Nasdaq Dubai and IdealRatings, a San Francisco-based provider of socially responsible investment solutions, have launched a suite of indices tracking the performance of global Islamic bonds (also known as sukuk). The indices may serve as the underlying to future investment products including exchange-traded funds.
In compliance with the principles of Shariah investment, Islamic bonds may not be used to finance products and activities related to alcohol, tobacco, pork, gambling, adult entertainment or weapons.
To be eligible for inclusion in the indices, each bond must have a minimum size of at least $100m, a remaining time to maturity of at least three months, and must be approved by a Shariah accredited board. Each index includes both fixed and floating rate Islamic bonds and are weighted by market capitalization.
Since the traditional Western interest-paying bond structure is not permissible under Islamic law, the issuer of an Islamic bond sells an investor a certificate, and then uses the proceeds to purchase an asset, of which the investor has partial ownership. The issuer must also make a contractual promise to buy back the bond at a future date at par value. Thus, Islamic bonds represent aggregate and undivided shares of ownership in a tangible asset as it relates to a specific project or a specific investment activity.
Additionally, in compliance with the principles of Shariah investment, Islamic bonds may not be used to finance products and activities related to alcohol, tobacco, pork, gambling, adult entertainment or weapons.
The Nasdaq Dubai IdealRatings Sukuk Index family comprises the Global Sukuk Index as well as several indices covering distinct segments of the market, including investment grade issuances; issuances by sovereigns; issuances by corporates; issuances by financial institutions; and Gulf Cooperation Council (GCC) issuances. The GCC is a regional intergovernmental political and economic union consisting of all Arab states of the Persian Gulf except for Iraq. Its member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
Mohamed Donia, CEO of IdealRatings, said: “The sukuk market is still completely under-served and has a great potential as an asset class. Investors and asset owners need a reliable and accurate benchmark. We are delighted to work with such a great team at Nasdaq Dubai to better serve the market with our products and help to boost the sukuk industry’s growth.”
Hamed Ali, Chief Executive of Nasdaq Dubai, added: “As well as providing a wide range of benchmarks that can support diverse investment strategies, the new indices are based on screening criteria that have been carefully selected to represent a true investable sukuk universe. The indices add a valuable new stream of information to investors’ existing trading tools to help them make more successful short and long term trading decisions.”
As of 1 October 2016 the Global Sukuk Index has returned 3.1% year-to-date and 15.2% since the index’s base date of 1 November 2012, using back-tested data.
The largest country allocations are to the UAE (40.5%), Saudi Arabia (18.9%), Indonesia (11.3%), Qatar (10.3%) and Turkey (9.8%). The largest sector allocations are to government (38%), financial services (38%), utilities (10%) and real estate operations (7%).
The newly launched global sukuk index, as well as its sub-indices, are listed below.
Main Index:
Nasdaq Dubai IdealRatings Global Sukuk Index
Sub-Indices:
Nasdaq Dubai IdealRatings USD Investment grade Sukuk Index
Nasdaq Dubai IdealRatings USD Sovereign Sukuk Index
Nasdaq Dubai IdealRatings USD Corporate Sukuk Index
Nasdaq Dubai IdealRatings USD Financials Sukuk Index
Nasdaq Dubai IdealRatings USD GCC Sukuk Index