Javelin Plans to Shutter Sharia Compliant ETF

Sep.17.10 | About: JETS Contrarian (JCO)

Javelin Exchange Traded Shares, the New Jersey-based issuer that jumped into the ETF game in 2009, has announced that it will shut down the Dow Jones Islamic Market International Index Fund (JVS). The fund, which began trading in July 2009, had been slow to gather assets and build up trading volume. October 19, 2010 will be the final day of trading for JVS.

JVS sought to provide an ETF option for investors looking to implement strategies consistent with Shari’ah, or Islamic law. Such a strategy excludes businesses involved in conventional financial services (such as banking or insurance), as well as alcohol, gambling, pornography, tobacco, and pork-related food products. Javelin president and founder Brint Frith said:

With over seven million Muslims in the United States, we believe that Shariah-based investing has a promising future, but we found it difficult to reach target investors through the marketing channels typically used by ETFs.

The closing of JVS seems to represent a shift towards Javelin’s other ETF, the JETS Contrarian Opportunities Index Fund (NASDAQ:JCO). That ETF is linked to an index that seeks to replicate a contrarian strategy: investing in companies that have fallen out of favor with investors, but still maintain relatively strong fundamentals. The Dow Jones US Contrarian Opportunities Index is an equal-weighted benchmark that consists of about 125 individual securities. Frith said:

The contrarian fund is gaining traction, and we are now developing similar funds that provide strategic solutions to challenging market conditions.

JVS will become the 31st ETF to close its doors in 2010, joining products from WisdomTree (10), Rydex (12), Claymore (4), and Grail (2). Earlier this week, Geary Advisors announced that the Texas and Oklahoma ETFs would also be shutting their doors. The number of ETF closures is dwarfed by the number of new products to hit the market, but perhaps indicated that a wave of consolidation and contraction is beginning to sweep over the industry. There are currently about 350 ETFs with total assets of $25 million or less; while some of those funds represent recent launches that are just starting to grow, others have been around for several years without gaining traction with investors.

FaithShares also offers ETF products linked to faith-based strategies. That firm’s product line includes funds compliant with Christian, Methodist, Catholic, Baptist, and Lutheran values. Despite some impressive performance figures, those funds have also been slow to build assets; the five funds currently have about $10 million in aggregate AUM.

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