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Shariah investors enter Europe

A new fund applying Sharia guidelines is soon to be launched in order for the Middle East’s Islamic investors to gain exposure to European markets

Commerzbank’s Asset Management Group, Germany, and the Abu Dhabi Commercial Bank have collaborated to launch the AlSukoor European Equity Fund. The fund’s objective is to invest in European equities that follow Shariah guidelines, allowing the Middle East’s Islamic investors to gain exposure to European markets.

The banks claim the fund will be one of the first of its kind to be managed in accordance with these principles.

The base currency will be the Euro and the stock selection will be made based on the guidelines provided by the fund’s Shariah board. This means that companies dealing in the production of tobacco, armaments or alcoholic beverages will be eliminated.

“Every stock that is in the fund is Shariah-compliant and the percentage of European equities in total that are Shariah compliant is roughly one third,” said Ulrich Schellenberg at Commerzbank. “There is a regular screening process carried out according to the Shariah criteria but generally it remains around 33%,” he added.

It is hoped that investors will be able to realise better returns than they might realise elsewhere, whilst still being able to conform with their religious convictions. “What you can expect as a long term investor would be around 10-12% as an average return,” explained Schellenberg.

“This is a figure we always try to achieve per year although equity markets are very volatile. The percentage return is based on an average over the years. The Islamic fund could be able to achieve more than 12%.”

Schellenberg compared Islamic funds to the returns investors would realise on a non-Islamic investment fund, and concluded that the former normally achieve a better performance compared to conventional assets. “We have done batch testing of how the Islamic funds would have done compared to conventional funds over the last few years and we believe that this Islamic fund can do better because of the screening process and the Islamic criteria,” he said.

Each investor will be exposed to 15 different markets in Europe, so everyone will be able to participate in all large European economies where all major stock markets are covered. However, minimum amounts that can be invested vary between each international market depending on local conditions.

“In Germany we have distribution through our Commerzbank branches and E2,500 is a minimum investment; Abu Dhabi Commercial Bank is now the local distributor in the UAE and their minimum investment is E5,000,” said Schellenberg. “When our partners in Saudi go out to other countries and sell the fund, they have E10,000 minimum investment for the retail investor and E100,000 for institutions. So there’s no clear minimum for every market.”

Other variable figures, also dependent on local market conditions, are the loads the fund will charge. “The front end fee is from 0-5%,” Schellenberg says. “In Germany, we normally take the highest fee of 5% but in the Gulf it’s not so competitive. In Abu Dhabi or Dubai, Abu Dhabi Commercial Bank charges 1.5% flat,” he explains, claiming that the loads are also dependent on the volume invested. “If an investor or institution invests E5-10 million you can’t charge 5%, it’s not possible, so the front end fee is flexible. You charge what the market can provide you.”

The AlSukoor fund is not charging a redemption fee and the annual management charge is an all inclusive percentage of the investment. “The 2% investors pay includes the annual management fee, the Islamic advisory fee and the custodian fee to name a few, so everybody gets a piece of the cake,” said Schellenberg.

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