Interview gif
As you have conducted extensive research around Shariah ETFs, what in your view are the main drivers for Shariah-compliant ETFs, both globally and in the US? The main drivers of the rapid growth of ETF industry have been as follows:
A) Lower Total Expense Ratio (TER). Shariah ETFs have a lower TER than typical Sha- riah funds. The typical Shariah ETF charges 0.50%-0.60% in the European exchanges, whereas Shariah funds often charge in ex- cess of 1%, according to EY Islamic Funds report.
B) Speedy Execution: ETFs can be purchased and redeemed in the same day, whereas tra- ditional mutual funds can be redeemed at market close.
C) Greater Transparency: ETFs are much more transparent than mutual funds. ETFs are required to report their holding on a daily basis, whereas mutual funds report only on a semi-annual basis.
D) ETFs are much more tax-efficient than mutual funds in the USA. This has been a major driver for the growth of the ETF indus- try. Some 70% of the assets under manage- ment in the ETF industry are located in the USA. The same driving factors will apply to the Shariah ETF industry. According to the EY Islamic Funds Report 2011, investors are demanding lower fees from their active man- agers, especially if they are not out-perform- ing their respective benchmarks.
It has been reported that ShariahShares Inc has received an exemptive relief order from the US Securities and Exchange Com- mission. What has this enabled you to do? The exemptive relief order enables an ETF sponsor to create a family of Exchange Traded Funds (active or passive) on the US Exchange. Our exemptive relief order allows us to create a family of passively managed ETFs, thereby creating a family of Shariah- compliant equity ETFs for investors.
ShariahShares Inc is expected to offer the very first family of global Shariah- compliant ETFs. Could you tell us how you feel about this, and how you are going to achieve this? We are very excited to be the first family of Shariah-compliant ETFs globally. We are very bullish about this opportunity. In addi- tion, there are no Shariah-compliant ETFs in the US market.
We will be partnering with world class finan- cial institutions and service providers, to help us deliver world-class ETFs at competi- tive Total Expense Ratio (TER) to our inves- tors.
It has been reported that you are already part of the New York Stock Exchange. Do you have any plans to join the London Stock Exchange, and if so, what will you be offering to London investors? To clarify, we are planning to launch our fam- ily of ETFs on the New York Stock Exchange and European Exchanges (Deutsche Bourse and the London Stock Exchange) as soon as we have secured our venture financing. Our European ETFs will be UCITS IV compliant.
On the London Stock Exchange, we will be offering a family of Shariah-compliant ETFs, focusing on various regions including US eq- uities as well as emerging markets. We will be creating ETFs which are in high demand by the investors.
What is your view on the indexation prod- ucts which you are currently working on, and which products need to be developed within the Islamic finance industry? The index providers have done a great job of creating a family of Shariah-compliant indexes. Wewill be working with the major index providers to develop our ETF product line. The index providers have created the following products:
A) Global Equity Indexes (i.e., developed markets, emerging markets and frontier markets).
B) Regional and Single Country Equity Index- es (i.e., US, GCC).
C) Sector Indexes (i.e., Technology, Health Care, Oil and Gas). D) Sukuk Index.
E) Shariah-compliant REIT index.
In addition, Shariah commodity indexes could be interesting to investors and indus- try participants.
Can you describe the various investment products which you feel can benefit the Shariah-compliant shares industry? We believe that the Shariah-compliant as- set management industry needs to develop more innovative investment management solutions and services for its clients. There are many areas in which new products can be created. The Shariah-compliant asset
2012 May Global Islamic Finance 37
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