Building on S&P’s new Sharia-compliant index. “Sharia ETF poised for launch,” from the Globe and Mail, May 29:
Islamic financial services company UM Financial Inc. has teamed up with Jovian Capital Corp. (JOV-T 7.500.456.38%) in a bid to list Canada’s first sharia-compliant exchange-traded fund (ETF).
On Wednesday, Standard & Poor’s launched the S&P/TSX 60 Shariah Index. In compliance with Islamic law, the index avoids firms involved in financial services, alcohol, gambling and pork products.
As if there existed a compartmentalized Sharia that excludes the many nastier aspects of the system (beheadings, amputations, inequality of men and women, believers and unbelievers before the law), which, we’re endlessly assured, are just “cultural.”
The proposed product from UM and Jovian would be based on the S&P/TSX 60 Shariah Index so the two firms are in discussions with Standard & Poor’s to get a licence for the new index to start the Islamic ETF later this year. Eventually, “the goal is to launch a family of ETFs,” UM chief executive officer Omar Kalair said yesterday.
The sharia ETF would target Canada’s Muslim population (which numbers about one million), as well as foreign investors, Mr. Kalair said in an interview.
Jovian’s BetaPro Management unit is a provider of leveraged and other ETFs, while its AphaPro Management unit has actively managed ETFs. “Any product launched would come from BetaPro,” Mr. Kalair said.
In recent years, sharia-compliant ETFs have popped up in various countries including Britain, India, Singapore, Dubai, Malaysia and South Africa. In March, a sharia gold ETF was launched in Dubai.
Barclays Canada, which administers the iShares ETFs and is the largest ETF provider in the country, “has no plans to go down this route,” said Oliver McMahon, its director of product development. “It’s not in our existing product pipeline.”
Jasmit Bhandal, a spokeswoman for Standard & Poor’s in Canada, said there have been talks with ETF, mutual fund and structured products providers for use of the S&P/TSX 60 Shariah Index, but nothing is final. But a licence with an ETF provider is typically an exclusive one, she said.
A couple of sharia-compliant mutual funds are sold in Canada, but both have less than $2-million in assets.
A Toronto-based investment firm, frontierAlt Management Ltd., launched Canada’s first sharia-compliant mutual fund, frontierAlt Oasis Canada, in 2007. The firm also later started sharia-compliant funds frontierAlt Oasis World and frontierAlt Global Income funds, but these were closed last fall because it was no longer cost effective to run them, said Taras Hucal, president of frontierAlt Management.
The two Oasis stock funds invested in firms in the Dow Jones Islamic Market Indexes. The income fund invested in sukuk, which is similar to conventional bonds, but pays out a share of revenue from a designated pool of assets or services rather than interest. Islamic principles prohibit receiving interest income.