Rob Pearce of HSBC explores a form of socially reponsible investing based in Shariah
Some funds also have a financial ratio screen to exclude for example highly leveraged companies.
The exclusion of these sectors and companies will obviously mean that the funds do not fully mirror the performance of the market, but the impact is not necessarily negative.
There are many well-established Shariah-compliant indices, which make fund performance easy to benchmark and have allowed the creation of passive, lower charging, funds.
Is Islamic investing only for Muslims?
Many investors would look at the list of excluded sectors and view this positively. While Islamic finance was developed for the Muslim community, there will be a significant proportion of members that will find these principles attractive.
Ethical and Islamic investment funds share a lot of common ground and there could even be the argument of including a proportion of these investments as part of a balanced portfolio.
Lack of awareness and education
Across the world the size of the Islamic banking market is huge, estimated at US$895bn. From 2006 to 2010 it grew at 28.64% per annum compound.
What about the UK? Here demand is increasing for some Shariah compliant products, as evidenced by the take-up of HSBC’s Amanah Bank Account.
However, a lack of awareness among investors of Shariah compliant pension funds is, I believe, hindering their take-up.
Education and promotion are vital, as well as distribution and access. An option on a platform among hundreds of others will do little to improve take-up rates.
Auto-enrolment is proving to be a catalyst for many schemes not just in terms of reviewing administration and policy, but also fund options and member engagement.
Now is an ideal opportunity for all DC schemes to ensure an Islamic investment option is included and actually promoted to members. For Muslim investors, a Shariah compliant option could become the default.
