HSBC Asset Management has cross-listed its suite of equity ETFs that is aligned with Islamic investment principles while incorporating additional ESG criteria into Switzerland.
HSBC AM has rolled out its Islamic ESG equity ETFs on SIX Swiss Exchange.
The suite consists of four funds providing ESG-enhanced, Shariah-compliant exposure to stocks selected from global developed, US, developed Europe, and emerging market universes.
Listed on SIX Swiss Exchange in US dollars, the funds are the HSBC MSCI World Islamic ESG UCITS ETF (HIWO SW), HSBC MSCI USA Islamic ESG UCITS ETF (HIUA SW), HSBC MSCI Europe Islamic ESG UCITS ETF (HIEU), and HSBC MSCI Emerging Markets Islamic ESG UCITS ETF (HIEM SW).
HIWO and HIUA come with expense ratios of 0.25%, while HIEU and HIEM are priced at 0.35%. Each ETF currently houses between $10 million and $20m in assets under management.
Methodology
The ETFs are linked to MSCI Islamic Universal ESG Screened Indices which are constructed from initial universes comprising large and mid-cap equities within the target country or region.
MSCI‘s Shariah investment process 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 approach 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 indices then go even further by also 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.