They mirror the performance of an Islamic index and are low cost and highly transparent as far as pricing is concerned. For those wanting to invest in passively managed funds to reduce management fees they have much merit.
However Islamic finance is essentially participatory, and these funds are not in this category. The link between the investment and the companies comprising the index is weak, or non-existent, and the methods used to achieve the index tracking can involve complex hedging techniques. Despite the indexes being Shariah compliant, there remain doubts about how Shariah compliant such funds actually are in practice.
PROFESSOR RODNEY WILSON
Director of postgraduate studies, Durham University
With the main advantages of diversification and liquidity, the ETF provides an attractive value proposition to any investor. However, an Islamic ETF will only be attractive if management fees and performance are in line with comparable conventional funds.
DR NATALIE SCHOON
Head of product research, Bank of London and The Middle East