Alinma Investment, the asset management arm of Alinma Bank, has launched a new fixed income ETF in Saudi Arabia providing exposure to short-maturity sukuk bonds issued by the Saudi Kingdom’s government.

Alinma Investment has launched a short-maturity Saudi government sukuk ETF on Tadawul.

Sukuk are bonds that conform to Islamic finance laws that prohibit interest. Unlike conventional bonds where the issuer has a contractual obligation to pay bondholders on specified dates, sukuk entitle holders to a share of ownership, and therefore revenues, of the underlying assets.

The Alinma Saudi Government Sukuk ETF Fund – Short Maturity (ALINMETF AB) has listed on the Saudi Stock Exchange, or Tadawul, and comes with a management fee of 0.25%.

The fund trades in Saudi riyal and is available to investors from countries belonging to the Gulf Cooperation Council, namely Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.

Investors will receive distributions from the fund on an annual basis.

Methodology

The ETF is linked to the iBoxx Tadawul Sovereign Index Short-term which was created through a partnership between Tadawul and global information provider IHS Markit.

The index consists of bonds issued by the Saudi central government or central bank that have at least SAR 100 million ($25m) outstanding and remaining time to maturity of less than five years. Bonds issued by the Saudi government currently have a credit rating of A.

An independent Shariah committee oversees all of IHS Markit’s sukuk bond indices to ensure they comply with Islamic principles.

Due to relatively low liquidity in sukuk bond markets, IHS Markit utilizes multi-sourced pricing to establish fair values for the index’s underlying bonds. This methodology takes into account a variety of inputs such as transaction details, quotes from primary dealers, and other observable data points.

Constituents are market value-weighted, and the index is rebalanced on a quarterly basis.