// New Shariah Index follows letter of law (Toronto)
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« on: May 27, 2009 08:11 PM »


Wednesday, May 27, 2009


New Shariah Index follows letter of law
Eric Lam,  Financial Post  

 
Standard & Poor's introduces a sharia compliant TSX index Wednesday, looking to tap into the rapidly growing Islamic investor community in Canada and abroad.


The S&P/TSX 60 Shariah Index recategorizes equities on the S&P/TSX 60 and excludes all those that do not comply with Islamic law, which is based on the Qur'an holy book. These include companies involved with alcohol, entertainment, pork-related products, tobacco and financial services. As well, companies with certain ratios of cash, leverage, and involvement in non-compliant business activities do not qualify.


Banks are excluded because investors are not allowed to profit from interest, which is considered an unequal distribution of risk.


Alka Banerjee, vice-president of global equities at S&P, said there has been plenty of interest from asset managers already for the new index.


"It's still very young, maybe walking but not yet running," she said. "We'll find out over time what feedback is but we've gotten solid queries."


There are 25 companies on the new index with a combined market capitalization of $328.7-billion, or roughly 73% of total Canadian equity market cap.


Commodities dominate the index, which is very closely tied to its parent. Top 10 holdings include EnCana Corp., Potash Corp. of Saskatchewan and Suncor Energy. BlackBerry maker Research in Motion is also represented.


Other excluded sectors are telecommunications, industrials and utilities.


The companies on the index are evaluated once a month by outside agency Rating Intelligence Partners, and then passed on to a panel of four sharia scholars with financial backgrounds, all based in the Middle East.


The index maker uses the same logistics for its entire sharia family, leading to economies of scale and the ability to create indices for any market, Ms. Banerjee said.


S&P has 10 other investible sharia indices covering 52 markets and 11,000 securities around the world. There are specific indices for Japan, Europe and Asia. S&P also has 13 global benchmark and sector-specific sharia indices.


The S&P 500 Shariah Index, measuring the U. S. equity market, was the company's first foray into such instruments and debuted with two others in December, 2006.


"Sharia indices have been around for a long time, but interest has only picked up in the last three or four years," Ms. Banerjee said. "We were very surprised at the strong response so we speeded up service."


While S&P's other sharia indices are already available, the retail market here remains "fragmented" and S&P derives most of its sharia interest from the Middle East and South East Asia.


"The question is whether the demand for Canadian equities is in Canada or from outside Canada," Ms. Banerjee said.


S&P also faces stiff competition from other index makers, such as Dow Jones and FTSE Group, which announced its own new sharia index on the Stock Exchange of Thailand yesterday.


"Dow Jones was first ... All major index providers have sharia offerings but we have the deepest," she said.


Sharia indices are one of the newest categories of socially responsible investments (SRI). These are usually funds or portfolios built on companies that match up with an invesetor's social, ethical and political beliefs.


Ms. Banerjee does not consider the index a straight SRI because it is directed at investors of a specific religion.


While a common complaint of SRIs is that they may limit growth potential, both the S&P 500 and Europe 350 sharia indices have actually outperformed their secular counterparts over a five-year period from 2003 to 2008.


"We're not necessarily looking at outperformance. It's a strategy for better governance and religious beliefs."


This profit is likely because sharia investors have avoided steep losses from financials, but even if the situation were reversed the Muslim faith prepares them for that risk. And that is the greater purpose of the index.


"A sharia investor can be comforted to know what they're buying is compliant today and ongoing," she said.




erlam@nationalpost.com


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« Reply #1 on: May 27, 2009 08:16 PM »

S&P launches Canadian sharia-compliant index

Boyd Erman

Globe and Mail Update, Wednesday, May. 27, 2009 03:04PM EDT

Standard & Poor's is launching a Canadian stock index to give investors who follow Islamic law a guide to the country's equity market – but those who follow it had better be devoted to resource stocks.

The index can be used as a benchmark or model for funds created to invest in Canada in a manner that is compliant with Islamic law.

The S&P/TSX 60 Shariah includes the biggest stocks in Canada that Islamic investors are allowed to invest in, which means no banks, no pork producers, no entertainment companies and no gambling. It also means no investment-management companies.

As a result, almost 80 per cent of the index is comprised of energy and mining companies.

It's the second such index in the country, following on the heels of the Dow Jones Islamic Market Canada Index. For S&P, it's one of more than 50 Shariah indexes around the world.

“Shariah investors around the world have the same requirements that a conventional investor has, that means they like geographical diversification, they want sectoral diversification, they want the whole kaboodle,” said Alka Banerjee vice-president of Standard & Poor's Index Services “Canada is an integral part of any global equity portfolio strategy.”

Still, some investors are concerned about the concentration of the index in energy and mineral stocks, which are mostly all that's left when all the types of companies that aren't allowed are stripped out of Canada's already resource-heavy market.

“That's fairly heavy concentration,” said Glenn Moore, vice-president of Global Prosperata Funds Inc., a Toronto-based firm that offers a sharia-compliant mutual fund.

Global Prosperata's Iman Fund doesn't just invest in Canadian stocks, instead choosing to look around the world to become more balanced, Mr. Moore said. He said his firm would look at a Canadian only fund but “we'd have to really examine the concentration issue because there's so much out there that we couldn't invest in Canada. It really limits you.”

It also guarantees a wild ride. The existing Dow Jones Islamic Market Canada Index is down almost 44 per cent in the year leading up to April 30, thanks in large part to its heavy weighting in energy stocks.

The sharia investing offerings in Canada are tiny at the moment, with only a handful of funds such as the Iman fund that follow Islamic law. So far, the Iman fund and its main competitor each have less than $2-million in assets.

S&P is hoping that more will spring up, because the index company makes money by licensing indexes such as the S&P 60 Shariah to fund companies that want to use it as a model or a benchmark. So far, none has done so, but there have been inquiries, said Ms. Banerjee.

Mr. Moore estimates that, given the size of the U.S. market, Canada's Muslim community of approximately one million people could support funds with as much as $100-million in assets.

The reason the sector has lagged in Canada is that there haven't been enough funds to meet demand, he said.

“I think there's a lot of potential out there,” he said.

“The availability is becoming more and more apparent and the voice from the community is becoming a little bit louder and the demand for these kinds of products is becoming louder.”

The biggest community of users is likely outside Canada, with most of the sharia-compliant investing world centred in the Middle East.

Many investors in the Middle East have yet to move into Canadian equities, brokers who have tried to sell Canadian stocks to buyers in the region say.

The S&P/TSX 60 Shariah index's top holdings are:

EnCana Corp. (ECA-T59.670.300.51%) (12%);

Research In Motion Ltd. (RIM-T87.051.201.40%) (12%);

Potash Corp. (POT-T126.85-4.01-3.06%) (9%);

Barrick Gold Corp. (ABX-T40.75-0.44-1.07%) (9%);

Suncor Energy Inc. (SU-T37.350.731.99%) (8%);

Goldcorp. Inc. (G-T42.270.020.05%) (7%);

Petro-Canada (PCA-T46.661.012.21%) (5%);

Talisman Energy Inc. (TLM-T17.920.100.56%) (4%);

Canadian Oil Sands Trust (COS.UN-T27.020.853.25%) (3%);

Cameco Corp. (CCO-T29.090.040.14%) (3%).

 

Your heart will not truly open until you understand Surah 21 : Verse 92  (Al-Anbiya: The Prophets)

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