FINANCE Blo June 29, 202027ABEDI:
SAMIM
ABEDI
○ FundsaimtoattractMuslimsandChristians
whowanttoaligntheirmoneyandtheirvaluesFittingETFsfor
TheFaithful
THEBOTTOMLINE Fundswithreligiousscreensarestilla small
partoftheETFuniverse,butmoneymanagerssaythatmaymean
there’sa biguntappedaudience.○ AbediAs much as Samim Abedi loved his job as part of the
team that managed Google’s corporate investment
portfolio, he couldn’t always square the work with
his Muslim faith. He worried that some of the com-
panies whose securities he traded had ties to alco-
hol or tobacco or gambling.
So he quit to join Wahed Invest, which in
July 2019 launched the first exchange-traded fund
in the U.S. that’s compliant with Sharia, Islam’s reli-
gious law. It’s one of nine ETFs introduced in the U.S.
since the start of 2019 that incorporate faith-based
principles, bringing the total to 12. More are coming:
In June money manager Global X filed to launch a
bond fund reflecting Catholic values. “We’re all try-
ing to solve the same question,” says Abedi, Wahed’s
global head of portfolio management. “How do we
invest our wealth in ways that align with our ethics?”
Religion-based funds can differ on what they con-
sider ethical. A stock fund that caters to Catholics
shuns companies that sell weapons or exploit child
labor. Several ETFs for Muslims steer clear of any-
thing related to interest-based finance, which
the religion frowns upon. Those funds invest in a
Sharia-compliant alternative to bonds called sukuk,
which provide regular payments that are considered
profit-sharing rather than interest.
New religious ETF offerings come alongside the
boom in responsible investing, often referred to by
the shorthand ESG, for environmental, social, and
governance. Global assets in ETFs under the ESG cat-
egory have almost doubled in the past year, reaching
more than $110 billion, according to data compiled
by Bloomberg. There’s about $1.9 billion globally
in equity-focused religious and exclusionary ETFs.
That’s tiny, compared with more than $6 trillion in
overall ETF assets, but money managers see a big
untapped market. “We felt like it was a prime oppor-
tunity to go into a business where there really isn’t
much competition at the moment,” says Naushad
Virji, chief executive officer of SP Funds, another
ETF operator, about the Muslim investing space.
Abedi’s fund, Wahed FTSE USA Shariah ETF,
trades under the ticker HLAL, a nod to halal, an
Arabic word for “permissible.” It tracks an index
compiled by the FTSE Russell, which works witha board of experts that
determines each company
iscompliant. “They’re not just
rulesforthe sake of being difficult,”
saysAbedi.Similarly, the SP Funds S&P 500 Sharia
IndustryExclusionsETF follows a version of the S&P
500 index that’s screened for religious objections.
(SP Funds and S&P Dow Jones Indices, which cre-
ated the index, are unrelated companies.)
Defining ESG stocks in general is fraught—
different companies have different understandings
of the rules their clients want to follow. Religious
beliefs add layers of complexity, and disagreement
can be strong even within a religious group. “This
is a much-disputed area. What constitutes ethical
investing?” asks Luke Bretherton, professor of theo-
logical ethics at the Duke Divinity School.
Wahed’s ETF, for instance, doesn’t own banks or
companies that get revenue from the sale of alcohol
or pork products. Yet some of its top holdings, such
as Tesla Inc., carry a lot of interest-bearing debt. And
while makers or sellers of weapons are shunned by
indexes tracked by the Wahed and SP Funds, some
Muslim-based indexes allow those companies.
At Timothy Plan, which since 1994 has managed
what it calls Biblically oriented mutual funds, com-
panies that manufacture firearms are acceptable.
But it won’t hold Target Corp., because, among other
reasons, the retailer has a policy allowing people to
use the bathroom that corresponds to their gender
identity. According to founder Arthur Ally, shares
of Walt Disney Co. are also out, in part because
the company produces entertainment showcasing
“unbiblical” married lifestyles. “We refuse to invest
in companies that are pursuing an unholy agenda,”
Ally says. The company created four ETFs last year
after requests from financial advisers. The biggest
has about $142 million in assets.
Generally, ETFs need to cross the threshold of
about $50 million in assets to become a break-even
business for a money manager. The 6-month-old
SP Funds equity ETF has attracted about $25 mil-
lion since its debut. Wahed’s ETF has seen inflows
of about $35 million since its July 2019 launch. Abedi
says Wahed has set “ambitious internal sales targets”
as it markets to investors of all faiths, who may also
appreciate screens against tobacco or weapons. The
core goal, though, is to be true to Islam. There are
more than 3.45 million Muslims in the U.S. “A lot of
firms have shied away from catering to the Muslim
community more properly,” he says. “We’ve really
embraced it.” —Claire Ballentine and Vildana Hajric