abu Dhabi-based asset manager Chimera Capital has unveiled a new ETF in the United Arab Emirates providing Shariah-compliant exposure to Chinese equities listed in Hong Kong.
Syed Basar Shueb, Chairman of Chimera Capital.
The Chimera S&P China HK Shariah ETF (CHHKSHIN) is available to trade through a distributing share class on the Abu Dhabi Securities Exchange (ADX).
The fund comes with an expense ratio of 1.00%.
Chimera’s ETF suite also includes funds providing Shariah-compliant exposure to stocks from the UAE, US, Kuwait, Turkey, and Saudi Arabia.
Syed Basar Shueb, Chairman of Chimera Capital, commented: “The launch of Chimera’s eleventh ETF provides investors on ADX access to one of the world’s biggest and Asia’s fastest growing markets. Our suite of ETFs listed in the UAE underlines Chimera’s continued commitment to playing a frontline role in deepening and expanding the UAE’s capital markets landscape.”
Methodology
The fund is linked to the S&P China Hong Kong-Listed Shariah Liquid 35/20 Capped Index which begins with an initial universe of stocks listed on the Stock Exchange of Hong Kong with average daily trading volumes greater than $1 million.
S&P Dow Jones Indices screens the universe for firms that are aligned with Islamic principles. The index provider has contracted Ratings Intelligence Partners, a London/Kuwait-based consulting company specializing in solutions for the global Islamic investment market, to provide the Shariah screens. Ratings Intelligence Partners’ team consists of qualified Islamic researchers who work directly with a Shariah Supervisory Board to interpret business issues and recommend actions for the indices.
As defined by Ratings Intelligence Partners, non-compliant companies are those that derive more than 5% of their revenue from conventional finance (non-Islamic banking, finance, insurance, etc), alcohol, pork-related products, entertainment (casinos, gambling, and pornography), tobacco, and weapons, arms, and defence manufacturing.
Companies permissible under the business activity test must also comply with a series of balance sheet and income statement screens. These include debt to equity, accounts receivable to equity, and cash to equity ratios below 33%.
After both screens, the index selects the 30 largest stocks from the remaining universe. Constituents are weighted by float-adjusted market capitalization while capping the largest stock at 35% and any other stock at 20%. Rebalancing occurs quarterly with buffer rules helping to limit unnecessary turnover.
As of the end of April, stocks from the consumer discretionary sector accounted for nearly half (47.3%) of the total index weight with communication services making up another third (35.3%).
Notable positions included Tencent (33.2%), Alibaba (19.7%), Meituan (10.4%), and JD.com (5.6%).
The ETF is supported by BNY Mellon, which acts as the fund’s custodian. International Securities, EFGHermes, Arqaam Capital, Daman Securities, and BHM Capital are acting as authorized participants.