An Islamic finance consultancy will oversee the investment screening process to make sure the ETF remains consistent with sharia principles
An Islamic finance consultancy will oversee the investment screening process to make sure the ETF remains consistent with sharia principles © NOUFAL IBRAHIM/EPA-EFE/Shutterstock

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The world’s first actively managed sharia-compliant exchange traded fund will start trading In London on Wednesday, opening up a new avenue of growth in Europe’s fast-expanding $1.1tn ETF market.

The new fund will aim to achieve capital growth over the medium to long term investing in companies with high returns on capital and low leverage, while ensuring that its holdings are ethical, asset backed and subject to good governance.

The Almalia Sanlam Active Sharia Global Equity ETF is the result of a partnership between Almalia, a London-based Islamic finance specialist and Sanlam Investments, the UK arm of the Johannesburg-listed financial services company. Amanie Advisors, an Islamic finance consultancy, will oversee the investment screening process to make sure the ETF remains consistent with sharia principles.

“This ETF will be suitable for investors looking for an actively managed strategy with a focus on good governance, as well as those who wish to invest in a sharia-compliant way,” said Paul-David Oosthuizen, chief executive of Almalia.

Passive index-tracking sharia-compliant ETFs already exist such as the iShares MSCI World Islamic Ucits ETF (ISWD) and the iShares MSCI EM Islamic Ucits ETF (ISDE) provided by BlackRock.

Active ETFs carry the possibility of being able to outperform their benchmark. In addition, proponents of active ETFs claim the fund manager can add value by greater scrutiny of the securities the fund invests in — something that could be of interest to investors that wish to allocate funds according to their particular principles.

The new ETF, which will carry an annual total expense ratio of 99 basis points, will also be cross-listed in Germany and Italy in October. The fund will be run by a team led by Pieter Fourie, Sanlam’s global head of equities.

“The ETF will demonstrate that active management using high quality-based investment principles within the parameters of a sharia-compliant universe can add significant value to investors,” said Mr Fourie.

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Royal Bank of Canada will act as lead market maker but about 20 other market makers and authorised participants (large institutional investors) are also expected to participate in trading of the new ETF, which has been seeded with an initial $5m in capital to ensure adequate early liquidity.

Assets held in actively managed ETFs sold in Europe stood at $13.7bn at the end of August so they represent just a sliver of the overall European ETF market. Investors have allocated just $645m so far this year to actively managed ETFs sold in Europe, compared with $3.4bn over the whole of 2019, according to ETFGI, a data provider.

Operational distribution and marketing support will be provided by HanETF, a so-called white label platform that helps asset managers to bring new ETFs to the market.

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