Canadian Muslims have unique constraints when looking for investment options that fit their religious beliefs, and many mainstream options are unsuitable for these investors.
The Quran is the Islamic text that guides all aspects of Muslim life. Shariah is the Islamic law that includes guidelines that impact financial decisions for Muslims; these include the prohibition of earning interest from fixed-income investments like bonds, which are a common component of an investment portfolio. Instead of earning interest from lending (a bond is a loan from the investor to the bond issuer), a borrower and lender should share in risks and rewards (like investing in stocks).
To achieve asset allocation that reflects an investor’s risk tolerance and goals, Muslim investors can consider a fixed-income option like sukuk, which is a Shariah-compliant bond alternative. Sukuk pays income to investors as a share of profit rather than as interest. It may be backed by real estate that earns rental income instead of interest from lending. Bonds generally have a maturity date and are repaid at a specified price, whereas sukuk may increase or decrease in value at maturity depending on the price of the asset they are based upon.
Some Muslim investors hold higher levels of cash to satisfy their fixed-income allocation, but other options include direct ownership of real estate, land or commodities. Gold is a commonly held, suitable asset class that can be purchased directly and stored in safety deposit boxes or through exchange traded funds like State Street’s SPDR Gold Trust. It is an ETF that owns gold bullion stored in HSBC’s vaults in London, and trades on the New York Stock Exchange.
Shariah law also guides the types of businesses investors should and should not invest in, leading to a specific set of principles for Halal socially responsible stock market investing. This means traditional mutual funds or ETFs may be off limits, and investment advisors may need an investment policy statement with strict restrictions and guidelines.
Shares of companies that profit from alcohol, interest-bearing businesses, gambling, media, pork, pornography, tobacco, or weapons, and other businesses deemed unethical must be avoided. Even derivatives, futures and short-selling may be considered unlawful.
Global Growth Assets offers the oldest Canadian Halal mutual fund, the Global Iman Fund. It invests in equity securities of public companies listed on the Dow Jones Islamic Market Titans 100 Index. The fund can be purchased in all types of accounts, including TFSAs, RRSPs, RRIFs, and RESPs, but may not be available at all financial institutions.
For passive investors, there are U.S.-listed options like Wahed FTSE USA Shariah ETF and SP Funds S&P 500 Sharia Industry Exclusions ETF, which trade on the Nasdaq and New York Stock Exchange respectively.
Wealthsimple recently announced they will be introducing the Wealthsimple Shariah World Equity ETF in early 2021. They currently offer a Halal investing portfolio for Muslim investors that consists of 50 stocks in an all-equity portfolio.
Toronto-based Manzil offers a Halal investment solution, as well as Halal car and home financing. There are four Manzil Halal Portfolios that can be purchased through their distribution partner, CI Direct Investing (formerly WealthBar).
There are full-service firms like Canadian Islamic Wealth, located in Winnipeg, and ShariaPortfolio, with offices in Vancouver, BC and Oakville, Ont. Both offer more full-service wealth management that includes investing according to Halal principles. The market continues to respond and increase the alternatives for self-directed and advised investors alike.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
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