ESG ETF launches with holdings guided by Islamic law

While the fund will loosely track an index, it's classified as an active ETF

Investors in the sizzling thematic investing space are getting a new Islamic faith-based ESG ETF.

The Wahed Dow Jones Islamic World ETF (UMMA) starts trading Friday and tracks an index of companies globally that meet certain Shariah law requirements or that are consistent with Islamic principles. The fund, whose ticker roughly translates as “community” in Arabic, won’t include any U.S.-based firms and will have a focus on environmental, social and governance factors. 

“We’re not speaking about just the Muslim community, but this product is for more than just us it’s for everyone who views the world that way,” said Samim Abedi, chief investment officer for Wahed. 

The fund will loosely track the Dow Jones Islamic Market International Titans 100 Index, though it’s classified as an active ETF, meaning Wahed will be able to make adjustments that might stray from the underlying gauge, “largely due to ESG considerations,” Abedi said. 

UMMA’s top holdings include Taiwan Semiconductor Manufacturing Co., Nestle SA and Tencent Holdings Ltd. The fund will charge a 0.65% management fee. 

The surge in faith-based ETF offerings has come alongside the boom in ESG investing. Before UMMA’s launch, there were 17 religiously responsible funds in the U.S., up from 11 in mid-2020. They include the Global X S&P 500 Catholic Values ETF (CATH) and the Inspire Global Hope Large Cap ETF (BLES), which tracks an index that selects companies based on biblical values. CATH rose 28% last year, while BLES gained 13%. 

Wahed also has an HLAL fund that rose 28% in 2021. It’s made up of American firms meeting Shariah principles and has gathered $180 million in assets since its launch in 2019. But there are no similar funds listed in the U.S. that focus on global equities, Abedi said. 

“We’re in such an under-served demographic that I think there’s plenty for everyone to flourish here,” he said.