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Wahed Invest's Shariah-Compliant US Equity ETF Makes Debut

Sweta Jaiswal, FRM

Wahed Invest has launched its Shariah-compliant US equity Wahed FTSE USA Shariah ETF (HLAL). The fund replicates the total return performance, before fees and expenses, of the FTSE USA Shariah Index.

HLAL in a Nutshell

HLAL provides exposure to large and mid-cap U.S. companies that comply with Shariah principles. The fund is listed on Nasdaq. The FTSE USA Shariah Index constitutes companies within the FTSE USA Index, which conform to its screening criteria to evaluate the Shariah status based on business activities and specific financial ratios. Moreover, the index had 226 constituents as of Apr 18. Also, it is heavily weighted on the technology, healthcare and oil and gas sectors.

Apple Inc. (11.06%), Johnson & Johnson (4.22%), Exxon Mobil Corporation (3.93%) and The Proctor & Gamble Company (3.02%) make the top allocations within the index.

The fund charges fees of 50 basis points.

Shariah-Compliant Criteria in Detail

Companies which generate more than 5% of the total revenues from Shariah-prohibited activities like conventional finance (non-Islamic banking, finance and insurance), alcohol manufacturing or sale, involvement in any activity related to pork-related products and non-halal food, casino management, gambling, or adult entertainment, tobacco production or sale and weapons, arms and other defense manufacturing are not eligible to be part of the index.

Moreover, the screening criteria for the financial ratios require these companies to keep debt levels and cash and interest-bearing items below one-third of the total assets. Cash and accounts receivable should be less than 50% of the total assets. Furthermore, non-compliant activities and total interest should not surpass 5% of total revenues.

What Makes the ETF an Attractive Pick?

The U.S. economic fundamentals look decent with the rising wages, high consumer confidence, increasing consumer spending and an encouraging manufacturing output. Additionally, a dovish Fed is providing support to the stocks in the fund.  Federal Reserve Chairman Jerome Powell’s indication about the interest rate cuts if necessary, might go in favor of the fund. Analysts are forecasting a quarter-point slash in interest rates after a stronger jobs report curbed projections for a rate cut by 50 basis points (read: ETFs to Grab Amid Increased Odds for Fed Rate Cut).

ETF Competitors

This is the first US listed Shariah compliant ETF but there are a couple of other ETFs focused on religious values.

Global X S&P 500 Catholic Values ETF CATH

The fund delivers investment results that replicate the price and yield performance, before fees and expenses, of the S&P 500 Catholic Values Index. The companies involved in activities alleged to be non-conforming to Catholic values as set out by the U.S. Conference of Catholic Bishops including screens for weaponry and child labor are not eligible to be part of this fund.

With AUM of $271.2 million, this fund provides exposure to a basket of 460 securities. The product charges 29 bps in annual fees. It has rallied 19.9% in the year-to-date period.

Inspire 100 ETF BIBL

The fund invests in the most inspiring, biblically-aligned large-cap companies in the United States and is managed according to biblically responsible investing (BRI) standards. The fund picks companies using the Inspire Impact Score methodology. The methodology selects companies involved in activities like working to cure cancer, providing clean water solutions and otherwise being a blessing to their communities, customers, workforce and the world around. Companies involved in unethical activities like abortion, pornography and human trafficking are not eligible to be included in this fund.      

With AUM of $61.7 million, this fund provides exposure to a basket of 101 securities by tracking the Inspire 100 Index. The product charges 35 bps in annual fees. It has gained 16.9% so far this year.

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