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AMAL Shariah ETF: Screening and compliance

Shariah compliant ETF: screening and compliance  

The Almalia Sanlam Active Shariah Global Equity UCITS ETF (AMAL)  fund aims to achieve capital growth over the medium to long term, whilst complying with the principles of Shariah Investment. 

A compliant Shariah investment must still qualify as a suitable investment as per the team’s definition of quality. Thus, AMAL will continue to invest only in companies that have the same quality characteristics befitting of the Global High Quality team’s investment philosophy. The exclusion of companies with excessive borrowing aligns well with one of the main indicators of determining the quality of a company.  The investment approach will not be compromised, a feature that differentiates it from competitors and has contributed to its current track record.   

To ensure on-going compliance with the Principles of Shariah Investment, our Active Shariah Global Equity UCITS ETF will be overseen by a Shariah Panel of scholars from Amanie Advisors with deep expertise in Islamic Investments.

Its primary duties and responsibilities are to:

  • Advise, on a non-discretionary basis, on the Shariah aspects of the ETF,
  • Issue an opinion, by way of a Fatwa, ruling or guidelines as to whether the activities of the ETF comply with Shariah; and
  • Make recommendations or provide guidance as to how the ETF could be made Shariah compliant.

The methodology for the Shariah screen will follow Shariah investment principles and does not allow investment in companies that are directly active in, or derive more than 5% of their revenues from such business activities as alcohol, tobacco, pork-related products, conventional financial services, defence/weapons, gambling, or adult entertainment. 

If a company derives part of its total income from interest income and/or from prohibited activities, Sharia investment principles state that this proportion must be deducted from the dividends paid out to shareholders and given to charity.  This is capped at 5% as in order for a company to be shariah compliant, it cannot derive more than this number from prohibited activities. 

Therefore 5% of all dividends will be donated to charities approved by our Shariah board.  This list currently stands as follows:

In addition, Shariah principles do not allow investment in companies deriving significant income from interest or companies that have excessive borrowing. There are three ratios used to screen for such companies: 

  • total debt over total assets 
  • the sum of a company's cash and interest-bearing securities over total assets
  • the sum of a company’s accounts receivables and cash over total assets. None of these financial ratios may exceed 33.33%.

Sustainability and ESG  

Although Shariah and sustainable approaches to investing have developed independently, both look to bias investment in more sustainable outcomes and can be aligned in many ways.  Many sectors that are excluded under Shariah law also score poorly on sustainability criteria.  

As long-term fundamental investors, Sanlam Investments has always considered carefully those issues which may have an impact on the sustainability of returns over the medium to long term. This covers a wide range of potential risks including those coming under the Environmental, Social and Governance headings. With the primary objective of producing superior financial returns for its clients, its investment process takes ESG issues into account when they feel these may have a material impact on investment risk or return. Sanlam Investments believe that over the long term, integration of robust ESG policies make good business sense.

For more information, please visit the Fund page.

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