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Shariah-compliant ETFs are now on the ASX: Here’s what to know


Investors gain access to Australia's first-ever Sukuk active exchange-traded fund.

The ASX now features a new investment option: the Hejaz Sukuk Active exchange-traded fund or ETF (ASX:SKUK). The fund is compliant with Shariah law, offering an alternative to traditional bonds for investors seeking options aligned with Islamic financial principles.

The Hejaz Sukuk Active ETF aims to fuse ethical investing and financial innovation. Managed by Hejaz Asset Management, the fund is a diversified portfolio of Shariah-compliant Sukuk investments, aiming for an 8% annual return post-fees.

Here's what you need to know about Sukuk

Now, if you're scratching your head wondering, "What's a Sukuk?" you're not alone. While niche in Australia, the global market is tipping the scales at over USD $800 billion.

Think of them like bonds' cousins who prefer not to deal with interest – because in the world of Islamic finance, earning or paying interest is a no-go. Instead, Sukuk are all about profit sharing from assets they're tied to.

Sukuk securities offer a unique investment proposition. Unlike traditional bonds, Sukuks generate returns through asset appreciation, aligning with Islamic principles by eschewing interest-based earnings.

In fact, last year, a Melbourne-based fund manager launched the first Sharia-compliant exchange traded funds on the ASX. So, for Aussie investors looking to play by Shariah rules, such ETFs are opening up a whole new game.

CEO of Hejaz Group Haka Ozyon said Hejaz was founded to give Australian Muslims the opportunity to grow their wealth without compromising their beliefs.

"The Hejaz Sukuk Active ETF (Managed Fund) fills a substantial gap in the market by enabling Muslims and non-Muslims to access an ultra-ethical fixed-income product – considered a defensive asset – for the first time."

Hejaz's foray into Islamic finance is not a new endeavour. With $1.3 billion under management and advice, the firm's Global Ethical Fund is Australia's largest standalone Islamic fund.

While these numbers are promising, it's important for investors to do their homework and consider all aspects of potential growth, and risks, and align them with their investment strategy.

Components of the Hejaz Sukuk Active ETF

The Hejaz Sukuk Active ETF is structured to provide investors with exposure to a portfolio of Sukuk, which are Islamic financial certificates similar to bonds but structured to comply with Sharia law. This means the fund invests in assets that yield profit instead of interest, aligning with Islamic ethical considerations.

Investors considering the Hejaz Sukuk Active ETF are essentially looking at a fund that operates with a Sharia-compliant framework. The fund strategically selects Sukuks that adhere to Islamic financial principles, avoiding investments in sectors such as alcohol, gambling, and tobacco, amongst others that do not meet ethical criteria.

The ASX listing provides an avenue for Australian investors to engage with a global financial market that is both significant in scale and aligned with ethical investment principles.

What to consider before investing

When evaluating the Hejaz Sukuk Active ETF, it is essential for investors to align the fund's objectives with their individual investment strategies and risk tolerance. The Sukuk ETF is tailored to cater to investors seeking Sharia-compliant income streams, representing an ethical bond alternative in the financial market.

The Hejaz Sukuk ETF may be particularly suitable for both seasoned investors and those new to the market. It is categorised as a medium-risk investment due to its focus on fixed-income securities, but you should also consider the geopolitical and economic risks inherent to the regions and sectors in which the fund invests.

Overall, as with any investment, it should not be viewed as a one-size-fits-all solution but rather as a potential component of a broader, well-diversified investment strategy. You might also benefit from consulting a financial advisor to ensure that the investment aligns with your long-term financial objectives and ethical considerations.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

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