Halal-focused investment firm Wahed Invest has rolled out its second ETF with the launch of the Wahed Dow Jones Islamic World ETF (UMMA US) on Nasdaq Stock Market.
The fund combines Shariah-compliant and ESG-aware investment approaches.
The fund, which comes with an expense ratio of 0.65%, applies both Shariah-compliant and ESG-aware investment methodologies to a portfolio of global equities excluding stocks listed in the US.
The fund is designed to complement Wahed’s original ETF – the $180 million Wahed FTSE USA Shariah ETF (HLAL US) – which debuted in 2019 and focuses on the US equity market. HLAL has an expense ratio of 0.50%.
Unlike HLAL, which is linked to the FTSE USA Shariah Index, UMMA is actively managed, although the ETF effectively tracks the Dow Jones Islamic Market International Titans 100 Index with Wahed overlaying additional screening based primarily on ESG factors.
The fund’s underlying index first screens a global universe of developed and emerging market stocks, excluding companies listed in the US, to remove firms considered misaligned with Shariah principles based on business activities and certain financial ratios.
Index provider S&P Dow Jones Indices has contracted Ratings Intelligence Partners, a London/Kuwait-based consulting company specializing in solutions for the global Islamic investment market, to provide the Shariah screens. Ratings Intelligence Partners’ team consists of qualified Islamic researchers who work directly with a Shariah Supervisory Board to interpret business issues and recommend actions for the index.
As defined by Ratings Intelligence Partners, non-compliant companies are those that derive more than 5% of their revenue from conventional finance (non-Islamic banking, finance, insurance, etc), alcohol, pork-related products, entertainment (casinos, gambling, and pornography), tobacco, and weapons, arms, and defence manufacturing.
Companies permissible under the business activity test must also comply with a series of balance sheet and income statement screens. These include debt to equity, accounts receivable to equity, and cash to equity ratios below 33%.
The index consists of the largest 100 stocks that pass the above screens.
When selecting stocks to form the ETF’s portfolio, Wahed also screens constituents utilizing data from RepRisk, an ESG analytics firm employing machine learning to assess ESG risks. RepRisk evaluates companies’ environmental impact, community and employee relations, and corporate governance to screen out the worst ESG offenders and conduct daily filtering based on controversies.
Samim Abedi, CIO at Wahed Invest, said: “We believe our new fund provides investors with a highly personalized investing experience that is more true to their theological beliefs. The line between ethical, socially responsible, and ESG investing has appeared to blur, and we’re excited to seek to provide investors with a vehicle to diversify their portfolio with international investments that align with even more of their beliefs. By bringing these values-based investment principles together, we believe we’re addressing a clear gap in the market for an international Shariah-compliant fund managed through an ESG investing lens.”