S&P Dow Jones Indices has announced the launch of S&P GIVI Shariah Indices, the first Shariah-compliant indices combining low volatility and an alternative weighting scheme that weight’s a stock by its calculated intrinsic value, rather than by market capitalisation.

S&P Dow Jones has rolled out five Shariah versions of the Goldman Sachs-conceived alternatively-weighted GIVI index.

The S&P GIVI is constructed from the S&P Global BMI universe, a comprehensive, rules-based global index covering some 10,000 companies in 46 countries.

Each stock in the S&P GIVI is weighted by its calculated intrinsic value. The intrinsic value of each stock is the sum of two components: the value of assets in place plus the value of growth opportunities.

To achieve its goal of low volatility, S&P GIVI excludes, for each country represented in the S&P Global BMI, the 30% of market capitalisation with the highest beta. Remaining stocks are then weighted by a rules-based measure of intrinsic value.

The Shariah-compliant indices apply Shariah screens to the stocks in the S&P GIVI Indices. Shariah screenings consist of business and financial screenings that are applied to the stock universe, the parent GIVI index, to make sure that the stocks in the index are Shariah-compliant.

Stocks are thus added and/or dropped from the parent GIVI index based on the Shariah compliance rating every month. The weights of the stocks are retained from the parent GIVI index which rebalances semi-annually in March and September.

Vinit Srivastava, Director of Strategy Indices of S&P Dow Jones Indices, said: “The S&P GIVI Shariah indices provides investors in Shariah-compliant products with a relevant, important benchmark in the alternative beta space.”

S&P Dow Jones has licensed the complete S&P GIVI family to Goldman Sachs Asset Management (GSAM), who conceived the strategy and helped co-develop the indices.

There are currently four Shariah-compliant regional indices and one country index:

S&P GIVI Developed Shariah Index
S&P GIVI Emerging Shariah Index
S&P GIVI Europe Shariah Index
S&P GIVI Pan Asia Shariah Index
S&P GIVI United States Shariah Index

The indices are calculated in seven currencies and are rebalanced twice a year.

Shariah-compliant indices are also offered by other leading index providers including Dow Jones, MSCI, FTSE, Stoxx, Russell Indexes and Thomson Reuters. A number of these indices are tracked in exchange-traded fund (ETF) format, most notably by iShares and db X-trackers.