Would you invest in a “green energy” mutual fund? How about an “Islam-friendly ETF”? This latter option may sound new but the indexes on which it is based have actually been around for a while, and they are growing at an increasing rate.
This past week, Standard and Poor’s introduced a new TSX 60 index which is Sharia-law compliant. The move was made, according to a report by the Financial Post, to better serve the growing Islamic investor community in Canada.
After reading the details of this new index, I realized that I’d actually love to invest in an ETF based upon it (except that I already own most of the top 10 holdings anyway as individual stocks, so I’d probably pass – I agree with some of the reasons that Million Dollar Journey gives for not investing in index funds). I’ll tell you why I’d love it in a second. First, check this out:
The Main Holdings (by index weight) of the S&P/TSX 60 Sharia-Law Index
- EnCana Corp. 12.48%
- Research In Motion Ltd. 12.39%
- Potash Corp. of Saskatchewan 9.51%
- Barrick Gold Corp. 9.17%
- Suncor Energy Inc. 8.56%
- Goldcorp Inc. 7.24%
- Petro-Canada 5.55%
- Talisman Energy Inc. 4.62%
- Canadian Oil Sands Trust 3.61%
- Cameco Corp. 3.27%
The S&P/TSX 60 Sharia Index is based upon the S&P/TSX 60 Index, but excludes all companies that invest in, produce or have anything to do with activites that do not comply with Islamic law (based on the Qu’ran). Such as: tobacco, alcohol, firearms, entertainment, financial services and pork-products.
Sounds good to me, Sharia or no Sharia law! I’ll invest in certain financial services companies (mostly just Canadian ones, since they’re some of the best banks in the world), but I’ve never wanted to give my money to Altria (aka Philip Morris) or Lockheed. This is part of the reason why I prefer to choose my own individual stocks rather than just buy the “catch-all” index ETF. The problem with these is that they “catch all” the dirty companies that I’d rather not support. I realize this is probably a minoritarian view, and I’m not imposing it on anyone. I just figure that if smokes aren’t good for my health they’re not good for me to invest in, either.
What’s interesting about the Sharia-based indices is that apparently there are similarly-styled Sharia indexes for Japan, Europe and Asia – as well as sector-specific Sharia-compliant indexes. Many of these only sprouted up as recently as 2006.
Alka Banerjee, VP of Global Equities at S&P says “Sharia indices have been around for a long time, but interest has only picked up in the last three or four years… we were very surprised at the strong response so we speeded up service…Dow Jones was first … All major index providers have sharia offerings but we have the deepest.” According to Eric Lam’s report, “Ms. Banerjee does not consider the index a straight SRI because it is directed at investors of a specific religion. While a common complaint of SRIs is that they may limit growth potential, both the S&P 500 and Europe 350 sharia indices have actually outperformed their secular counterparts over a five-year period from 2003 to 2008.”
What’s your take? Would you invest in a Sharia ETF? Do you think they would have much growth potential outside their target market? It’s definitely another interesting development in the indexes of equities markets worth paying attention to going forward. The Canadian Capitalist recently pointed out another development worth taking note of – changes in the emerging markets indexes. Basically, South Korea and Israel look like they’re being promoted to “developed countries” status, while Kuwait, UAE and Qatar might be moving in to take their place.
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{ 4 comments }
Thanks for the BLOG post! I’m so excited to be a part of the team. How’s “day one” going for you? I’ve started off with a walk, coffee (which you ALWAYS hear good and bad reports about :) , wheat toast and some fruit. By big deal is trying to put some healthier habits in place…which I need to work on.
I’d personally invest in a Sharia ETF if I thought that the underlying stocks were good. So, to that extent I would do the same thing as you did, viz. going through the top holdings first.
But, I don’t know if they will grow a lot bigger outside their target market because the awareness levels are low. So unless they actively campaign it to people outside the target market, I have my doubts on how much they will grow.
I agree with you, Manshu, for me it’s preferable and easier to invest in the underlying stocks. Also because many ETFs contain overlaps of the same underlying stocks anyway, so it’s not always perfect diversification.
Congratulations to S&P for the Shariah Index. I believe it’s a welcome addition and recognition of the growing interest in ethical investing! The majority of investors want to invest ethically. The current financial mess was all about ethical lapses and so investors have become much more interested than ever before concerning ethics and investing.
I run one of the world’s most popular ethical investing sites and I welcome your readers to my site at http://investingforthesoul.com/
My site also covers the latest global news and research related to ethical investing.
Good luck and best wishes to your readers, Ron Robins
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