- October 10, 2016October 10, 2016Read more
Comprehensive data helps investors make informed decisions
Market transparency will support growth of Sukuk sector
Launch reflects Dubai’s growth as global Capital of Islamic Economy
Dubai, October 10, 2016 – Nasdaq Dubai and IdealRatings today announced the launch of benchmark indices that track the performance of global Sukuk, in order to provide investors with new data to make informed trading decisions.
The data includes daily movements in price and total return, with monthly updates on yield and other key indicators. It tracks a universe of more than 1,800 Sukuk globally, with eligibility criteria including a minimum issue size of 100 million US dollars.
The Nasdaq Dubai IdealRatings Sukuk Indices family comprises the Global Sukuk Index, covering all currencies, and five sub-indices covering issuances in US Dollars only. The sub-indices reflect distinct segments of the market, which are: investment grade issuances; issuances by sovereigns; issuances by corporates; issuances by financial institutions; and GCC issuances.
His Excellency Essa Kazim, Governor of Dubai International Financial Centre (DIFC), Secretary General of Dubai Islamic Economy Development Centre (DIEDC) and Chairman of Dubai Financial Market (DFM), said: “These indices provide unique market transparency that will support confidence in the rapidly expanding Sukuk sector among investors around the globe, leading to increased liquidity and further issuances by a range of companies and other entities. As the globally leading centre for Sukuk listings, Dubai looks forward to playing a leading role in further Islamic capital markets initiatives as part of the emirate’s growth as the global Capital of the Islamic Economy.”
Mohamed Donia, CEO of IdealRatings, said: “The Sukuk market is still completely underserved and has a great potential as an asset class. Investors and asset owners need a reliable and accurate benchmark. We are delighted to work with such a great team at Nasdaq Dubai to better serve the market with our products and help to boost the Sukuk industry’s growth.”
Hamed Ali, Chief Executive of Nasdaq Dubai, said: “As well as providing a wide range of benchmarks that can support diverse investment strategies, the new indices are based on screening criteria that have been carefully selected to represent a true investable Sukuk universe. The indices add a valuable new stream of information to investors’ existing trading tools to help them make more successful short and long term trading decisions.”
Nasdaq Dubai is the world’s largest exchange for Sukuk by listed value, at 42.8 billion US dollars. IdealRatings is a global Ethical investments solutions provider serving institutions globally.
The Sukuk that are tracked for the indices are screened for eligibility by the end of each month, to allow for the inflow and outflow of constituents parallel to the primary market. The benchmark status of the indices will facilitate the development of new index-linked investment products.
The indices can be viewed at a dedicated website at www.nasdaqdubai.com/sukukindex as well as on Bloomberg.
List of indices:
Nasdaq Dubai IdealRatings Global Sukuk Index
Nasdaq Dubai IdealRatings USD Investment grade Sukuk Index
Nasdaq Dubai IdealRatings USD Sovereign Sukuk Index
Nasdaq Dubai IdealRatings USD Corporate Sukuk Index
Nasdaq Dubai IdealRatings USD Financials Sukuk Index
Nasdaq Dubai IdealRatings USD GCC Sukuk Index
About Nasdaq Dubai
Nasdaq Dubai is the international financial exchange serving the region between Western Europe and East Asia. It welcomes regional as well as global issuers that seek regional and international investment. The exchange currently lists shares, derivatives, Sukuk (Islamic bonds), conventional bonds and Real Estate Investment Trusts (REITS).
The majority shareholder of Nasdaq Dubai is Dubai Financial Market with a two-thirds stake. Borse Dubai owns one third of the shares. The regulator of Nasdaq Dubai is the Dubai Financial Services Authority (DFSA). Nasdaq Dubai is located in the Dubai International Financial Centre (DIFC).
About IdealRatings Inc.
IdealRatings®, Inc. headquartered in San Francisco, is a leading provider for faith-based and responsible Investments databases and information, serving top tier financial institutions in over 25 countries, across the globe. IdealRatings screens global Equities, REITs, and Sukuk to provides customized solution to capital markets investment managers.
- January 25, 2016Read more
Nestlē… Another Volkswagen’s replica on the way?
Despite being a leader in several sustainability indices and a committed signatory to the UN Global Compact since 2001, Nestlē has been criticized since the 1970s for its greediness. The country seems to have ignored the strong policies it has committed itself and has been subject to numerous boycotts due to controversies such as its “killer” baby formula, bottling California water during droughts, destroying rain forests and for the last couple of years, child labor within its supply chain.
The company, along with, Mars, The Hershey Co., Archer-Daniels-Midland and Cargill has been accused of purchasing cocoa from Cote d’Ivoire in full knowledge of that it used child slaves to harvest cocoa. A filed appeal to have the case dismissed was rejected by the US Supreme Court.
In defense of the multinational, the Fair Labor Association, an independent entity devoted to protecting workers’ rights globally, conducted 13 surprise monitoring visits to four cooperatives in the Ivory Coast supplying to Nestlē reporting evidence of forced and child labour and while there were improvements according to their report, Nestlē still has a long way to go.
It’s unclear whether child labour case could lead to the company’s downfall in terms of its stellar corporate responsibility standards reputation but it will certainly put a dent.
- January 11, 2016Read more
The European corporate sector has a huge demand for the long-term funding. As of the rising regulatory capital requirements by the financial institutions, there is a good opportunity here for Sukuk to act as another alternative of funding source.
Long-term funding via Sukuk has proved to be quite successful in recent years. The dollar Sukuk market has tens of issuances with maturities up to 10 and 20 years, many of which fund the financial institutions’ Basel 3 capital requirements. Further, Sukuk have also become a sound funding option for sovereign deficits or project finance worldwide, with various structures and nature of underlying assets.
- October 15, 2015Read more
ESG Methodologies. Back to the white board?
Volkswagen was considered one of the highest-ranking ESG companies in various market leading ESG indexes. Amazingly, the word “environment” was repeated 355 times in Volkswagen’s 2014 sustainability report, and was seemly a material issue the corporation has always addressed; which -of course- has been proven to be a lie. Now many providers are removing or have removed it from their indexes but unfortunately after the fact! Volkswagen stock almost lost half its value and investors paid the price for it. Looking at the board and management issues in past years, and adding a very high debt ratio on top of these issues, almost 145% of it market capitalization should have clearly removed Volkswagen from ANY ESG and Ethical investment universe. IdealRatings includes such measurements in its Ethical and ESG screens.
- July 13, 2015July 13, 2015Read more
Being relatively new to the market, Arabesque had to differentiate itself among other market players. The company created two funds “Arabesque Prime Fund” and “Arabesque Systematic Fund”, the new funds outperformed MSCI ACWI by 2.63% and 4.89% respectively, putting the Systematic Fund within the top 5% on return among its peers according to Morningstar calculations. Achieving this in less than 1 year since the fund inception was such a challenge, yet using the latest science and technology, the entity has successfully risen among the industry lead players. The company also has some big hitters from the academic world in advisory roles including Mohamed Donia, IdealRatings CEO.Check out the full article with details about Arabesque business methodology and advisors.
- July 1, 2015July 1, 2015Read more
One very interesting new principal in Ethical and Islamic fund management is Investment purification, despite being debatable, it is applied today by most prominent wealth managers across the globe.
But before we get into it, let us get back one step and Introduce permissible and non-permissible investments as per Shariah law. If you are new to Islamic Finance, the first thing they will tell you is that an Islamic investor shall invest only in permissible business activities/assets that are compliant with Shariah, such as Construction, Education, Telecoms, Aviation, etc. Whereas one shall not invest in non-permissible activities such as Riba, Alcohol, Pork, Gambling, Tobacco and I will leave aside revenue from Music businesses since the topic is a little bit too controversial.
However empirically, in today’s complex business and capital cycle, it’s becoming increasingly difficult to find a company whose activities (and therefore revenue) are completely compliant. You may find a fraction of its revenue derived from a non-permissible activity. Let’s take Lufthansa as an example, Industry Sector: Aviation, Shariah Compliant. Good, but what about its revenue from Alcohol sales? McDonald’s, Sector: Food Processing, Shariah compliant, but what is it’s revenue ratio from Pork sales? Similarly if you look into most companies you will find a fraction of its revenue that is non-permissible.
One would think that you can not invest in these companies, but in recent years Shariah scholars have concluded that as long as the main business activity and thereby the majority of revenue stream are derived from a Shariah compliant business activity, then investment is permissible, yet the investor shall Purify/forgo a fraction of the capital gains that is equivalent to the revenue ratio derived from the non-permissible activity. And that is what we call Investment Purification! It is the approach by which an investor can purify their returns from any fraction non-permissible revenue they have gained from investing in a compliant stock. And to surprise you more, Purification, despite still debatable, is applied by most prominent wealth managers across the globe. They may differ in application or calculation, but they all do purify their funds from any non-permissible revenue.
Calculating Purification ratio/amounts takes into consideration many factors including number of shares, days held and net income per share for each and every stock position in the portfolio. A mathematical logarithm that instantly gives you the amount of monetary return you need to purify every quarter.
Download now our application and calculate your own portfolio purification for free in Ramadan!
- March 31, 2014Read more
The United States is the largest firearms market in the world where the firearms industry now generates more than $10 billion a year in sales, and recently there has been a major momentum to control guns.
Despite such, firearms sales were up in 2013 higher than any other year over the past 5 years. It is ironic that with all recent firearm control campaigns, sales for firearms producing companies are up tremendously and their stocks performed really well last year!
Many still say that despite the high returns of the weapon segment, other suitable investment alternatives could easily be found that do not directly damage the community in which they exist. As a response to the growing investor interest in the global firearm controversy, and consequently to limit their investments in firearm companies, IdealRatings’ research identifies companies that manufacture handguns, pistols, shotguns, rifles, revolvers, and ammunition for sporting, civilian or military usage. At IdealRatings we recently experienced many inquires to filter companies that produce firearms for investors, and although this may impact firearms companies sales and stock performance, the outcome was really different.
Gun sales have been rising for several years, and prices for assault rifles and ammunition have gone up, in defiance of sluggish economies proving that sales of firearms are relatively immune to economic cycles affecting other business sectors. In an attempt to investigate the reason behind such returns,it seems to be that the more uncertainty the economy face, the higher the gun sales. Gun enthusiasts are worried that regulations are in the making to control guns in the future, though currently we see no sight of any regulation in the making,
- April 15, 2013Read more
Sukuk; Equity or Bonds?
Sukuk a relatively infant financial instrument, designed to be a Shariah compliant alternative to conventional bonds, however much debate has been raised on the nature of the instrument, particularly in cases of default, where sukuk holders designation was confused between equity holders and debtors. There are many reasons behind the confusion; however Sukuk is indeed equity and not a bond. A sukuk can be structured on a debt based model such as Ijarah or Murabaha, yet certificate holders still are owners of the underlying asset that is leased to the beneficiary. So either the sukuk is structured on an equity based model where sukuk holders partner with the originator in a completely new venture or in already existing business or based on a debt based model, the sukuk holders are always and surely equity holders and not debtors.
Because of some common characteristics with bonds and few other reasons, Sukuk are classified as fixed income and sold in debt capital markets. It is very much like fitting a square peg into a round hole. It is a continuous attempt to sell an equity based instrument in debt markets, and to be able to complete the in-consistent sale, sukuk issuers and arrangers had to innovate features or mechanisms that shift the structure of sukuk towards bond. Those mechanisms commonly referred to as credit enhancers implicitly guarantee capital and profits. It is with these credit enhancers come the Shariah violations, these credit enhancers added to the structure violate its core objective which is to have the sukuk holders as owners whose revenue depends on the actual performance of the underlying asset, and not independent of it as the case with bond holders.
Sukuk have suitably evoluted throughout the last decade, and indeed the next step is on the Shariah front, how compliant is a sukuk structure and how compliance differ among diverse mandates or Shariah schools of thought. For this purpose IdealRatings have innovated a sukuk screening solution, which associated with a unique, accurate research methodology, screens over 120 Shariah issues pertaining to the various structures utilized in global sukuk.
The web-based solution has successfully produced compliance status of outstanding sukuk in the market, the compliance is variable depending on the Shariah opinions adopted and rulebook followed. The solution is embedded with all Shariah standards available worldwide, so that every user can include/exclude the Shariah rules constituting his mandate.
- June 11, 2011Read more
Practitioners and Academics from Egypt, the United Kingdom, the United Arab Emirates and Germany met at the German University in Cairo to discuss the Islamic Finance status and road ahead globally and in Egypt. One of the main aspects discussed within the conference was the relation between Islamic finance and ethics and how Islamic Finance can grow in the future.
Since we at IdealRatings are witnessing growth in terms of client inquiries both from new funds launched as well as wealth management accounts managed in accordance to Shariah, our answer would be that there is growth but to reach the next level, Islamic Finance has to expand in terms of multi-religious as well as ethical perspectives.
New York, 53rd Street with 6th Avenue a Fast food stand can be found called “Halal Guys” which does not differ from any other fast food or hot dog stand you see across New York downtown corners, except for the fact that this stand is always crowded and queues form on a daily basis by hundreds of New Yorkers and tourists alike. The men serving the food are Middle Eastern long bearded Muslims and their products are labeled as Halal food which might at first seem appealing for Muslim Americans, but actually the queued mass in front of the stand is there because of the food quality and pricing which results in attracting all type of New Yorkers and not just Muslims.
Imagine Islamic finance and especially the Islamic fund industry to be cross-religious by providing qualitative investment products in terms of return, risk, liquidity as well as ethical credibility which appeals to both Muslims and non-Muslims similar to the concept of the “Halal Guys” in New York. In the case of the “Halal Guys”, the Islamic reference in their labeling does not bother the New Yorkers, so the question is if Islamic Finance could have the same effect or not.
Instead of focusing on the labeling we have to focus on expanding market reach through providing ethical and cross-religious products that would turn Islamic Finance to a mainstream industry. So one of the recommendations are to focus on ethical principles rather than technical requirements which will result in achieving cross-religious acceptance as well as socially responsible requirements. This will result in a broader acceptance of Islamic Finance products that can also be considered Abrahamic Finance products.
Dr. Shehab Marzban
- April 23, 2011Read more
Halal food is a crucial part of the day to day life of Muslims world wide since it ensures that the food and beverages they consume do not conflict with their religious belief in terms of having the meat and poultry slaughtered in accordance to Shariah and food and beverages free from alcohol and pork to name the main criteria for Halal food consideration.
Since the Muslim population is spread across all continents and their purchasing power is not to be underestimated, the food industry even outside Islamic countries starts to address these needs through providing products compatible with Muslims.
So companies like Nestle, Unilever as well as fast food chains such as KFC in the western world offer a variety of their products labeled as being Halal.
On the other hand, Islamic Finance has grown tremendously during the last two decades resulting in the offering of financial products and especially capital market instruments such as equity investments that are Shariah-compliant and accessible for Islamic investors.
The interesting element in the Halal industry and Islamic Finance is that from a Shariah perspective Muslims might be allowed to consume the food of a company but are not allowed to invest it in and vice versa! How come?
So a company might only produce Halal Food but financed its operations through interest-bearing debt that from a Shariah perspective if exceeding specific thresholds is non-compliant and thus cannot be invested in.
Therefore IdealRatings, Thomson Reuters and the World Halal Forum partnered to provide the first investment universe that contains constituents that are both consumable and investable from a Shariah perspective for Islamic investors.
The Socially Acceptible Market Investing, or SAMI, Halal Participation Index currently contains more than 200 equities of companies domiciled in Islamic countries, which produce and serve Halal food and pass a series of Shariah screening criteria as defined by AAOIFI. To capture global demand we will be extending the Halal universe beyond Islamic countries.
The SAMI Halal Index series has been launched during the World Halal Forum this month in Kuala Lumpur in Malaysia and has gained huge attention in the Malaysian market due to the uniqueness and relevance of such a product to promote both the Halal Food industry and also Islamic Finance.
On one side, investment professionals perceived the index as an excellent investment opportunity since a product based on such an index would be easily understood by Islamic Finance investors since they can identify themselves with the investments to be conducted because it would be based on companies whose products they buy from the shelves of supermarkets or consume their goods.
On the other hand, it has also been indicated that this product can support in promoting Islamic finance since it is inconsistent to be able to consume a companies’ product but not allowed to invest in it from a Shariah perspective. Therefore an opportunity exists that these companies change their current conventional financial structures in terms of debt financing and excess cash investments to be also Shariah-compliant from an investment perspective.
Therefore, the partners of the SAMI Index series considered this the beginning of the fully-fledged Islamic Food Supply Chain Process “The 4 F’s: financing, farm, fork and again financing”.
- October 4, 2010Read more
All the major index providers have a Shariah compliant offering, this started in the late nineties with Dow Jones debuting its Dow Jones Islamic Market Index℠ family, then FTSE Group developed the FTSE Shariah Global Equity Index Series, Standard & Poor’s introduced the S&P Shariah indices, MSCI Barra MSCI Islamic Index Series, and Russell Investments launched the Russell Jadwa Shariah indexes.
These are the global leaders of indexes, and IdealRatings provides the screening to most of these index providers, and their Shariah guidelines are diverse and have very respected and widely recognized Shariah scholars, so why would any portfolio manager need to create a custom index you may ask?
The answer is in the matching of an index’s geographic coverage focus, equity selection methodology, and Shariah guidelines with the manager’s strategy and Shariah board guidelines, in many cases these overlap perfectly, but in many other cases, managers look for an index with the closest fit of coverage and guidelines, and use it as a benchmark and a starting point for a portfolio’s investable universe, this creates an interesting situation where a manager is benchmarked a universe that is not perfectly aligned with his strategy, and so the performance could deviate due to the manager’s inability to invest in the highest performing components of the index and appear to be underperforming the benchmark.
With the markets being as tough as they are, investors’ appetite for underperforming managers is even less than what it used to be in the good old times, and every basis point counts for capital raising, differentiation, and churn reduction.
Managers with a strategy and a board not perfectly fitting an existing index now have the capability of creating a custom benchmark of their own, which could be based on one of the existing index providers’ universe and adapted to the manager specific requirements, or from scratch, resulting in a logical alignment of the benchmark’s methodology and the manager’s own.
The resulting outperformance numbers should be easily attainable, as the talent is focused on what matters:Making timely intelligent investment decisions that outperform the underlying benchmark.
- February 3, 2010Read more
Compliance, be it Shariah, green, environmental, social, and governance (ESG), has the same workflow since they all revolve a client requiring the elimination of certain investment vehicles based on certain criteria, and since these customer requirements have been around for a long time, one would expect a certain level of maturity of the technologies, processes and workflows involved in the task to simplify the process, reduce its cost, and eliminate the errors. Surprisingly, that not what I’ve seen at all. Glue on solutions with a mesh of Excel sheets at the foundation form the basis of what most firms use for compliance today, and the result is that this part of the investment system is not stable, you have subject matter experts with minimum transparency delivering a spreadsheet that is bolted on a trading system then updated manually.
We chose to deliver our compliance results using a web based platform that includes automates the compliance cycle, managers synchronize their positions and securely collaborate with their compliance teams, and the audits, even third party audits, are supported by the system. Clients love that because it goes above and beyond what a spreadsheet based solution could ever do, and because they have a full audit trail of the whole investment cycle, all while maintaining security and privacy.
So when you think of compliance, think of all the things a compliance solution should be able to offer on top of timely accurate data to help you run efficiently.
- December 10, 2009Read more
In social responsible investments you only need to track whether companies are engaged in certain business or not, but in Shariah compliant investments you need to identify the investment constraints, including the value of good sold in a non allowed business segment. We often see very detailed rule books with sophisticated metrics that vary depending on a company’s core business as well as its location.
As our sole focus is providing the most elemental numbers that enable the formulation of any recipe, we have to keep a close eye on the developments, trends, and expectations of changes in these rule books, and we a long time ago settled on the operational model of “when in doubt, track it”, which means, as soon as we see an interest in a new revenue stream, we separate and track it, this lead us to the establishment and tracking of 30 revenue streams, and that’s a lot, and we don’t think our work is done, we’re seeing more on the horizon, and I doubt these will be the last ones we add.
The audience responses vary when we mention the number 30, from “that’s impressive” to “what do you do with all these sources?”, the feedback always depends on the amount of time and number of rule books the audience has to manage, those with 1 rue book don’t think they need all this complexity, those with 5 rule books immediately realize the value provided by this level of granularity, they will never have to spend another weekend in spreadsheet hell guessing how to classify a multinational with 10 subsidiaries according to 2 different interpretations of *good Vs bad intent of a cash deposit. We even track the source of loans and see if these loans are compliant or not, for example, estimating the revenue of yahoo’s in segments like dating services, music, videos, gaming is definitely a complex and expensive exercise.
We believe there’s value for the single rule book managers, we believe this granularity ultimately means accuracy, accuracy in executing the rule book as intended, accuracy to remove only the companies that do fall outside the rules, and accuracy to include companies that should be included, think of it as using a surgeon’s scalpel Vs a table knife in an operation, we often see companies that simply should not be there, either in or out of the investable universe, and it’s mostly due to someone using a table knife to make the decision.
So, I like to think of us as a 30 caliber scalpel now, and looking forward to moving to higher grade of stainless steel or new scalpel technologies.