Halal-focused investment firm Wahed has launched an ETP on London Stock Exchange providing exposure to US equities that comply with Shariah principles.
HLAL screens a broad universe of US large and mid-cap equities for companies that comply with Shariah principles.
The Wahed FTSE USA Shariah ETP, which was brought to market in partnership with single-stock ETP specialist Leverage Shares, is available to trade in US dollars (Ticker: HLA1 LN) or pound sterling (HLAL LN).
The ETP gains its exposure by investing fully in the US-listed Wahed FTSE USA Shariah ETF (HLAL US) which Wahed launched on NYSE Arca in July 2019.
HLAL is linked to the FTSE USA Shariah Index which screens the constituents of the parent FTSE USA Index, a broad market reference for large and mid-cap US equity market performance, to determine their Shariah status based on business activities and certain financial ratios.
Screening is undertaken by Yasaar Research, the index provider FTSE Russell’s Shariah consultant.
As defined by Yassar, non-compliant companies are those involved in any of the following activities: conventional finance (non-Islamic banking, finance, insurance, etc), alcohol, pork-related products, non-halal food production, entertainment (casinos, gambling, and pornography), tobacco, weapons, and defence manufacturing.
Companies permissible under the business activity test must then comply with a series of balance sheet and income statement screens. Once again defined by Yassar, these include debt less than 33.3% of total assets; cash and interest-bearing items less than 33.3% of total assets; accounts receivable and cash less than 50% of total assets; and total interest and income from non-compliant activities not exceeding 5% of total revenue.
The remaining constituents are then weighted by market capitalization. Reconstitution and rebalancing occur on a quarterly basis.
As of the end of October, the index contained 226 constituents compared to 606 for the parent FTSE USA Index.
The most notable sector difference between the FTSE USA Shariah Index and the FTSE USA Index is that the former has zero allocation to financial stocks (vs. 12.2% in the FTSE USA). Consequently, the index has a larger allocation to the information technology (40.5% vs. 25.9%), healthcare (20.0% vs. 14.5%), and energy (10.6% vs. 5.4%) sectors.
Apple holds significant weight in the index at 15.8%, with the next largest constituents being Microsoft (11.7%), Tesla (3.9%), Exxon Mobil (3.1%), and Johnson & Johnson (3.1%).
The ETP comes with an expense ratio of 0.55%.