HSBC Asset Management has introduced a new suite of equity ETFs in Europe that is aligned with Islamic investment principles and incorporates additional ESG criteria.
Olga de Tapia, Global Head of ETF and Indexing Sales at HSBC Asset Management.
The suite consists of five funds providing ESG-enhanced, Shariah-compliant exposure to stocks selected from global developed, US, developed Europe, emerging markets, and Asia ex-Japan equity universes.
The suite has debuted with the launch of the US and Europe-focused ETFs with the remaining three funds expected to be rolled out in the near future.
The HSBC MSCI USA Islamic ESG UCITS ETF has been listed on London Stock Exchange in US dollars (HIUA LN) and pound sterling (HIUS LN), on Euronext Paris in euros, and on SIX Swiss Exchange in Swiss francs.
The HSBC MSCI Europe Islamic ESG UCITS ETF, meanwhile, has been listed on LSE in US dollars (HIEU LN) and pound sterling (HIPS LN) and on Euronext Paris in euros.
Olga de Tapia, Global Head of ETF and Indexing Sales at HSBC Asset Management, said: “There is a growing appetite for a range of Islamic passive products as investors look to build Shariah-compliant multi-asset portfolios. We are proud of our long-term commitment to serving Islamic investors worldwide and are excited to bring innovative solutions to these clients.
“We see a natural overlap between faith-based screening and standard SRI filters and this set of toolkit funds will provide investors with a pathway to gain holistic risk-profiled market exposure in compliance with Shariah law.”
Each ETF comes with an expense ratio of 0.30%.
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.