SP Funds launches first two Sharia-compliant ETFs
SP Funds, a boutique asset management firm specialising in socially responsible and halal investing, has launched the first family of Sharia-compliant equity and fixed income ETFs.
Initially made up two funds, SP Funds’ ETF family is designed to provide investors of all types with exposures that can help diversify both equity and fixed income portfolios and help investors avoid the types of over-levered companies that may be particularly susceptible to volatile performance during a market downturn.
The SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS), which launched on the New York Stock Exchange on 18 December, tracks the S&P 500 Sharia Industry Exclusions Index, which is designed to provide value-conscious exposure to those S&P 500 companies that meet the guidelines of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The ETF and its underlying index use an exclusion methodology to arrive at the underlying portfolio. All of the following are removed from consideration:
• Adult Entertainment
• Pork Products
• Credit Cards
• Music, Cinema and Broadcasting
• Interest-Based Businesses
• Highly Leveraged Businesses
“We designed our initial equity ETF not only for investors who might be looking for halal exposure, but for any investor who looks at their portfolio through a value-focused lens as well as those who seek to avoid over-levered enterprises, which can encounter serious turbulence in choppy markets,” says Naushad Virji, CEO of SP Funds.
SP Funds has also launched a first-of-its-kind income-focused ETF, the SP Funds Dow Jones Global Sukuk ETF (SPSK). This fund is the first to provide targeted exposure to sukuks, which are financial certificates, similar to bonds, issued in the global markets and structured to comply with Islamic religious law and investment principles. Unlike conventional bonds, sukuks are based on a variety of contracts to create financial obligations and the returns to investors are considered to be profit sharing, not interest. At the end of 2018, global sukuk issuance stood at USD123.2 billion up 5.5 per cent from the previous year.1
SPSK seeks to track the performance, before fees and expenses, of the Dow Jones Sukuk Total Return (ex-Reinvestment) Index. The index is currently comprised of 85 constituents, all of which are investment grade and denominated in US Dollars, representing investments in seven foreign countries, and had an average weighted maturity of 5.92 years. To be eligible for inclusion, sukuks must have an outstanding issue size of at least USD200 million, a minimum time to maturity of one year, and a credit quality rating of at least BBB-/Baa# by S&P, Moody’s or Fitch Ratings.
“The global sukuk marketplace is very robust but to this point there had not been an ETF solution for investors looking to add this type of exposure to their income-focused portfolios. We’re very pleased to be first to market with this approach,” adds Virji. “Not only is this a diversifier in terms of the underlying holdings in SPSK, but the fund is also designed to provide investors with decreased exposure to duration risk and interest rate risk, important considerations as investors are finding it ever more difficult to access yield from the traditional sources.”
SPUS has an expense ratio of 0.49 per cent while SPSK has a gross expense ratio of 0.65 per cent. SP Funds partnered with the team at Tidal ETF Services to bring these funds to market.