Gap in Shariah-compliant investment services, experts say

Gap in Shariah-compliant investment services, experts say

There is a gap in the market for Shariah-compliant wealth management services, an expert has said.

TAM Asset Management chief investment officer James Penny highlighted the gap in supply, saying there is a huge demand for Shariah-compliant services but currently no GDP-domiciled investment solution.

There are 3.4mn Muslims in the UK, according to ONS statistics from 2018, around 5 per cent of the UK population.

“There's a huge Muslim community in the UK," he said.

“And if somebody asked me to tell you, do I think that there's a similar proportion of available professional investment solutions to match the size of the Muslim community? 

“Absolutely not.”

Apart from TAM, there is online platform Wahed Invest which offers robo-advice, and a select few other DFMs offering Shariah-compliant wealth management. 

Shariah-compliant investments are governed the principles of Islam, which require investment in companies that do not engage in a number of activities, such as gambling, tobacco and alcohol. 

Penny said this means a number of Islamic funds are now becoming of interest to non-Muslim investors, as they can align with ESG funds. 

“Shariah investment law is a good blueprint for investing into high quality companies,” he said. 

“When you find an ESG fund, and you compare it to a Shariah fund, they're often taking similar exposures,” he said.

Sharia investments have outperformance global equities over the past five years

Source: FE Fundinfo

Lack of choice

For Islamic Wealth Management director Brian Adams, the problem for IFAs is the lack of choice.

Across the model portfolio providers, he said, there is around a 95 per cent duplication of funds.

“They’re all running the same model portfolios,” he said.

There are currently three Shariah-compliant funds, and one ETF available to UK investors.

HSBC launched its Islamic Global Equity Index fund in April 2000, and it is currently $2.8bn (£2.31bn), and has returned 2.42 per cent in the year to July 27, according to Hargreaves Lansdown.

Schroders launched its Islamic Global Equity fund in late 2020, which aims to beat the Dow Jones Islamic Market World Index over a three to five year period (which returned 33.5 per cent in the past three years, and 73 per cent in the past dive years).

Earlier this year, Invesco launched a Shariah-compliant ETF, and this week (July 28), J O Hambro Capital Management launched a sharia-compliant fund in response to client demand.

The fund will give retail investors access to an institutional global shariah mandate the company has been running since 2013. 

JOHCM uses a data screening provider who maintains a list of Shariah-compliant stocks, and the fund also has a Shariah adviser who monitors the fund’s structure and investments.