SP Funds has introduced a new ETF in the US providing Sharia-compliant exposure to technology stocks listed worldwide.
Sharia-compliant strategies screen out companies considered ineligible for Islamic investors based on business activities and accounting metrics.
The SP Funds S&P Global Technology ETF (SPTE US) has been listed on NYSE with an expense ratio of 0.55%.
The fund is linked to the S&P Global 1200 Shariah Information Technology Capped Index which selects its constituents from an initial universe comprising large and mid-cap stocks that are listed in either developed or emerging markets and are classified to the information technology sector according to the Global Industry Classification Standard (GICS).
The universe is then screened according to guidelines from the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) which examines constituents’ business activities and accounting metrics to remove firms that do not comply with Sharia principles.
The business activity screen excludes companies deriving more than 5% of their revenue from alcohol, gambling, weapons, tobacco, adult entertainment, pork products, credit cards, cinemas and broadcasting, and interest-based loans.
Companies permissible under the activity test must then comply with a series of balance sheet and income statement screens. These include debt of less than 33% of equity; accounts receivable of less than 49% of equity; and cash and interest-bearing securities of less than 33% of equity.
Constituents that remain after the above screening steps are weighted by float-adjusted market capitalization subject to a country cap of 50% and a single security cap of 10%.
As of the end of November, the index contained 99 constituents with half (49.3%) of the total weight allocated to US-listed stocks and the next-largest country exposures being Taiwan (12.4%), Japan (9.7%), The Netherlands (7.2%), and South Korea (7.1%).
Notable positions included Apple (10.0%), Microsoft (10.0%), Nvidia (5.2%), and Broadcom (2.2%).
As per SP Funds, the ETF provides exposure primarily focused on growth within various disruptive innovation themes, including artificial intelligence, e-commerce, cloud computing, and advanced healthcare. Notably, this strategy serves as a means to mitigate exposure to technology firms with higher leverage, thereby reducing potential risks.
Naushad Virji, CEO of SP Funds, commented: “In a world where inflation has risen, and interest rates are significantly high compared to the last decade, it’s more important than ever for investors to hedge against leverage. We believe SPTE is a great way to mitigate against interest rate risk, offering investors greater financial stability, reduced risk exposure, and the potential for higher returns exposure to companies amidst significant debt obligations.”