HSBC Asset Management has unveiled Europe’s first fixed income ETF to provide targeted exposure to Sukuk bonds from Shariah-compliant issuers.
The ETF has been designed to directly serve the needs of Islamic fixed income investors.
The HSBC Global Sukuk UCITS ETF has been listed on London Stock Exchange in US dollars (Ticker: HBKU LN) and pound sterling (HBKS LN).
Sukuk bonds 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 bonds entitle holders to a share of ownership, and therefore revenues, of the underlying assets.
Methodology
The fund tracks the FTSE IdealRatings Investment Grade Index which covers fixed-rate, US dollar-denominated, investment-grade-rated Sukuk bonds issued worldwide. Eligible issues must have at least $200 million outstanding and a minimum time to maturity of one year.
A bond’s classification as Sukuk is determined by the standards set forth by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
The methodology also harnesses the insights of ESG analytics firm IdealRatings to remove any issuer that fails to comply with mandatory Shariah standards. This process incorporates more than 150 Shariah standards and is also subject to oversight by a team of Shariah scholars specializing in designing Shariah-compliant investment products.
Bonds selected for the index are weighted by market value, and the index is rebalanced on a monthly basis.
As of the end of August, the index contained 90 issues and was exhibiting a yield-to-maturity of 5.28% with an effective duration of 4.71 years.
Approximately 40% of the index was allocated to corporate issues followed by government-sponsored (31.7%) and government-guaranteed (22.1%) issues. Over half (52.1%) of the index was dedicated to bonds with a credit rating of A with most of the remaining exposure (44.5%) allocated to bonds rated BBB – just 3.4% was allocated to bonds rated AA and there were no AAA-rated bonds in the index.
The ETF comes with an expense ratio of 0.70%.
Olga de Tapia, Global Head of ETF & Indexing Sales, HSBC Asset Management, said: “As the first ETF of its kind available in European markets, our new Sukuk ETF builds on our long-term commitment to serving Islamic investors worldwide and will allow HSBC AM to meet growing global demand for an innovative range of Islamic passive products, either as standalone investments or as part of broader Shariah-compliant multi-asset portfolios. This should provide choice to Islamic investors enabling them to build a range of different portfolios, with different risk characteristics, on the same terms as conventional investors.”