Wahed Invest launches Shariah-compliant US equity ETF

Jul 16th, 2019 | By | Category: Equities

Halal-focused investment firm Wahed Invest has debuted its first ETF – the Wahed FTSE USA Shariah ETF (HLAL US).

Shariah ETFs Wahed Invest

The fund provides exposure to US large- and mid-cap equities of firms that are compliant with Shariah law.

Listed on Nasdaq, the fund provides exposure to US large- and mid-cap firms that comply with Shariah principles.

The ETF is linked to the FTSE USA Shariah Index which screens the constituents of the parent FTSE USA Index to determine their Shariah status based on business activities and certain financial ratios.

Screening is undertaken by Yasaar Research, the index provider’s Shariah consultant.

As defined by Yassar, non-compliant companies are those involved in any of the following activities: conventional finance (non-Islamic banking, finance, insurance etc), alcohol, pork-related products and non-halal food production, packaging and processing or any other activity related to pork and non-halal food, entertainment (casinos, gambling and pornography), tobacco, weapons, arms and defence manufacturing.

Companies permissible under the business activity test must them comply with a series of balance sheet and income statement screens. Once again defined by Yassar, these include debt less than 33.3% of total assets; cash and interest-bearing items less than 33.3% of total assets; accounts receivable and cash less than 50% of total assets; and total interest and income from non-compliant activities not exceeding 5% of total revenue.

The remaining constituents are then weighted by market capitalization. Reconstitution and rebalancing occur on a quarterly basis.

As of the end of June 2019, the index contained 222 constituents compared to 621 for the parent universe.

The most notable sector difference between the FTSE USA Shariah Index and the FTSE USA Index is that the former has zero allocation to financials stocks (vs. 18.5% in the FTSE USA). Consequently, the index has a larger allocation to technology (28.6% vs. 22.0%), healthcare (22.2% vs. 12.7%), and oil & gas (13.1% vs. 5.0%).

Apple holds a significant weight in the index at 11.1%, with the next largest single constituents being Johnson & Johnson (4.5%), Exxon Mobil (3.9%), and Procter & Gamble (3.3%).

The fund comes with an expense ratio of 0.50%.

While there are a few Shariah-compliant ETFs listed in Europe, with issuers DWS and BlackRock offering products, the space is relatively untouched in the US.

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