IslamicFinance.de

Shariah-compliant exchange-traded funds (ETFs), which provide low-cost exposure to conventional equity markets while strictly adhering to Shariah investment principles, are benchmarked to indices that apply a series of trade activity and financial screens to weed out non-compliant companies. The screening process is typically overseen by leading Islamic scholars and results in a portfolio of securities in adherence with Shariah law. The major difference compared to conventional indices is the application of financial/leverage screens. By excluding companies with high levels of debt, the resultant portfolio has lower financial risk and superior credit fundamentals.

Islamic exchange-traded funds (ETFs) are having serious difficulty attracting new investment while Western investors, on the other hand, move into conventional ETFs. This contrast is said to be caused by the Gulf's investment culture and the principles choice of financial products by institutions. Despite expected growth in Islamic ETFs due to higher interest in financial products like sukuk, amounts of fresh money committed to Islamic ETFs have hardly risen or have even stopped.