Religious Muslims Now Have an ETF to Call Their Own

You must say this for Muslims. They’ve known for hundreds of years not to trust the bankers. By not holding financial stocks, mutual funds based on Muslim principles have done quite well the past two years as the financial-services sector dragged down the rest of the economy.

So, it shouldn’t be surprising to see the first U.S.-listed ETF focused on Muslim principles. The real question is what took so long? The provider, Javelin Exchange Traded Funds, a brand-new independent ETF firm, started building the firm from scratch about 18 months ago. It’s nice to see amid the ETF industry’s consolidation new firms entering the market.

Just two days before July 4 — was there any symbolism in that date? — Javelin entered the market with the launch of its first ETF, the Dow Jones Islamic Market International Index Fund (JVS). The fund trades on the NYSE Arca and tracks the Dow Jones Islamic Market Titans 100 Index, a float-adjusted, market capitalization-weighted index consisting of 100 large foreign companies. The companies represent 23 countries and 18 currencies. Among country allocations, at the end of May, the United Kingdom posted the largest at 21.04% of the index, followed by Canada (10.71%), Japan (9.83%) and France (9.82%). The ETF charges a management fee of 0.68%.

In terms of portfolio creation, religious-based funds draw a significant amount of money from people who realize the need to invest in stocks, but don’t want their investment assets to fund activities outside their religious beliefs. Investors can find funds for Presbyterians and Catholics as well as Muslims. The beauty of these funds is that the fund providers vet their portfolio holdings for strict adherence to religious law so you don’t have to. Hence, if you’re a believer, you can still go to Heaven holding these portfolios. Not surprising then, most seem to follow a socially responsible investing strategy.

So, what kind of industries fall off the Muslim buy list? Anything forbidden by the Koran is screened out of the fund, such as alcohol, gambling, pornography and pork products. In addition, Shariah law objects to the borrowing or lending of money with interest. This knocks most, if not all, financial stocks, off the portfolio screen. According to Javelin, the index’s largest sector weighting as of May 29 was oil & gas, followed by basic materials, health care, technology and telecommunications.

“With over seven million Muslims in the U.S, we were surprised to discover that the investment needs of this vital population were not being met,” said Javelin President and Founder Brent Firth in a written statement.

Well, that’s not entirely true.

Amana Mutual Funds and Azzed Asset Management currently run funds according to Sharia law. Because of the Koran’s prohibition on moneylenders, Islamic-based mutual funds have significantly outperformed the broader market. The Amana Trust Income (AMANX), at $691 million the largest mutual fund that follows the Koran, has consistently beaten the S&P 500 for six out of the last seven years, with the other year falling below the index by just 0.1%. In 2007, when the bubble popped, Amana posted a gain of 14.1% compared with the 5.5% return from the S&P 500. And while Amana couldn’t avoid a loss last year — it’s a stock fund after all — its 2008 loss of 23.5% outperformed the S&P 500 by 13.5 percentage points, according to Morningstar.

There’s even a Halal index fund, the Iman K (IMANX), which follows the Dow Jones Islamic Index. That, however, posted a 40% plunge last year, compared to the 37% loss on the S&P 500.

But there hasn’t been an ETF Muslims could feel confident investing in. With an expense ratio nearly 50% lower than the Halal mutual funds, Muslims can now take advantage of the ETF’s benefits.

This, however, may be the year Islamic-based funds fall behind the broader market. During a recession, people do what makes them feel good and that means drinking, smoking, porn, gambling and overeating many pork-based products. In addition, with the financial stocks beaten down so badly they have a lot of upside. I must add, that so far this year, the Muslim mutual funds are still beating the S&P 500.

In addition, the new Islamic ETF doesn’t hold any U.S. stocks, so it won’t be able to directly benefit from any recovery in the U.S. economy.

“We went for an international fund because the mutual funds held domestic stocks and this was a unique market which didn’t have a fund tracking it,” says Javelin spokesman Charles Tennes. He adds Javelin may do an Islamic fund with domestic stocks in the future, but that’s not in the firm’s immediate plans.

Side Note: Ever since the Standard & Poor’s Depositary Receipts (SPY) received the nickname Spyder for its initials, SPDR, ETF firms have loved to give themselves clever, cutesy names. The first ETFs to track international markets were called the World Equity Benchmark shares, or WEBS. Get it? SPDRs and WEBs? So, Javelin Exchange Traded Funds wants its funds to be called the JETS. Here’s to hoping Javelin President Brint Frith likes the nickname “Benny”; that his firm is not confused with the NETS, the failed ETF series out of Northern Trust, that no one makes the joke NETS JETS, or that anyone associates them with the New York Jets football team.

• More on choosing the right ETF

Comments

[maelstrom:]

great..just when you think PC can t get any better

Jul 07 01:29 PM

[Mafeking:]

Investment tips from Allah - they work every time.

Jul 07 01:48 PM

[spald_fr:]

I'm going to pay particular attention to the "head and shoulders" formation and how these Muslim investors react.

Jul 07 03:34 PM

[Marli:]

Let's see-
(1) They don't invest in cigarettes or alcohol (mature industries with little growth potential)
(2) Avoid financials that are non-shariah compliant (no toxic derivatives, excessive leverage, miniscule counterparty risk)
(3) Their performance has been solid (beating the S&P 500 6 out of the past seven years)
(4) Performs well in times of great financial instability (returned 14% during the crash of 2008, a gain equivalent to that of US treasuries)
(5) They serve an underrepresented investor base with a significant pool of wealth.

I'm interested.

When I started out as a rookie stockbroker in NY, some of our wealth management specialists had huge clients - Americans, mind you - who were practicing Muslims and wanted to invest their money accordingly, only they felt as though Western markets didn't really cater to them. Open your eyes, guys. The anglo-saxon model isn't the only one out there, and there is a serious demand for alternatives.

Jul 07 04:02 PM

[Marli:]

I'm disappointed by the lack of maturity and clarity in some of the frankly juvenile replies I have seen above. Snide, misinformed comments add nothing to the debate other than to expose the ignorance of the posters.

Jul 07 04:11 PM

[bcncv:]

It's true that these sectors have outperformed the markets over the past few years. However, there's also the Vice Fund (VICEX) which ONLY invests in alcohol, tobacco, gambling, and defense stocks. The Vice Fund has also generally outperformed the markets for the past few years.

I imagine most of the difference between these funds and the market can be attributed to lack of exposure to financial stocks, as opposed to any ethical factor.

Jul 07 04:18 PM

[Andrew Butter:]

Nice try and it's an important subject.

The first thing I noticed was that the editors of SA had put a graphic of the Blue Mosque, that's pretty but the drivers of Islamic Finance are UAE, Saudi and Bahrain, and the best image would have been either DIFC or the Bahrain World Trade Center.

The second thing is that it's perhaps slightly insulting to Muslims to suggest that they might not be religious (I am not a Muslim but I deal with them a lot), all Muslims are believers by definition, and are by definition, religious.

I think that a lot of the flack that you got, (I noticed "how do you short satan?") was that you brought "religion" into it at all.

Most Muslims that I know simply prefer Islamic Finance because it fits with their values. That's it, it's not a religious thing, they just happen to believe that The Prophet Mohamed had it right about a lot of things.

Not a lot of people know that Prophet Mohamed was a trader, although his first wife was a much more successful trader than him.

The basic idea of Islamic finance is basically (a) everyone has to have skin in the game (b) it is unethical to make money out of someone else's misfortune.

The way I read the New look Financial regulations in USA, that's the way they seem to be going.

Jul 07 06:08 PM

[oas:]

marli andrew butter and others, i want to thank you for your comments. its sad to see even on this site i still witness idiots from all walks of life. those who dont know anything on islam...which 99% of you dont, i strongly suggest you read on islam..i can turn around and say..all capitalists are murderers..didnt they drop the atomic bomb??.and loads of comments..but it wont get us anywhere..so again i appreciate those who have made positive comments on islam and muslims..and for the record, your "capitalists" anglo saxon "barbarians" be european or north american, have actually studied the islamic financial models and economics and have stated many positive comments..wishing that it could apply to this society..shalom, salam peace

Jul 07 09:39 PM

[BPYHO:]

Don't trust bankers or don't trust the people they view as running the banks? :)

Jul 07 10:07 PM

[spald_fr:]

Don't kid yourself, Marli. Everyone who posts here exposes ignorance. Some more than others, but everyone nonetheless.


On Jul 07 04:11 PM Marli wrote:
>>> add nothing to the debate other than to expose the ignorance of the posters.<<<

Jul 07 10:42 PM

[bigmoney:]

We need a redneck ETF, that also excludes financials (international banksters), but includes guns, alcohol, tobacco, gambling, pit bulls, strip clubs, and miscellaneous "survival gear".

Jul 07 11:48 PM

[Maxe Paul:]

Personally im not racist and do not discriminate, i think "ALL" ETF's are a load of rubbish. Im surprised that a muslim ETF is not already out there.

I would love to see an ETF for Cats, and one for Dogs (although many ETF's are dogs!), we should not forget babies, who also deserve their own ETF, made up of childrens clothes and pram companies.

BTW you brought up a good point, maybe clowns deserve an ETF made up of cosmetics, wigs and big shoe companies.

Seriously where will all this ETF garbage end?

Jul 08 07:05 AM

[SA Editor M...:]

SA has removed some of the more egregiously ignorant and ethnically repellant comments.

Jul 08 11:15 AM

[Bobco23:]

Peace?

This just in: from the Noble Quran, Surah 9:5

"Fight and slay the Pagans (non-Muslims) wherever you find them, and seize them, beleagure them, and lie in wait for them is every strategem (of war).."

You might also want to "educate" yourself by also reading the following Surahs: 4:89,47:4,9:123,8:67,8... and 5:51.
You can find all of them on the internet.

Isalm is the only major religion that REQUIRES believers to murder unbelievers.

The sarcastic comments you denegrate are on target. You, sir, are the ignorant one.






On Jul 07 09:39 PM oas wrote:

> marli andrew butter and others, i want to thank you for your comments.
> its sad to see even on this site i still witness idiots from all
> walks of life. those who dont know anything on islam...which 99%
> of you dont, i strongly suggest you read on islam..i can turn around
> and say..all capitalists are murderers..didnt they drop the atomic
> bomb??.and loads of comments..but it wont get us anywhere..so again
> i appreciate those who have made positive comments on islam and muslims..and
> for the record, your "capitalists" anglo saxon "barbarians" be european
> or north american, have actually studied the islamic financial models
> and economics and have stated many positive comments..wishing that
> it could apply to this society..shalom, salam peace

Jul 08 12:35 PM

[searcher:]

Disdain is the mirror that reveals all faces save our own.

Jul 08 01:29 PM

[SimpleInstr...:]

Don't believe the hype; the worlds armies have banded together to kill many people on their land around the world. Those being killed and/or pushed toward camps are Muslims. No more WMD's but we have them... killing is justified as long as the courts rule them terror cells. We have not yet seen evil Muslims uniting the worlds armies to kill our way of life and promote whoredom. Just a thought mate... perhaps we are the driver of evil. Not a Muslim, but I have empathy for those caught up in all the garbage.

On Jul 08 12:35 PM Bobco23 wrote:

> Peace?
>
> This just in: from the Noble Quran, Surah 9:5
>
> "Fight and slay the Pagans (non-Muslims) wherever you find them,
> and seize them, beleagure them, and lie in wait for them is every
> strategem (of war).."
>
> You might also want to "educate" yourself by also reading the following
> Surahs: 4:89,47:4,9:123,8:67,8... and 5:51.
> You can find all of them on the internet.
>
> Isalm is the only major religion that REQUIRES believers to murder
> unbelievers.
>
> The sarcastic comments you denegrate are on target. You, sir, are
> the ignorant one.
>
>
>
>

Jul 08 02:39 PM

[Andrew Butter:]

It's funny, I never saw anything in the term sheet for an Islamic Finance instrument anything about non-believers being slaughtered.

And I never saw anything in an MBS term sheet that said anything about anyone going to hell, pity about that perhaps?

But err...I thought this debate was supposed to be about finance, not religion?

By the way it's those "darn murderers" that are financing a bit part of the US deficit. Perhaps it's time to send the money back?

And by the way, they are not aiming to put much more in.


On Jul 08 12:35 PM Bobco23 wrote:

> Peace?
>
> This just in: from the Noble Quran, Surah 9:5
>
> "Fight and slay the Pagans (non-Muslims) wherever you find them,
> and seize them, beleagure them, and lie in wait for them is every
> strategem (of war).."
>
> You might also want to "educate" yourself by also reading the following
> Surahs: 4:89,47:4,9:123,8:67,8... and 5:51.
> You can find all of them on the internet.
>
> Isalm is the only major religion that REQUIRES believers to murder
> unbelievers.
>
> The sarcastic comments you denegrate are on target. You, sir, are
> the ignorant one.
>
>
>
>

Jul 08 04:36 PM

[oas:]

wow..did u google that???..ur wrong its doesnt say that anywhere..u sir are misinformed like so many others..but then again u wouldnt know...if u dont belive me..go to the local mosque and ask the imam who is a learned individual and let him explain to you instead of going on the internet and get the wrong misinterpretation..wow, i can believe u use the internet as your source..people have forgotten to pick a book and read...anyways i dont want to continue making comments as this is not a political/religious website..but heres something since islam is the only religion that preaches hate and violence..my sarcasm..and since u and others start attacking my faith with no conscience and no respect to over a billion of us, id like to point out a couple of verses from some holy texts from other faiths..and i can provide a host of verses from the 2 other faiths...before u attack mine..look ar your history, your faith, your leaders etc..read history and comment with conscience

luke 19 verse 27..

“The Lord is a man of war," - (Old Testament: Exodus (15:3)

Think not that I am come to send peace on earth; I came not to send peace, but a sword." - (Jesus in Matthew 10:34))

do u want me to send more???..so therefore in conclusion,you dont know much..in fact you know nothing about this great faith islam..u are angry white man who just listens to what the idiot box..TV..spews out and you wholeheartedly trust it..read..

On Jul 08 12:35 PM Bobco23 wrote:

> Peace?
>
> This just in: from the Noble Quran, Surah 9:5
>
> "Fight and slay the Pagans (non-Muslims) wherever you find them,
> and seize them, beleagure them, and lie in wait for them is every
> strategem (of war).."
>
> You might also want to "educate" yourself by also reading the following
> Surahs: 4:89,47:4,9:123,8:67,8... and 5:51.
> You can find all of them on the internet.
>
> Isalm is the only major religion that REQUIRES believers to murder
> unbelievers.
>
> The sarcastic comments you denegrate are on target. You, sir, are
> the ignorant one.
>
>
>
>

Jul 08 07:18 PM

[bob will:]

I think it's great that the Moslems have ETFs. I will be delighted to have the Moslem ETFs buy all my stocks at a nice profit to me at the end of each bear market rally. ETFs are long term investors; we traders need ETFs to sell to. Hopefully, I can sell all my stocks to the Moslems in four or five bear rallies, until the DJIA crashes down to ONLY ONE THOUSAND. The Moslems won't care--they think long term--25 to 50 years. And in 50 years, the DJIA will be at all-time new highs of 20,000+. So everybody wins: us traders in the short run: the Moslems in the long run.

Jul 08 11:32 PM

[SimpleInstr...:]

Bobco I thank you for your input, I know all about prayer and spent 21 years in the military. We better hope your correct as we bring heaven to other lands.

On Jul 08 02:39 PM SimpleInstrument wrote:

> Don't believe the hype; the worlds armies have banded together to
> kill many people on their land around the world. Those being killed
> and/or pushed toward camps are Muslims. No more WMD's but we have
> them... killing is justified as long as the courts rule them terror
> cells. We have not yet seen evil Muslims uniting the worlds armies
> to kill our way of life and promote whoredom. Just a thought mate...
> perhaps we are the driver of evil. Not a Muslim, but I have empathy
> for those caught up in all the garbage.
>
> On Jul 08 12:35 PM Bobco23 wrote:

Jul 18 09:03 AM