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Swip seeks Shariah compliant investments

Scottish Widows Investment Partnership has introduced a fund that enables British Muslims to invest in global equities without compromising their religious beliefs.

Swip says it saw a gap in the market after conducting research that showed over three quarters of the two million Muslims in the UK want to be able to invest in line with their beliefs, but their options are limited.

The Swip Islamic global equity fund follows the launch of the Swip global Islamic fund for overseas investors in November 2005. It adheres to the principals of Shariah, which forbids investment in companies involved in industries such as gambling, pornography, the production of pork and alcohol. The capital structure of the underlying holdings must also fall within Islamic guidelines as borrowing based on interest and keep surplus money in an account that pays interest are also unacceptable. However, companies that are totally compliant in these respects are rare, so limits are imposed instead of total exclusion.

For example, the total debt divided by total assets must be less than 33 per cent and interest from surplus money must be less than 10 per cent. As a result of these conditions, gearing is not acceptable.

The fund will be benchmarked against the FTSE Global Islamic index and can be held in an Isa or as a Pep transfer. Swip global equities investment director Suhail Arain, who has previously held the position of portfolio manager at both ABP Investment and M&G, will manage the fund.

Swip’s research team will identify approximately 75 suitable stocks from the benchmark universe of 1,500. A Shariah advisory board, comprising four experts in finance in Islamic law, will give guidance and approval on appropriate investments.

Investing on the basis of Shariah law is similar to other types of ethical investment in that the investment criteria excludes many companies which could otherwise be very good investments.

Although UK Muslims do have other funds to choose from, some providers are not high street names, while many funds target overseas Muslims or institutional investors. For example, HSBC’s Amanah global equity fund is a Luxemburg-based Sicav that is marketed towards international clients rather than UK-based Muslims.

HSBC Amanah Finance does offer a global equity index fund that is marketed at UK retail investors, but it is a tracker fund so does not offer active management like the Swip fund.

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