Firm launches first U.S. Shariah-compliant ETF

The latest iteration of social and religious investment screens hit the market on the last trading day of June with the launch of the JETS Dow Jones Islamic Market International Index Fund (JVS). The exchange traded fund is not only the first product offering from Princeton, N.J.-based Javelin Investment Management LLC, but it is also the first American ETF to adhere to Islamic beliefs about investing and finance.

The total population of Muslims in the United States is estimated to be 2.35 million, according to a 2007 report released by the Pew Research Center in Washington.

“Islamic investing is gaining acceptance in this country, but this [ETF] is serving an untapped market,” said Chuck Tennes, a Javelin spokesman.

Islamic investment screens are well-established through such mutual funds as the $1 billion Amana Growth Fund (AMAGX) offered by Saturna Capital Corp. in Bellingham, Wash.

The Amana mutual fund, which has been around for more than 15 years, has a five-star rating from Morningstar Inc. in Chicago.

This year through July 9, the actively managed fund was up 5.9%, compared with an average gain of 6.08% by Morningstar’s large-cap-growth category.

Over the 12-month period through July 9, the fund was down 18.66%, while the category average declined by 27.61%.

The Javelin ETF is pegged to the Dow Jones Islamic Market Titans 100 Index, which is made up of 100 companies located outside the United States, representing 23 countries and 18 currencies.

Eighteen percent of the fund’s assets are allocated to the United Kingdom, 10.8% to France, 10.6% to Canada, 9.2% to Switzerland and 9.2% to Japan.

The Islamic index was created in March, but on a back-tested basis it gained 14.4% this year through May 29. That compares with a 17.6% gain by the Standard & Poor’s 500 stock index over the same period.

The index tracks companies whose activities comply with Shariah Islamic law, which prohibits anything related to alcohol, gaming, pork products and certain forms of entertainment. It specifically bans borrowing and lending.

“By not trying to make money on money, the fund should reduce the impact of financial activity,” Mr. Tennes said. “There will be more of an emphasis on basic industries like oil and gas.”

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HEDGING MUTUAL FUNDS

The pursuit of non-correlated investment returns also has produced some new strategies at Commonwealth Financial Network, which has started adding hedge-like mutual funds to some of its mutual fund wrap portfolios.

The Waltham, Mass.-based independent broker-dealer, which is affiliated with more than 1,300 representatives, says it is responding to demand from advisers and their clients for more alternative investment options.

Alternative strategies are not entirely new to the $40 billion Commonwealth investment platform. Advisers have long been able to access such alternative products as oil and gas investment trusts, non-traded real estate investment trusts and managed futures.

But introducing alternative strategies into the brokerage firm’s three-year-old mutual fund wrap program offers more options to those investors not necessarily qualified to invest in pure alternatives.

“It gives our reps a bigger, broader story to talk with their clients about,” said Simon Heslop, the firm’s director of asset management.

Mr. Heslop, working with about 12 colleagues, is responsible for infusing an eclectic raft of registered mutual funds offering alternative strategies into three wrap programs.

The programs, which normally allocate 40% and 80% of their assets to equity mutual funds, will replace some of that equity exposure with new allocations of between 15% and 25% to alternative strategies.

The alternative strategies focus on managed futures, commodities, market neutral, long-short and arbitrage, Mr. Heslop said.

The alternatives option was introduced last month and so far, Mr. Heslop said, the launch has been predictably slow.

“We’ve only opened a handful of accounts, but we’re always a little slow on the uptake,” he said. “Our motivation was significant demand from the field, so we wanted to find some solutions to limit the volatility and downside in the markets.”

A new Investment Insights column appears every Monday on InvestmentNews.com. E-mail Jeff Benjamin at jbenjamin@ investmentnews.com.