There has been a noticeable demand amongst Middle Eastern investors for Shariah compliant products. Over the past month, two Abu Dhabi-based asset managers have heeded this call rolling out their respective Islamic funds.
Chimera Capital has launched the Chimera S&P UAE Shariah ETF, the first umbrella fund that tracks a Shariah compliant equity index.
‘The lack of ETFs in the market prompted Chimera to launch an ETF to give investors a single access point to Shariah compliant stocks,’ said CIO Salem.
The ETF tracks the S&P UAE Domestic Shariah Liquid 35/20 Capped Index as it reflects the most liquid Shariah compliant stocks on both the Abu Dhabi Stock Exchange and Dubai Financial Market.
Tracking a Shariah compliant index, the Chimera S&P UAE Shariah ETF aims to provide investors with single-access point for investors to gain exposure to the Shariah blue-chips of the UAE stock markets, the second biggest in the MENA region after Saudi Arabia.
‘The demand for Shariah products has increased over the past 15 years and we are very bullish on Shariah products in and outside the Middle East, especially given the growth we are witnessing in the ESG products,’ Salem said.
To appeal to different types of investors, Chimera has provided options for this ETF, giving them a choice between an accumulating and an income share class.
The fund’s share class A, which is listed on the ADX and closely tracks the performance of the S&P UAE Domestic Shariah Liquid 35/20 Capped Index, provides investment returns, before fees and other costs, with a reinvestment of the dividends received by the fund.
On the other hand, the ETF’s share class B, which is listed on the DFM and also tracks the S&P UAE Domestic Shariah Liquid 35/20 Capped Index, will see the dividends received by the fund distributed to investors twice annually in June and December.
Chimera aims to contribute to the development and growth of the ETF industry in the Middle East. With the global ETF industry exceeding $6 trillion in assets under management, Salem sees massive potential in the region.
‘The lack of ETFs in the region provides us with a great opportunity. The physical-in-kind ETF provides investors with an investment tool to access a Shariah compliant index and diversify their equity investment exposures, while maintaining a fully fungible product that will help tighten the bid/offer spread on it.
‘We are cautiously optimistic about equity markets for the rest of the year, and believe the ETF gives investors a beta exposure to the index and complements a diversified portfolio.’
One more fund
A few weeks after Chimera’s announcement, Waha Capital, another Abu Dhabi-based investment company announced the launch of its new income generating Islamic fund.
‘There has been a steadily growing demand from our existing clients over the past couple of years for us to develop such a fully-fledged Islamic fund,’ CEO Amr AlMenhali said.
He is confident that the Waha Islamic Income Fund SP will be well-received as it avoids investment in prohibited or controversial activities or assets and business sectors that may be considered as particularly risky or potentially volatile.
The new fund will have a global outreach for investments and aims to attract over $500m. It will also only invest in entities that have relatively low gearing as well as in Shariah compliant assets across Sukuk and equity markets.
Waha Capital intends to use its expertise to bridge a gap in what their clients are seeking for, offering them an actively managed, income producing Shariah compliant solution with a global dimension.
Market volatility, investor sophistication and diversification needs have contributed to the noticeable pickup in investor demand for Shariah compliant solutions. This bodes well for the GCC market with investment managers seeing the need to plug this gap.