ShariaShares Files For Two New U.S. ETFs

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September 23, 2009 8:56am ETF BASIC NEWS

comingsooonSummary of each Index
The first is the FTSE Shariah USA Index which is designed to represent the country level performance of the largest and most liquid Shariah compliant companies based on the FTSE GEIS US Large and Mid cap Index companies.  The FTSE Global


 Equity Index Series (“GEIS”) is an arithmetic weighted series where the weights are the market capitalization of each company. The price index is the summation of the free float adjusted market values (or capitalizations) of all companies within the index and each constituent company is weighted by its market value (shares-in-issue multiplied by share price multiplied by free float factor) to which an investibility weighting may be applied. The price movement of a larger company (say, representing five per cent of the value of the index) will, therefore, have a larger effect on the index than a smaller company (say, representing one per cent of the value of the index). The formula used for calculating the index is straightforward. However, determining the capitalization of each constituent company and calculating the capitalization adjustments to the index is more complex. The index value itself is simply a number which relates the total market value of all companies within the index at a particular point in time compared to a comparable calculation at a starting point. Where a company does not list all its shares in an eligible class, these unlisted shares are not eligible for index inclusion, but are included for ranking purposes where recognized. Where a company does not list an entire class, these unlisted shares are not eligible.

The FTSE Shariah Developed ex US Index is designed to represent the performance of the largest and most liquid Shariah compliant companies based on the FTSE GEIS Developed ex US Large and Mid cap Index companies. The FTSE Global Equity Index Series is a arithmetic weighted Series where the weights are the market capitalization of each company. The price index is the summation of the free float adjusted market values (or capitalizations) of all companies within the index and each constituent company is weighted by its market value (shares-in-issue multiplied by share price multiplied by free float factor) to which an investibility weighting may be applied. The price movement of a larger company (say, representing five per cent of the value of the index) will, therefore, have a larger effect on the index than a smaller company (say, representing one per cent of the value of the index). The formula used for calculating the indices is straightforward. However, determining the capitalization of each constituent company and calculating the capitalization adjustments to the index is more complex. The index value itself is simply a number which relates the total market value of all companies within the index at a particular point in time compared to a comparable calculation at a starting point. The FTSE Shariah Developed ex US Index consists of Australia, Austria, Belgium/Luxembourg, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, and the United Kingdom. Where a company does not list all its shares in an eligible class these unlisted shares are not eligible for index inclusion, but are included for ranking purposes where recognized. Where a company does not list an entire class, these unlisted shares are not eligible.

Index Construction

(a) FTSE Shariah USA Index

US Large and Mid cap companies included in FTSE GEIS USA Index are eligible for the FTSE Shariah USA Index. Yasaar Research Inc. will ensure that all constituents and potential constituents are screened quarterly to determine their Shariah status. An overview of the Yasaar / FTSE stock screening criteria are listed below.

(i) Companies involved in the following activities will be considered to be non-permitted business sectors:

• Conventional finance (i.e., non-Islamic banking, finance and insurance).

• Alcohol.

• Pork related products and non-halal food production, packaging and processing or any other activity related to pork and non-halal food.

• Entertainment (casinos, gambling, cinema, music, pornography and hotels).
• Tobacco.

• Weapons, arms and defense manufacturing.

(ii) After companies have been screened by their business sector activity, the remaining companies are further examined on their finances to ensure that those companies are Shariah compliant. Only those companies that pass the following financial ratios will be considered Shariah compliant:

• Debt is less than 33% of total assets.

• Cash and Interest bearing items are less than 33% of total assets.

• Accounts receivable and cash are less than 50% of total assets.

• Total interest and non compliant activities income should not exceed 5% of total revenue.

• Appropriate purification of dividends at 5% (this ratio calculates the recommended purification amount to be paid by the investor).

The shares, investability weightings and treatment of secondary lines of stock of constituents are the same as those in the GEIS. Companies will be included in the appropriate indices if they are current Large and Mid cap constituents of the FTSE GEIS USA Index, and they are considered to be Shariah compliant.

(b) FTSE Shariah Developed ex US Index

US Large and Mid cap companies included in FTSE GEIS Developed ex US Index are eligible for the FTSE Shariah Developed ex US Index. Yasaar will ensure that all constituents and potential constituents are screened quarterly to determine their Shariah status. An overview of the Yasaar / FTSE stock screening criteria are listed below.

(i) Companies involved in the following activities will be considered to be non-permitted business sectors:

• Conventional finance (i.e., non-Islamic banking, finance and insurance).

• Alcohol.

• Pork related products and non-halal food production, packaging and processing or any other activity related to pork and non-halal food.

• Entertainment (casinos, gambling, cinema, music, pornography and hotels).
• Tobacco.

• Weapons, arms and defense manufacturing.

(ii) After companies have been screened by their business sector activity, the remaining companies are further examined on their finances to ensure that those companies are Shariah compliant. Only those companies that pass the following financial ratios will be considered Shariah compliant:

• Debt is less than 33% of total assets.

• Cash and Interest bearing items are less than 33% of total assets.

• Accounts receivable and cash are less than 50% of total assets.

• Total interest and non compliant activities income should not exceed 5% of total revenue.

• Appropriate purification of dividends at 5% (this ratio calculates the recommended purification amount to be paid by the investor).

The shares, investability weightings and treatment of secondary lines of stock of constituents are the same as those in the GEIS. Companies will be included in the appropriate indices if they are current Large and Mid cap constituents of the FTSE GEIS Developed ex US Index, and they are considered to be Shariah compliant.

For the full filing click: HERE

 

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