Sharia investing for non-US investors

From Bogleheads

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.

UCITS Sharia-compliant ETFs
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.

Non-US mutual funds offering Sharia compliance
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.

UCITS ESG index ETFs offering "moderate" Sharia compliance
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

  1. 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.
  2. 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

  1. "Seven Prohibited Industries in Islamic Financial Investments". Dummies.com. Archived from the original on August 23, 2021. Retrieved April 25, 2021.
  2. 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