Ask ii: what is Sharia-compliant investing and how can I invest?
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27th February 2025 08:44
by Sam Benstead from interactive investor
A reader asks: I want to align my investments with my religious beliefs. Are there ways to invest in Sharia-compliant funds?
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Sam Benstead (pictured above), fixed income lead at ii, says: “It is common for investors to want to align their portfolios to their values or beliefs, as by owning shares in a company you are a part owner of the business.
This way of investing is often linked to “sustainable” or ESG (Environmental, social and governance) funds, but can also be applied to religion.
Some investments are “Sharia-compliant”, meaning that the holdings align with the principles of the Islamic faith and Sharia law.
This can include screens that remove certain non-compliant investment sectors, such as alcohol, tobacco, gambling and weapons. There could also be a fund manager who takes a more active approach to removing or targeting certain investments.
Cash savings accounts, provided to ii by Flagstone, can also adhere to Sharia law.
On the ii platform, the following funds label themselves as Sharia-compliant.
Fees can be higher than on non-screened funds. For example, iShares MSCI Islamic World Ucits exchange-traded fund (ETF) costs 0.3% in annual fees, compared with 0.2% for the iShares Core MSCI World ETF USD Acc GBP (LSE:SWDA).
The holdings can also be very different. For example, the Sharia-compliant ETF has nearly 17% invested in Microsoft Corp (NASDAQ:MSFT), but does not own rival tech firms such as Apple Inc (NASDAQ:AAPL) or Amazon.com Inc (NASDAQ:AMZN). It has just 356 holdings compared with 1,396 for SWDA, which makes it more concentrated and therefore potentially more volatile.
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Over the past five years, returns have been better in the iShares’ standard MSCI World tracker, at 79% compared with 65% for the Islamic World tracker.
It is important to check the factsheets of funds to find out about the investment process and the top positions, as well as to check the fees.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.