MSCI expands Shariah-compliant index range

Sep 21st, 2015 | By | Category: ETF and Index News

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MSCI, a leading provider of research-based indices, has added to their Shariah-compliant index range with the launch of the MSCI Islamic M-Series Indices.

MSCI expand their Sharia compliant index range

MSCI has launched the Islamic “M-Series” indices.

“We have expanded the existing MSCI Islamic Index Family with the launch of the M-Series that addresses client demand for financial screening criteria based on market capitalisation,” said Rob Ansari, Executive Director and Head of Client Coverage at MSCI in the Middle East. “We are committed to developing relevant tools for Middle East investors.”

Shariah investment principles do not allow investment in companies deriving significant income from interest from lending or companies who have excessive leverage. Traditionally, the financial ratios which measure this have been calculated using accounting measures of total assets as the denominator. The new indices provide an additional screening methodology that instead uses market capitalisation. This gives local investors the option to choose between the traditional approach or the more widely used market cap-based methodology.

The M-Series of indices uses three financial ratios in this process: total debt-to-market cap, cash and interest-bearing securities-to-market cap, and accounts receivables and cash-to-market cap. Using market capitalisation is argued, by some, to provide a more accurate representation of these ratios.

In addition to screening companies based on financial ratios, the indices avoid companies involved in activities contrary to the principles of Shariah investment.  They do not allow investment in companies which are directly active in, or derive more than 5% of their revenue from products and activities such as alcohol, tobacco, pork-related products, conventional financial services, gambling, adult entertainment and weapons.

The methodology for the Islamic M-Series indices has been approved by MSCI’s Shariah advisors’ committee of Shariah scholars and includes:

MSCI ACWI Islamic M-Series Index

MSCI Europe Islamic M-Series Index

MSCI North America Islamic M-Series Index

MSCI Pacific Islamic M-Series Index

MSCI EM Islamic M-Series Index

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