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What methodology does the Halal portfolio follow?

We use the MSCI Islamic Index Series Methodology to exclude non-Sharia-compliant securities through business activity screening and financial ratio screening. The following methodology is approved by MSCI’s Sharia advisors’ committee of Sharia scholars:

Business activity screens. Sharia investment principles do not allow investment in companies which are directly active in, or derive more than 5% of their revenue (cumulatively) from the following activities (“prohibited activities”):

  • Alcohol
  • Tobacco
  • Pork
  • Conventional Financial Services
  • Defense / Weapons
  • Gambling / Casinos
  • Music
  • Hotels
  • Cinema
  • Adult Entertainment

Financial screening. Sharia investment principles do not allow investment in companies deriving significant income from interest or companies that have excessive leverage. MSCI uses the following three financial ratios to screen for these companies:

  • Total debt over total assets
  • Sum of a company’s cash and interest-bearing securities over total assets
  • Sum of a company’s accounts receivables and cash over total assets

Securities will be considered non-compliant with respect to financial screening if any of the financial ratios exceeds 33.33%

Globally diversified. Halal Invest portfolio consists of 49 stocks that are a representative subset of the MSCI All-Country World (ACWI) Islamic Index.

  • The 49 stocks were specially selected in order to minimize tracking error with the MSCI ACWI Islamic Index. The tracking error is approximately 2.4%.

No fixed income. The portfolio excludes fixed income as this asset class is largely non-compliant with Shariah principles. Clients are advised to hold sufficient cash elsewhere in order to achieve the recommended target asset mix.

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