HSBC Global Asset Management has unveiled two new Shariah-compliant ETFs targeting Japanese equities and developed market real estate securities.
HSBC Global Asset Management now offers eight ETFs specifically catering to faith-based Islamic investors.
Japan
The HSBC MSCI Japan Islamic ESG UCITS ETF offers exposure to large and mid-cap Japanese stocks while aligning with Islamic investment principles and incorporating additional ESG criteria.
The underlying MSCI Japan Islamic ESG Screened 6% Capped Index screens out companies that are directly active in, or derive more than 5% of their revenues from, business activities that are prohibited under Islamic principles. These business activities include alcohol, tobacco, pork-related products, conventional financial services, weapons, gambling, and adult entertainment.
The methodology also removes companies deriving significant income from interest and firms that have excessive leverage. MSCI uses three financial ratios to screen for such companies: total debt over total assets; the sum of a company’s cash and interest-bearing securities over total assets; and the sum of a company’s accounts receivables and cash over total assets. None of these financial ratios may exceed 33.33%.
Finally, if a company derives part of its total income from interest income or from prohibited activities, Shariah investment principles state that this proportion must be deducted from the dividends paid out to shareholders and given to charity. MSCI, therefore, applies a dividend adjustment factor to all reinvested dividends.
The index then goes even further by applying additional norms and climate-related exclusions and then by weighting the remaining constituents by modified float-adjusted market capitalization in order to increase exposure to firms with superior ESG scores. Each company’s ESG score reflects not only its performance relative to sector peers across a range of ESG metrics but also whether that firm is measurably improving its ESG profile. Any single stock is capped at a maximum of 6%.
The ETF comes with an expense ratio of 0.30%. It is listed on London Stock Exchange in US dollars (Ticker: HIKP LN) and pound sterling (HIJS LN) as well as on Euronext Paris and SIX Swiss Exchange in US dollars.
The fund builds upon the November 2022 rollout of five similar Shariah-compliant ESG ETFs, each targeting specific geographical dimensions including global developed, US, developed Europe, emerging markets, and Asia ex-Japan equity universes.
Real Estate
The HSBC FTSE EPRA Nareit Developed Islamic UCITS ETF, meanwhile, presents a diversified foray into real estate, a potential safeguard against inflation, while staying true to Islamic tenets.
The underlying FTSE EPRA Nareit IdealRatings Developed Islamic Index is constructed from the flagship FTSE EPRA Nareit Developed Index universe of real estate investment trusts (REITs) and real estate operating companies (REOCs) listed in developed markets.
The methodology utilizes similar exclusionary screens as described above to eliminate issuers that do not comply with Shariah principles. Issuers that are non-compliant with UN Global Compact principles are also removed.
The ETF comes with an expense ratio of 0.50%. It is also listed on London Stock Exchange in US dollars (HIND LN) and pound sterling (HINS LN), as well as on Euronext Paris and SIX Swiss Exchange in US dollars, and on Xetra in euros (H41W GY).
Further showcasing the firm’s commitment to faith-based investors, HSBC Asset Management last month unveiled Europe’s first fixed income ETF to provide targeted exposure to Sukuk bonds from Shariah-compliant issuers.