Islamic Finance

Islamic Investment Compass: The Ethical Investor’s Guide to Shariah-Compliant Investing

| 26 December, 2017 | General
 Thomas J. Hochstettler, Partner and Managing Director, Islamic Investment Compass
Islamic Investment Compass: The Ethical Investor’s Guide to Shariah-Compliant Investing

 

This article is sponsored and produced by Islamic Investment Compass as part of the ICD-Thomson Reuters Islamic Finance Development Report 2017.

The report can be downloaded from HERE.

Despite significant strides in the growth of the global Islamic economy over the last decade, we who support the expansion of Shariah-based management practices still have huge challenges ahead of us if we are ever to become a major force in shaping the global economy.

Take, for example, the case of mutual funds, which have undergone phenomenal growth in recent years. In the United States, the net assets of mutual funds swelled from US$ 5.5 trillion in 1998 to US$ 16.3 trillion in 2016.[i]  It is estimated that the total value of mutual fund assets in the world stood at US$ 40.4 trillion at the end of 2016.

In contrast, Islamic mutual funds have experienced relatively uneven growth in recent years, following a promising launch of several major new Islamic mutual fund initiatives early this century.

In 2015, global Islamic mutual funds stood at US$ 60 billion, with optimistic projections forecasting growth to some US$ 77 billion by 2019.[ii]

Although Islamic mutual funds do represent a major breakthrough as a vehicle for promoting Shariah principles of management and investing, Islamic mutual funds today represent only about 0.2% of the world’s total market in managed mutual funds.

Clearly those of us who seek to infuse Shariah principles of ethical management into the global marketplace must invent more aggressive methods for promoting Islamic investing.

One group within the Islamic world that represents an open field for innovation in Islamic finance is the younger generation of investors who prefer greater flexibility and control over portfolio management than mutual funds can offer.

Islamic Investment Compass™ (IICompass) has been designed to serve the needs of relatively young, technologically sophisticated Muslims, who are inclined to engage actively in managing their portfolios.

IICompass is an electronic data service that for pennies a day provides individual investors with up-to-date, comprehensive financial information, including Shariah-compliant status, on every publicly traded company in the world.

IICompass was founded with the express purpose of encouraging individual Muslims, as well as individuals from other religious and cultural backgrounds who are interested in ethical investing, to engage as active participants in the Islamic global economy.

Compared to conventional investing, Islamic investing provides a relatively high probability of sustained, positive returns in the long term. Our goal is to promote ethical business practices that provide those long-term stable returns for individual investors and thereby to support healthy, sustainable growth within the economy at large.

IICompass partners with Thomson Reuters in delivering its products and services, and TR provides the raw data and analytical support for us to do our job in the most efficient and effective way possible. With our business-to-customer approach, we at IICompass have staked out a market niche that complements other service providers in support of the Islamic economy, including not only Islamic mutual funds, but also Islamic financial advisors, Islamic banks, and Islamic brokerage houses.

IICompass is distinctive for several reasons. First of all, IICompass has a global reach, providing information on Shariah-compliant investment opportunities for every listed company on every stock exchange in the world, as well as over-the-counter offerings, every single trading day of the year. Our data bank contains financial performance statistics and company profile information on over 41,000 listings, and we are continuously updating that information. For individual Muslim investors in countries with underdeveloped financial information services, IICompass provides a window on the world of Shariah-compliant investment opportunities, both within the home country as well as in the regional and global arenas.

Second, IICompass is comprehensive in that it does not solely focus on companies that purposely adhere to Shariah standards of good business practice. We also provide information on companies that conform to those standards without their necessarily intending to do so. Every day, we feature on our website 10 of the top-performing Shariah-compliant stocks from the preceding day’s trading, highlighting those companies as being noteworthy for their ability to attract investors. On any given day, several of those companies will have no explicit connection to Islam. The point is that the halal goods and services and the ethical business practices that characterize Shariah-compliant companies have broad currency in the larger economy, simply because they embrace intrinsically ethical ways of doing business that are consistent with Islam.

Finally, IICompass also highlights local investment opportunities by providing visibility for small publicly traded Islamic companies with locally oriented products and services. For these companies, IICompass provides a unique platform for demonstrating the value of indigenous businesses to investors from around the corner and around the world. Our stock screener allows our subscribers to pinpoint companies based on location, industry sector, market capitalization, stock price, and Shariah status. As a bilingual Arabic-English website, we also understand the need to serve all constituencies within the Islamic world in a user-friendly, service-oriented environment.

The Great Recession of 2008-2009, which was precipitated by the over-leveraged markets in the West, has prompted financial professionals around the world to re-examine the ethical as well as practical foundations of our industry, in an effort to come up with ways to counter the boom-bust business cycles that have plagued the world for centuries.

Those of us at work within the Islamic sector understand very well that Shariah business principles constitute a powerful weapon for promoting sustainability, for combating hyper-speculation, and for addressing the global boom-bust cycle. We at IICompass sincerely believe that we have a new method for helping to disseminate the positive value of Shariah business practices. Our global reach, local focus, and comprehensive mission reflect that conviction.

DOWNLOAD THE REPORT

Report: ICD-Thomson Reuters Islamic Finance Development Report 2017

© Thomson Reuters 2017 All rights reserved

References:

[i] ICI Global, Research Perspective Executive Summary, London, March 2014.  https://www.ici.org/pdf/icig_per01-01_exec_summ.pdf, accessed September 12, 2017.

[ii] Bank Negara Malaysia, Islamic Funds Industry. 2015 Review & Outlook, Kuala Lumpur, December 2015.   http://www.mifc.com/index.php?ch=28&pg=72&ac=159&bb=uploadpdf, accessed September 12, 2017.

Dr. Thomas J. Hochstettler earned his PhD in modern economic history at the University of Michigan and has held faculty appointments at Michigan, Bowdoin College, and Stanford University. He has served in leadership positions at Stanford and Rice Universities, and he was founding Vice President for Academic Affairs at Jacobs University in Germany. Dr. Hochstettler later served as President of Lewis & Clark College in the US, as Provost and Acting Chancellor at the American University of Sharjah, and most recently as President of the Petroleum Institute in Abu Dhabi. In 2014, Dr. Hochstettler founded Islamic Investment Compass (IICompass) with Dr. Abdelaziz Chazi, Professor of Finance at the American University of Sharjah. In collaboration with Thomson Reuters, IICompass promotes the expansion of the global Islamic economy by providing up-to-date information on Shariah-compliant investment opportunities around the globe to socially responsible investors, regardless of religious belief or affiliation. Dr. Hochstettler is jointly based in Dubai and in Portland, Oregon.

© Thomson Reuters 2017 All rights reserved