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Shariah Law ETFs
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About Shariah Law ETFs |
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Shariah Law ETFs Overview and forecast
As an investment class the Shariah Law ETFs are on their own. They comprise three ETFs based in London, the US, and Amsterdam. Shariah Law, in the West, is highly sensationalized, and the basics of investment under Shariah Law are barely understood.
This is an oversimplification to some extent as a definition: Shariah Law permits various transactions under Islamic law. It prohibits usury, and investments in anything which is contrary to Islamic beliefs. It will not, for example, invest in alcohol, or other things prohibited under Islamic laws.
There are other, more complex applications of this approach, but the Shariah Law ETFs are designed to be compliant with those laws.
The Shariah Law ETFs are relatively low traders, and can be considered a niche market, from an investor?s perspective. That said, their charts are full of price movements. They reacted to the 2008 crash much like other ETFs, and also show indications of strong price moves, up and down in their relatively short existence since 2007.
It may be that the niche investment mode has reduced their market profile in Western markets. However, they are also operating in a potentially big capital market, where they can be seen as an acceptable investment mode for the Islamic financial markets. The Islamic world does have a strong investment history, and they may be considered a step into the ETF sphere by that capital market. It would be myopic to consider them a minor investment class on the basis of these early listings.
Short term (6 months)
Behaviorally, the Shariah Law ETFs are anything but static sometimes. Some staged a reasonably sharp rally in the second quarter of 2009, a bit above average. They also showed big spikes in prices, up and down, during the severe period of the 2008 crash. Other parts of their charts are quite smooth, with shallow moves.
The short term, so far as can be seen from recent history, does allow for significant price moves. Their basic returns are reasonably good, in basic investment terms. They appear to be low capital ETFs, but unlike other low capital ETFs, they do move. The Amsterdam Shariah Law ETF ISH MSCI WL EMG MKT (ISEM.AS) has gone from around $8 to just under $12 in the period March 2009 to May 13, 2009, a respectable return by most standards. In six months, that would be a very good performance indeed.
Medium term (2 years)
If the historical level of movement is any indicator over the medium term, the Shariah Law ETFs could cement a position as good traders. The appearance from charts is that they have a higher profile in some markets rather than others, so their general performance will vary.
It?s also likely that investors seeing a potential for returns will consider a relatively strong performance in the first half of 2009 a good sign, particularly in a queasy market. Further capital injections and expansion could make them much bigger investment vehicles. That development may not be instant or dramatic, but cumulative returns will generate interest.
Long term (5 years)
The medium term outlook extends naturally into the long term. The Shariah Law ETFs are in several ways the logical Islamic equivalent of ethical investment in the West. They could also be the only acceptable framework for investment by some parties. That could easily create several more Shariah Law ETFs, and certainly more of them internationally.
From the perspective of the international markets, there?s another factor worth considering. These ETFs could also represent a strong presence in the market over time, evolving into major investment structures. It would be specious, and very superficial, to assume that the big capital in this potential market will ignore worthwhile investments. The other ETFs could have some serious competition coming.
In investment terms it?s necessary to assess performance and margins. The Shariah Law ETFs look reasonably strong, at this stage. In five years, with additional investment and market interest, these could be big players.
Qualifiers to projections
Assuming the idea that these Shariah Law ETFs are an early stage of development of a new investment strategy, it doesn?t necessarily follow that they will choose to behave as predicted. They can also develop as a series of new entities, depending on their markets. The existing Shariah Law ETFs could well be joined by many others.
Nor does it follow that they?ll either follow the standard ETF script of specialization or generalized funds. They can operate as despecialized ETFs within their basic motif as Shariah Law ETFs and specialize. Nobody would be too surprised by a Shariah Law ETF based on an oil index in the Middle East.
The risk of analysis here is to assume that the Shariah Law ETFs are confined to a spectrum. They?re only constrained to follow the principles of Islamic law. All avenues of investment are open to them, within that framework. Investors are advised to watch financial history being written. It won?t get dull.
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Last Updated on: 2010-01-14 02:03:40 |
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