Wahed Launches Nasdaq’s First Shariah-Compliant ESG ETF

Wahed, a New York-based firm that aims to advance financial inclusion through accessible, affordable, and values-based investing, launched its second ETF, UMMA, in collaboration with the U.S. Bank’s Listed Funds Trust and Dow Jones. 

UMMA, which began trading on the Nasdaq on January 7 with an expense ratio of 65 basis points, is the first Shariah-compliant and ESG-aware ETF available on the exchange. Shariah-compliant ETFs have been an area of limited product development to date.

UMMA complements Wahed’s U.S. equity-focused Wahed FTSE USA Shariah ETF (HLAL B), which debuted on the Nasdaq in 2019.

“US stocks aren’t the only things that we can invest in, so it was prudent for us to give our clients access to global stocks as well,” Samim Abedi, global head of portfolios for Wahed, said. “[HLAL], by the way, has done very well. We seeded it with $13 million, it’s currently at $180 [million].”

UMMA will benchmark to the Dow Jones Islamic Market International Titans 100 Index, which measures the stock performance of the largest companies — excluding the U.S. — that have passed rules-based screens for adherence to Shariah investment guidelines. A company’s compliance with Islamic finance principles will be interpreted by subject matter experts, according to regulatory filings.

“It’s prudent from an academic perspective to have access to different parts of the world, at different points of the economic cycle, with different demographics, tailwinds, and innovation schedules,” Abedi said.

ESG framework is incorporated by evaluating a company’s impact on the environment, community relations, employee relations, and corporate governance. The firm will use RepRisk, a provider of ESG business intelligence, for daily filtering, screening, and analysis of controversies related to companies within the fund, according to regulatory filings.

According to Abedi, companies that derive more than 5% of their total revenues from Shariah-prohibited activities such as conventional finance, alcohol or tobacco production or sale, pork-related products, entertainment (hotels, casinos, cinema, etc.), and weapons and defense will be screened out.

Abedi said that there is a greater focus on financial services, as Shariah-compliant funds do not engage with companies either paying or receiving interest.

Abedi, who has managed HLAL since its inception in 2019, will serve as the sole portfolio manager to UMMA, the firm’s first actively managed ETF.

The firm chose to utilize an active structure for this launch due to its flexibility in weighting — or removing — securities included in the index in line with investors’ beliefs. 

“We’ve filed with the SEC as an active fund, not because we think necessarily we’re going to be stock picking and trying to generate alpha that way, but it allows us more breathing room in case we want to get rid of a company all together,” Abedi said.

The five firms currently offering Shariah-compliant products in the U.S. are Saturna Capital (advisor to the Amana mutual funds), Azzad Asset Management, Allied Asset, SP Funds, and Wahed.

For more information, visit https://wahedinvest.com

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