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.