Ethical investing fintech Wahed has partnered with Leverage Shares to bring its ’40-Act’ Shariah-compliant US equity ETF to Europe by wrapping it within an exchange-traded product (ETP).
The Wahed FTSE USA Shariah ETP (HLAL) listed on the London Stock Exchange on Monday with a total expense ratio (TER) of 0.05%, in addition to the underlying ETF’s TER of 0.50%.
HLAL tracks the FTSE USA Shariah index of 226 US large and mid-cap companies that comply with business involvement and financial screens for Shariah compliance.
The ETP excludes companies involved in alcohol, firearms, adult entertainment, gambling, tobacco and what the issuer considers usurious institutions and impure food stock.
Remaining companies must then meet financial criteria including total indebtedness below a third of their total assets, cash and interest-bearing items less than a third of total assets, accounts receivable and cash less than 50% of assets and interest and income from non-compliant activities not exceeding 5% of total revenue.
Samim Abedi, CIO at Wahed, told ETF Stream: “These screens result in higher weightings to technology, healthcare, consumer goods versus conventional products. Inherently, Shariah-compliant strategies also capture less-indebted companies.
“You are left with an index that captures growth sectors but also higher balance sheet quality.”
Abedi added the HLAL strategy, which first launched in the US in July 2019 with a seed of $13m, has since outperformed the conventional S&P 500 by around 12%.
“The new ETP is meant to allow investors in mainland Europe and particularly the UK – where we have seen strong demand – to access the strategy. We also have different products in the pipeline,” he said.
“The original product initially grew to a peak of around $200m assets from its initial seed, so we expect similar appetite in the UK and EU.”
On the decision to partner with Leverage Shares – which launched its first white-label product in June – Abedi said its team has a strong background in thematic and concentrated basket offerings. It also has experience wrapping US ETF strategies within European ETPs, as seen with its ARK ETF tracker range.
He added: “They are also quite nimble, so once you know what you want to do, they have all the partners in place in terms of liquidity, market making, marketing, regulatory filings, legal risk.
“Their name is a funny misnomer, there is no leverage in our product.”
On deciding whether to bring other products to Europe, such as Wahed's Shariah global ex-US strategy, Abedi said there are “certainly products in the pipeline” but that his firm would take a “measured approach”.
Meanwhile, Leverage Shares is developing a niche in bringing IP over the pond, with HLAL becoming the second US strategy it has white-labelled to Europe in five months.