Liquid Alternatives: A Fixed Income ETF for Exposure to Sukuks

May 6, 2020 | Liquid Alternatives, News
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Sukuks are Shariah-compliant financial certificates that grant holders partial ownership in an underlying asset.

Shariah is Islamic religious law that prohibits the earning of interest income. Therefore, the usual Western debt instruments such as bonds are not workable for Muslim investors. The Sukuk is an innovative structure that was introduced in 2000 in Malaysia. The SP Funds Dow Jones Global Sukuk ETF (NYSE: SPSK), is the first to offer access to Sukuk investments, a new asset class, in an ETF. (MarketWatch)

SP Funds Dow Jones Global Sukuk ETF

This ETF looks, feels, and behaves like a Western, fixed income instrument with investments in underlying debt. However, it is Sharia-compliant and available to all investors, not just those bound to Sharia investing.

The ETF invests in the financing of big-ticket deals between profitable companies looking to own high-value assets such as aircraft or real estate. The valuation of the assets, not the credit quality of the bond issuer is the crux of the transaction.

The fund is “a really good way to pick up fixed income without debt,” says Naushad Virji, CEO of SP Funds.

The ETF does not pay interest, instead, it pays monthly returns to investors in the form of “distributions.” These yield 2.23% after fees. The expense ratio is 0.65%.

Strategically, considering the ETF launched end-December when markets were frothy, it made sense not to hold debt.

“Last year, with markets at all-time highs, we thought there were some catalysts for a drop or a pullback,” Virji told MarketWatch. “We thought, we should have an ETF that gives exposure to assets that avoid debt that we believed would hold up better in a market decline.”

The fund currently has assets of $17.63 million.

Top three holdings

The top three holdings of the ETF are:

% of Assets Name of Asset/Profit Share/DOM
4.8 KSA SUKUK LTD 3.628% 04/20/2027
4.64 KSA SUKUK LTD 2.894% 04/20/2022
2.54 KSA SUKUK LTD 4.303% 01/19/2029

 

The ETF tracks the performance before fees and expenses of the Dow Jones Sukuk Total Return (ex‑Reinvestment) Index.

The fund was a winner in the International/Global Fixed Income ETF category at the Annual ETF.com Awards.

Related Story:  Liquid Alternatives: NUSI – A Safe-Haven ETF for Risk Managed Income

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