Dow Jones & Co., the publisher of The Wall Street Journal, has launched a new global equity-benchmark index aimed at investors who follow Islamic investment guidelines.
The new index - called the Dow Jones Islamic Market Index, or DJIMI -tracks about 600 companies whose products and services are permissible according to strict interpretations of Shari'ah law. The companies in the index are from 30 countries around the world, including the U.S.
"There [was formerly] no Islamic benchmark index provided by an established index provider," says A. Rushdi Siddiqui, director of Dow Jones' Islamic Index Group, who estimates that perhaps as much as $8 billion is invested in stocks that meet Islamic religious guidelines.
In keeping with Shari'ah law, the index excludes companies whose products include alcohol, pork, tobacco and weapons; firms in the entertainment business (such as hotels, casinos and cinemas); and those in conventional financial-services industry, such as banking and insurance, that collect interest, which is in violation of Islamic law. The index also screens out companies with unacceptable financial ratios, such as high debt levels.
As a result of the screening techniques, the DJIM index is heavily weighted in the U.S., at nearly 70% of the index, and consists mainly of stocks in the consumer, technology, utility, energy and industrial sectors.
Traditionally, Islamic investors have tended to use leasing and financing agreements as their main investment vehicles rather than listed company shares. "Islamic financing and leasing is very big," says Nic Contomichalos, head of Dresdner Private Banking in London, a unit of Dresdner Bank. But, he adds, there is increasing interest in equity investing consistent with Islamic practices.
Dow Jones has issued licenses to Brown Brothers Harriman & Co. and Wafra Investment Advisory Group, which is a wholly owned subsidiary of Kuwait's Public Institution for Social Security, to create tradeable funds based on the Dow Jones Islamic Market Index.