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”):
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:
Securities will be considered non-compliant with respect to financial screening if any of the financial ratios exceeds 33.33%
Globally diversified. Powered by Wealthsimple’s Halal portfolio consists of 49 stocks that are a representative subset of the MSCI All-Country World (ACWI) Islamic Index.
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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