New ETF Targets Shariah Law

July 16, 2019

A Shariah-compliant ETF from a newcomer to the space, Wahed Invest, launched today. The Wahed FTSE USA Shariah ETF (HLAL) tracks a benchmark derived from the broad FTSE USA Index.

HLAL comes with an expense ratio of 0.50% and lists on the Nasdaq stock exchange.

Methodology

The fund screens out companies that derive more than 5% of their revenue from business activities or industries prohibited by Islamic principles. This includes conventional banking; alcohol; pork-related products and nonhalal food; gambling and adult entertainment; tobacco; and weapons, according to the prospectus.

From there, companies are additionally screened out if they have debt equal to more than one-third of their total assets; cash and interest-bearing items of more than one-third of total assets; accounts receivable of more than half of total assets; and total interest or noncompliant business activities that represent more than 5% of total revenue, the document says.

The remaining companies are included in the index and weighted by market capitalization. Components are reviewed on an ongoing and annual basis to ensure they are acceptable, with quarterly reconstitutions.

The fund’s consultant, Yasaar Limited, also reviews the components for compliance as well as to determine if any income from the investments must be “purified” or donated due to accidental investments in unacceptable business activities, the prospectus says.

Contact Heather Bell at [email protected]

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