Sharia investing for non-US investors
Sharia investing is investing according to a set of Islamic principles. Sharia investing for non-US investors looks at ideas that non-US investors might use to implement a Boglehead-style portfolio within these principles.
Sharia investing
Islamic principles discourage followers from promoting or advancing certain activities. Some of these activities are discouraged on religious grounds, but some are societal or environmental. Haram (forbidden) activities include:[1]
- Weapons and armaments manufacture
- Alcohol
- Gambling
- Adult entertainment and pornography
And:
- Tobacco
- Pork, pork-related products, and non-halal food production
- Cloning
- Non-Islamic financing
While the first four of these areas are usually non-negotiable, less conservative interpretations might be more relaxed about tobacco, pork, cloning, and financing. Conversely, more conservative interpretations might add the following to the list of forbidden activities:
- All financial services
- Music and video entertainment
- Hotels and retail that include alcohol operations
Sharia-compliant funds
The number of Sharia-compliant exchange-traded funds (ETFs) and mutual funds is limited. The screening process for their contents can be complex, lengthy, and consequently expensive. As a result, those that do exist have some possible drawbacks:
- Relatively high expense ratios (TERs) compared to ETFs and funds that have a wider investment remit
- Lower diversification, because of the restricted set of allowable investments
- Potential low daily trading volume for ETFs[note 1]
- Likely lower assets under management, increasing the chance of fund closure[note 2]
- Screening may result in a bias towards certain sectors. For example, healthcare and information technology.
Because of these limitations, some Sharia investors may find it acceptable to instead use Socially responsible investing (SRI) or Environmental, social and corporate governance (ESG) funds,[2] or to use a selection of sector-specific ETFs, in place of fully compliant Sharia funds or ETFs.
Sharia fund suggestions
Because of unfavourable US tax laws, most non-US investors will strongly prefer non-US domiciled ETFs and funds to anything that is US domiciled. Check your own tax situation carefully.
ETFs
The following ETFs are fully Sharia-compliant and non-US domiciled. They trade on major non-US stock exchanges, and will be widely available to investors worldwide.
Name ISIN, base currency and tracking indices |
Description and comments | TER | Exchanges | Trading currency |
Ticker |
---|---|---|---|---|---|
Stocks | |||||
iShares MSCI World Islamic UCITS ETF ISIN IE00B27YCN58 USD Tracking the MSCI World Islamic index |
Developed world Sharia-compliant stocks | 0.6% | London | GBP | ISWD |
USD | ISDW | ||||
Stuttgart | EUR | IUSD | |||
Swiss | USD | ISWD | |||
iShares MSCI USA Islamic UCITS ETF ISIN IE00B296QM64 USD Tracking the MSCI USA Islamic index |
USA Sharia-compliant stocks | 0.5% | London | GBP | ISUS |
USD | ISDU | ||||
Stuttgart | EUR | IUSF | |||
Swiss | USD | ISUS | |||
iShares MSCI Emerging Markets Islamic UCITS ETF ISIN IE00B27YCP72 USD Tracking the MSCI Emerging Markets index |
Emerging Markets Sharia-compliant stocks | 0.85% | London | GBP | ISEM |
USD | ISDE | ||||
Stuttgart | EUR | IUSE | |||
Swiss | USD | ISEM | |||
HANetf Almalia Sanlam Active Shariah Global Equity UCITS ETF ISIN IE00BMYMHS24 USD Actively managed |
Global Sharia-compliant stocks | 0.99% | London | GBP | AMAP |
USD | AMAL | ||||
Borsa Italiana | EUR | AMAL | |||
Xetra | EUR | ASWE |
Mutual funds
Investors in a few countries may have access to non-US domiciled Sharia-compliant mutual funds. Even in these countries, it may prove difficult to access these funds through normal retail channels.
Name Domicile, and tracking indices |
Description and comments | TER | Countries | ||
---|---|---|---|---|---|
Stocks | |||||
HSBC Islamic Global Equity Index Fund ISIN LU1569385302 Luxembourg domiciled Tracking the Dow Jones Islamic Market Titans 100 index |
Global Sharia-compliant stocks | 0.3%-1%, variable based on share class | Bahrain, Luxembourg, Qatar, Switzerland, United Arab Emirates, United Kingdom | ||
Bonds | |||||
BNP Paribas Islamic Hilal Income Fund Classic-Cap ISIN LU1150255971 Luxembourg domiciled Tracking the USD 3 Month LIBOR |
Sharia compliant Sukuk transferable securities | 1.25% | France, Germany, Ireland, Luxembourg, Switzerland, United Kingdom |
Other fund suggestions
These ESG ETFs are not fully Sharia-compliant, but overlap significantly with many Sharia investing principles,[2] and are not US domiciled. If you plan to use these ETFs, check that the sectors they exclude match your personal requirements.
Name ISIN, base currency and tracking indices |
Description and comments | TER | Exchanges | Trading currency |
Ticker |
---|---|---|---|---|---|
Stocks | |||||
Vanguard ESG Global All Cap UCITS ETF (Acc) ISIN IE00BNG8L278 USD Tracking the FTSE Global All Cap Choice Index Accumulating |
All-world ESG screened stocks | 0.24% | London | GBP | V3AB |
USD | V3AA | ||||
Swiss | CHF | V3AA | |||
Euronext | EUR | V3AA | |||
Deutsche Börse | EUR | V3AA | |||
Borsa Italiana | EUR | V3AA | |||
Vanguard ESG Global All Cap UCITS ETF (Dist) ISIN IE00BNG8L385 USD Tracking the FTSE Global All Cap Choice Index Distributing |
All-world ESG screened stocks | 0.24% | London | GBP | V3AM |
USD | V3AL | ||||
Swiss | CHF | V3AL | |||
Euronext | EUR | V3AL | |||
Deutsche Börse | EUR | V3AL | |||
Borsa Italiana | EUR | V3AL | |||
Bonds | |||||
Vanguard ESG Global Corporate Bond UCITS ETF USD Hedged ISIN IE00BNDS1W07 USD Tracking ESG screened corporate bonds from developed and emerging markets issuers Accumulating |
Global ESG screened corporate bonds | 0.15% | London | USD | V3GU |
Vanguard ESG Global Corporate Bond UCITS ETF USD Hedged ISIN IE00BNDS1X14 USD Tracking ESG screened corporate bonds from developed and emerging markets issuers Distributing |
Global ESG screened corporate bonds | 0.15% | London | USD | V3GD |
Vanguard ESG Global Corporate Bond UCITS ETF GBP Hedged ISIN IE00BNDS1T77 GBP Tracking ESG screened corporate bonds from developed and emerging markets issuers Accumulating |
Global ESG screened corporate bonds | 0.15% | London | GBP | V3GS |
Vanguard ESG Global Corporate Bond UCITS ETF GBP Hedged ISIN IE00BNDS1V99 GBP Tracking ESG screened corporate bonds from developed and emerging markets issuers Distributing |
Global ESG screened corporate bonds | 0.15% | London | GBP | V3GP |
Vanguard ESG Global Corporate Bond UCITS ETF EUR Hedged ISIN IE00BNDS1P30 EUR Tracking ESG screened corporate bonds from developed and emerging markets issuers Accumulating |
Global ESG screened corporate bonds | 0.15% | Borsa Italiana | EUR | V3GF |
Euronext Paris | EUR | V3GF | |||
Xetra | EUR | V3GF | |||
Euronext Amsterdam | EUR | V3GF | |||
Vanguard ESG Global Corporate Bond UCITS ETF EUR Hedged ISIN IE00BNDS1Q47 EUR Tracking ESG screened corporate bonds from developed and emerging markets issuers Distributing |
Global ESG screened corporate bonds | 0.15% | Borsa Italiana | EUR | V3GE |
Euronext Paris | EUR | V3GE | |||
Xetra | EUR | V3GE | |||
Euronext Amsterdam | EUR | V3GE | |||
Vanguard ESG Global Corporate Bond UCITS ETF CHF Hedged ISIN IE00BNDS1R53 CHF Tracking ESG screened corporate bonds from developed and emerging markets issuers Accumulating |
Global ESG screened corporate bonds | 0.15% | SIX Swiss | CHF | V3GX |
Vanguard ESG Global Corporate Bond UCITS ETF CHF Hedged ISIN IE00BNDS1S60 CHF Tracking ESG screened corporate bonds from developed and emerging markets issuers Distributing |
Global ESG screened corporate bonds | 0.15% | SIX Swiss | CHF | V3GH |
Notes
- ↑ An ETF's trading volume is not a complete measure of its liquidity. See: "Understanding ETF liquidity and trading" (PDF). Vanguard. Archived from the original (PDF) on October 6, 2022. Retrieved June 11, 2023.
- ↑ For example: "RL360 - Liquidation - Aberdeen Standard Islamic Global Equity fund". RL360. Archived from the original on October 17, 2021. Retrieved June 11, 2023.
See also
References
- ↑ "Seven Prohibited Industries in Islamic Financial Investments". Dummies.com. Archived from the original on August 23, 2021. Retrieved April 25, 2021.
- ↑ 2.0 2.1 "The alignment of Shariah and sustainable investing" (PDF). Schroders/Maybank Islamic Centre of Excellence. November 2019. Archived (PDF) from the original on December 22, 2022. Retrieved April 25, 2021.
External links
- Shariah-Compliant Funds Definition, from Investopedia
- Islamic finance products, services and contracts, from Wikipedia
- Sharia and securities trading, from Wikipedia
- Retirement Savings, the Muslim Way, from NYT.
- Seven Prohibited Industries in Islamic Financial Investments, from Dummies.com. (Archived from the original on August 23, 2021.)
- IslamicFinanceGuru, UK-based Muslim investment hub.
- The best socially responsible ETFs (SRI), from justETF.
- Bogleheads forum post: "Wiki: Sharia-compliant investing", MrCurious. April 13, 2021