By Matt Smith
A London-based fund manager hopes a pioneering Islamic finance certification can boost sharia-compliant equity investments worldwide and help ensure Muslim clients’ wealth is deployed to meet both their religious ideals and benefit society. Most sharia-compliant equity funds focus on excluding haram industries such as alcohol, tobacco, weapons, pork and gambling.
Yet such a methodology has limitations, according to a recent report by Jupiter Asset Management, with this screening process “failing to examine how companies’ products or services are produced, as well as the positive or negative impact that companies can have on broader society and the environment”.
Jupiter advocates also applying the more nuanced concept of tayyib, which means “wholesome and an aspiration for excellence and goodness in all aspects of life”, the report states. The Islamic Finance Council UK and Global Ethical Finance Initiative last year launched The Tayyib Project, which will create a seal, or approval, for investment products that are both sharia-compliant and meet broader sustainability ideals.
“Tayyib is trying to give customers’ (greater) visibility and transparency on what a fund is doing,” said Salman Siddiqui, investment manager for global emerging market equities at Jupiter Asset Management. “For asset managers like Jupiter, to get this tayyib seal we need to demonstrate we incorporate tayyib principles into our investment process.
“That means going beyond rudimentary mechanical screening of excluding certain sectors and thinking about how those products and services are produced, to include the impact on the environment, society, and integrating those ESG considerations into the investment process.”
According to Morningstar, less than 0.2 percent of assets under management worldwide are sharia-compliant. Over the past decade, environmental, social and corporate governance-orientated equity funds have grown nearly 300 percent, whereas sharia-compliant funds have expanded 87 percent during the same timeframe, said Siddiqui, whose company had $61.4 billion of assets under management as of September 30.
“If Muslims were able to incorporate these broader Islamic values more effectively into their investments, could we see greater momentum in terms of asset growth?”, he said. “It’s about going back to the spirit of what Islamic finance and sharia investing should be about. Ultimately, what is the purpose of sharia? It’s to bring about greater social justice on this earth. And climate justice is social justice.”
A natural progression
Jupiter’s sharia-compliant Emirates Emerging Market Equity Fund, which it runs in partnership with Dubai’s top bank Emirates NBD, invests mostly in global emerging markets and had $10.9 million of assets under management as of September 30. Fund investors include institutions in the United Arab Emirates and Malaysia.
“We believe there’s an opportunity in the UK as well, particularly in the pension market. Increasingly, companies are aware that they need to provide something for Muslim employees,” Siddiqui said. Siddiqui said his fund’s tayyib principles were also closely aligned with those of the United Nations Global Compact, which calls on corporations to prioritise the likes of human rights, workers’ rights and environmental protection.
“The natural evolution from sharia to tayyib is possible because there is much more accurate ESG-related information available now than there used to be,” the report states. Jupiter’s sharia-compliant fund has a “very concentrated” portfolio spanning 30-40 stocks across about 12 countries including India, China, Taiwan and Saudi Arabia.
The fund was up 8.2 percent in the 12 months to September. It benchmarks itself against the MSCI Islamic Emerging Market M-Series Index, which gained 3.9 percent over the same period. He also forecasts that China, whose real estate market troubles have caused broader economic problems, will perform better from 2024. That will benefit other emerging markets, which often provide the raw materials for Chinese heavy industry.
“We’re probably past the worst in China,” said Siddiqui, citing India, Indonesia and Brazil as strong performing emerging market economies.
