Abu-Dhabi-based investment manager Chimera Capital has introduced the Chimera S&P KSA Shariah ETF providing exposure to Shariah-compliant companies listed in the Kingdom of Saudi Arabia.
The fund provides Shariah-compliant exposure to stocks listed on Tadawul, the Saudi Exchange.
The fund, which has been listed on the Abu Dhabi Securities Exchange with a distributing share class, tracks the S&P Saudi Arabia Shariah Liquid Top 30 – 35/20 Capped Index using direct physical replication.
The index methodology screens stocks listed on Tadawul, the Saudi Exchange, removing firms that are determined to be unaligned with Shariah principles based on business activities and certain financial ratios.
Index provider S&P Dow Jones Indices 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 index.
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 most-liquid stocks from the remaining universe based on six-month average daily trading volume.
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 December, the index was dominated by firms from the financials (42.1%) and materials (31.3%) sectors with communication services (10.8%) and energy (10.8%) stocks also playing a notable role.
The ETF comes with an expense ratio of 1.00%.
The fund is the first ETF from Chimera to invest in securities listed outside of the UAE. The firm’s other two funds include the Chimera S&P UAE Shariah ETF, which launched in July 2020, and the Chimera S&P UAE UCITS ETF, which was unveiled in February 2021. These funds provide Shariah-compliant and broad market exposure to companies listed on the federation’s domestic stock exchanges.
Basar Shueb, Chairman of Chimera Capital, commented: “The launch of this latest ETF builds on the success of the current ETFs which have exceeded the AED 300 million mark in less than 18 months and is further testament to our efforts to expand and contribute to the UAE’s capital markets landscape.”
Sherif Salem, Chief Investment Officer at Chimera Capital, added: “We are pleased to have launched our first ETF to track non-UAE-listed equities. The fund will cater to the growing appetite for diversified investments among UAE and regional investors and provide them with an innovative tool to capitalize on the economic prospects of Saudi Arabia.”