Polonius, Shakespeare’s character, continues to thrill viewers of Hamlet. He provides his kid some sound counsel in the opening act of the play. The younger gentleman is preparing to pursue his studies in Paris. “Neither a borrowing nor a lender be,” Polonius states at one point. Muslims can understand. Polonius’ statements, after all, echo Shariah law.
When Muslims invest, they are not supposed to make interest-bearing loans. Bonds are ruled out. Such interest is forbidden by Shariah law, according to the Koran.
Other faith-based investment practices are also followed by Muslims. They are not permitted to invest in financial institutions or businesses that manufacture or sell alcoholic beverages. They should avoid investing in businesses that deal with gambling, WMDs, pornography, or cloning.
That eliminates a lot of potential investments. Muslims, on the other hand, can still make money on the stock market. They can enjoy significant gains while adhering to faith-based principles if they invest in low-cost, Shariah-compliant stock market funds.
Shariah-compliant funds have been developed by a slew of financial institutions. However, their fees are quite exorbitant. The lower the fees, as with traditional mutual funds or unit trusts, the more money you will make.
That is why Shariah-compliant ETFs should be considered by Muslims. They only invest in industries that are compatible with their faith. Furthermore, their fees are lower than those charged by actively managed funds. As a result, they have a considerably better chance of making a profit.
On the London Stock Exchange, three instances are traded. The iShares MSCI World Islamic ETF is one of them (ISWD). There are 525 stocks in it from a variety of developed market countries. Because the United States is the world’s largest stock market, about half of the fund’s holdings are American stocks. The remaining shares are distributed among European, Asian, Canadian, and Australian companies.
On the London Stock Exchange, the iShares MSCI USA Islamic ETF (ISUS) is another Shariah-compliant vehicle. New investors may want to compare this fund’s returns to those of the World Islamic ETF…and then choose the US fund. They may be impressed by the fact that the American Shariah-compliant fund gained 99.84 percent in the ten years ended June 30, 2018.
The Shariah-compliant world stock index, on the other hand, has a ten-year total return of 58.11 percent. However, concentrating on the US fund could be a mistake.
After all, it excludes equities from Europe, Asia, Australia, and Canada. As a result, it has a much narrower range of products.
Furthermore, US stocks are currently overvalued. U.S. stocks are likely to underperform worldwide markets in the coming decade, according to the most widely used predictor of long-term returns (the CAPE ratio). A world stock index gives you exposure to U.S. stocks without going crazy.
Muslims should include the iShares MSCI Emerging Markets Islamic ETF to their portfolio (ISDE). It includes 260 equities from a variety of emerging markets. Emerging market shares have a lot of room to increase. They can, however, be volatile, and they can fall hard at times. As a result, investors should not invest more than 10% of their portfolio in emerging market companies.
Are Halal ETFs available?
Thanks to a newly launched ETF from Wealthsimple, Canadians who desire to apply Islamic principles to their financial decisions may find it a little easier.
The Wealthsimple Sharia World Equity Index ETF, which trades on the NEO Exchange under the ticker WSHR, is Canada’s first sharia-compliant ETF. The low-cost ETF focuses on stocks from developed-market issuers that have been determined to be sharia-compliant, as well as having the highest combination of quality and low-volatility multi-factor scores, with Mackenzie Investments serving as trustee, manager, and portfolio manager.
“In a statement announcing the ETF’s introduction last week, Wealthsimple’s Chief Investment Officer Ben Reeves stated, “As the ETF market continues to develop, Shariah-compliant self-directed investment options remain limited and expensive, and we saw an opportunity to change that.” “Our purpose is to provide investing solutions that honor and reflect the values of investors across the country.”
Is a Shariah-compliant ETF available?
An Exchange Traded Fund (ETF) is a cutting-edge financial product that combines the finest aspects of open-ended funds and publicly traded stocks. ETF is described as “a listed index-tracking fund organized as a unit trust scheme or any other permissible structures whose principal purpose is to attain the returns that correspond to the performance of a certain index” under the Securities Commission Malaysia’s Exchange-Traded Funds Guidelines. Simply explained, an ETF is a unit trust that is listed and traded on a stock exchange. In general, ETFs are passively managed since they attempt to duplicate the performance of a specific market index by investing all (full replication) or virtually all (strategic sampling) of the constituent stocks.
Unlike a traditional ETF, which can track any benchmark index regardless of the Shariah status of its member equities, an i-ETF tracks only benchmark indexes with Shariah-compliant companies as index constituents. Aside from that, the i-management ETF’s must adhere to Shariah principles and Islamic investment rules. A Shariah board, committee, or advisor oversees the operation of i-ETF and conducts Shariah-compliant audits and reviews on a regular basis.
Before becoming an i-ETF, a fund must go through a stringent Shariah screening process. The index constituents are screened using the methods established by the Shariah board, the index provider’s committee or advisor, the regulatory authority, and the fund itself. Shariah screening is performed at the time of investment choice and then periodically throughout the investment period to ensure continued Shariah compliance. Any corporate moves such as mergers and acquisitions, delisting, or bankruptcy are taken into consideration by the aforementioned periodic Shariah compliance monitoring. As a result, the i-ETF is periodically cleaned by detecting, separating, and distributing to charity any Shariah non-compliant income.
i-ETFs can be bought and sold through stockbrokers, just like stocks. The Exchange currently has six (6) i-ETFs listed and traded.
Investors can gain immediate exposure to the firms that make up the monitored index by purchasing one unit of i-ETF.
The management charge is very minimal because the fund is passively managed. As a result, the i-ETF is a cost-effective long-term investment.
i-ETFs are listed on Bursa Malaysia’s Main Market, just like stocks, and trading of i-ETF units is done in a single transaction at the current market price. It is possible for investors to do so either online or through their stockbrokers.
Throughout the trading day, the i-ETF price is readily available in real time. The fund management’s website has more comprehensive and up-to-date information on the i-ETF, such as the daily fund value and quarterly manager report.
Is it true that Wealthsimple is halal?
Wealthsimple Halal is a 50-stock Islamic investing portfolio in the form of an ETF.
As a result, the portfolio adheres to Shariah rules based on the Quran, Muslims’ holy book.
To this purpose, Wealthsimple ensures that all assets in the portfolio are reviewed by Islamic experts.
As a result, the portfolio avoids investing in companies that profit by more than 5% from:
Why? All of these are prohibited (Halal) in Islam, making a Muslim’s worship unholy.
The Halal portfolio, however, is authorized and monitored by the Islamic experts at Rating Intelligence Partners.
As a result, one of the main goals of Halal investment is to assist Muslim investors in becoming affluent while adhering to Islamic principles.
Are ESG funds considered halal?
ESG is no longer a niche topic, but rather a popular one. Similarly to their ESG relatives, Halal funds avoid investing in cigarettes, alcohol, gambling, guns and munitions, adult entertainment, and enterprises with high debt.