Singapore's first sharia-compliant exchange-traded fund (ETF) debuted on the stock exchange on Tuesday.
The Daiwa FTSE Shariah Japan 100 was jointly launched by Daiwa Asset Management (Singapore) and Singapore Exchange (SGX). The fund will track the performance of the FTSE Shariah Japan 100 Index , which is designed to represent the return of the largest and most liquid listed companies in Japan that comply with Islamic legal principles. The top 10 holdings of the fund are Toyota Motor, Canon, Nintendo, Matsushita Electric, Takeda Pharmaceutical, Mitsui, Komatsu, Mitsubishi Electric, Nippon Steel, DTT Docomo.
Yasaar Limited will be undertaking the sharia screening at the fund level. Yasaar is a global sharia consultancy offering financial institutional clients with sharia compliance services including reviews of financial product structures and advice on amendments to achieve compliance where possible.
Sharia principles generally preclude investment in businesses such as conventional financial services, alcohol, pork-related products, gambling, leisure and entertainment. Sharia principles also preclude interest-bearing investments and investments in companies with unacceptable levels of debt.
Tokyo-based Michihito Higuchi, president and CEO of Daiwa Asset Management, the parent company of the Singapore entity, says the fund aims to serve as a proxy to Japan's growth prospects while being a means of gaining exposure to sharia-compliant stocks. The fund is Daiwa's first ETF in Singapore.
The fund provides Islamic investors with a time-efficient, cost-effective and low-risk investment avenue, based on the use of an indexing investment approach for a basket of reputable Japanese companies, Higuchi says.
Chew Sutat, SGX executive vice-president and head of development, says demand for sharia-compliant funds in Asia has been rising strongly on the back of increasing interest from Islamic investors from the Middle East. The Daiwa fund brings the total number of SGX-listed ETFs to 19 and expands on its current Asian offerings.
While the Daiwa ETF, which closed at S$10.14 ($7.45) on its listing day, was created to cater to the expanding needs of Islamic investors for greater investment alternatives, Daiwa expects it will also appeal to non-Islamic investors internationally.
Daiwa Asset Management in Japan is the investment adviser for the Daiwa ETF. DBS Trustee is the trustee, custodian and registrar for the fund.
Daiwa Asset Management (Singapore) manages around ¥46.0 billion ($412 million) in assets.
Its parent, Daiwa Asset Management, is the second largest asset management company in Japan and has an AUM of around ¥11.3 trillion ($101.5 billion). It launched its first ETF in Japan in July 2001 and is managing five ETFs with total AUM of around ¥856.7 billion ($7.7 billion). It has five overseas offices in New York, London, Hong Kong, Singapore and Shanghai.