Abu Dhabi-based asset manager Chimera Capital has unveiled two new ETFs in the United Arab Emirates which are the federation’s first to provide Shariah-compliant exposure to US equities.
The ETFs are the first in the UAE to offer Shariah-compliant exposure to US equities.
Listed on the Abu Dhabi Securities Exchange, the Chimera S&P US Shariah Value ETF (CHUSSHINV) is available in a distributing share class, while the Chimera S&P US Shariah Growth ETF (CHUSSHG) accumulates income within its portfolio.
Basar Shueb, Chairman of Chimera Capital, commented: “Our latest two launches provide investors with direct access to the biggest and most active stock market in the world, underlining Chimera’s commitment to playing an active role in deepening and expanding the UAE’s capital markets landscape.”
Saeed Hamad Al Dhaheri, Managing Director and CEO of Abu Dhabi Securities Exchange, added: “The listing of Chimera Capital’s Shariah-compliant US equity ETFs will provide investors with new opportunities to diversify their holdings in an efficient and low-cost manner. It has also made our exchange home to the largest number of ETFs in the region.”
Investment approach
The Chimera S&P US Shariah Value ETF tracks the S&P High Yield Dividend Aristocrats US Shariah Top 30 35/20 Capped Index which begins with the broad market S&P Composite 1500, screening for companies that have consistently increased their dividends every year for at least 20 years.
The Chimera S&P US Shariah Growth ETF, meanwhile, is linked to the S&P 500 US Shariah Top 30 35/20 Capped Index which starts its construction from the bellwether US large-cap S&P 500.
S&P Dow Jones Indices screens each universe for firms that are aligned with Islamic principles. The index provider has contracted Ratings Intelligence Partners, a London/Kuwait-based consulting company specializing in solutions for the global Islamic investment market, to provide the Shariah screens. Ratings Intelligence Partners’ team consists of qualified Islamic researchers who work directly with a Shariah Supervisory Board to interpret business issues and recommend actions for the indices.
As defined by Ratings Intelligence Partners, non-compliant companies are those that derive more than 5% of their revenue from conventional finance (non-Islamic banking, finance, insurance, etc), alcohol, pork-related products, entertainment (casinos, gambling, and pornography), tobacco, and weapons, arms, and defence manufacturing.
Companies permissible under the business activity test must also comply with a series of balance sheet and income statement screens. These include debt to equity, accounts receivable to equity, and cash to equity ratios below 33%.
After both screens, the indices select the 30 largest and most liquid stocks from the remaining universes.
Constituents are weighted by float-adjusted market capitalization while capping the largest stock at 35% and any other stock at 20%. Rebalancing occurs quarterly with buffer rules helping to limit unnecessary turnover.
Marius Baumann, Global Head of Custom Indices at S&P Dow Jones Indices, said: “S&P Dow Jones Indices is pleased to continue working with Chimera Capital on the launch of their two new funds. Through our innovative index solutions, we are able to empower our customers such as Chimera as they continue developing index-based solutions for their end clients.”
The ETFs are supported by BNY Mellon, which acts as the funds’ custodian. International Securities, EFGHermes, Arqaam Capital, Daman Securities, and BHM Capital are acting as authorized participants.