What Are the Differences Between Halal Shares and Halal ETF?
Muslims nowadays look for ways to invest in accordance to Islam. Through Halal Shares and Halal ETFs Muslims have more options available. The launch of Hejaz Equities Fund (ASX: ISLM) Hejaz Property Fund (ASX: HJZP) and Hejaz Sukuk Fund (ASX: SKUK) marks the first listed Shariah-compliant ETFs on the ASX.
Hejaz vets companies for shariah compliance using guidelines set by an independent Shariah board. These guidelines prevent investment in socially or morally damaging companies. As a result, Hejaz Halal ETFs offer investors the peace of mind of knowing that their investments are being managed by their Islamic values.
Shariah-compliant shares are units of equity ownership companies that meet Islamic investment screens. Shares exist as a financial asset that provides an equal distribution to any residual profits in the form of dividends. Hejaz follows Shariah Ethical Screening processes set by independent bodies AAOIFI and GIFS.
Halal ETFs are for investors who want a variety of shariah-compliant assets. Hejaz benchmarks against MSCI World Islamic which targets clean energy, community services, and health care. Hejaz does not invest in companies and industries that are Islamically impermissible. These companies involve alcohol, pork, tobacco, weapons, gambling, and pornography.
Many conventional ETFs invest in companies that involve haram activities under Shariah law. iShares ITA and SPDR XAR are some examples of conventional ETFs that are not Shariah-compliant as they invest in Aerospace and Military (Investopedia, 2022). Many ETFs do not consider environmental, social, or governance (ESG) criteria when selecting investments. Shariah compliance and ESG criteria both seek to promote sustainable and responsible investing. However, Shariah compliance has extra requirements above ESG investing such as avoiding interest.
In contrast, the ESG benchmark assesses a company’s environmental, social, and governance practices. ESG considers a range of environmental factors when making investment decisions. These include a company’s climate policies, energy use, waste, and pollution. Social factors include a company’s stakeholder relations, diversity, justice, and fighting against racism.
While Shariah compliance and ESG criteria can sometimes overlap, but they are not the same. For example, an ESG-compliant fund may exclude military or tobacco investments but might invest in pig products and riba(interest). Shariah compliance adds more requirements concerning liquidity, morality, and honesty. Hejaz screens against companies that derive more than 5% of their gross revenue from impermissible income. Exclusions include alcohol, military, riba(interest), pig products, and conventional financial institutions.
Conclusions
Shariah-compliant Shares and ETFs offer some advantages for Muslims. Hejaz Financial Services provides Shariah-compliant ETFs and investment options. Muslim investors can invest in line with their values with the Hejaz Equities Fund (ASX:ISLM) the Hejaz Property Fund (ASX:HJZP) and the Hejaz Sukuk Fund (ASX:SKUK).
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