"The company has already received an exemptive relief order from the Securities and Exchange Commission (SEC), the US regulator, to launch the funds on the US exchanges," Saeid Hamedanchi, CFA, president & CEO of Florentez (ShariahShares ETF), said in an exclusive interview with Arab News here recently.
Hamedanchi, who was traveling to the GCC (Gulf Cooperation Council) countries to test the waters for demand for ETFs, said Islamic finance is growing by leaps and bounds in the US in recent times. He said, for example, Amanah funds have had spectacular asset growth in the US. "More and more investors wanting to invest according to Shariah in the US. There are seven to 10 million Muslims in the US. A majority of them are affluent immigrants from Southeast Asia, the Indian Subcontinent and the Arab world," he said, adding that even non-Muslims are buying these Shariah-compliant funds due to strong performance.
He also emphasized the fact that CFA Institute that grants highly coveted Chartered Financial Analyst (CFA) designation from Charlottesville, Virginia, US, is planning to offer curriculum in Islamic finance and socially responsible investing/ethical investing (SRI). This clearly shows that Islamic finance has made it to mainstream in the financial services industry globally.
He added that non-Muslims are also investing in Shariah-compliant ETFs due to financial ratio and Shariah indexes being more financially conservative than their conventional counterparts. Highly indebted companies get into financial distress when their debt level reaches a certain level. In that circumstance, they are no longer held by Shariah indexes. For Example: Enron, Worldcom and others as evidenced in the 2001-2003 recession, he said. This causes the Shariah indexes to outperform the conventional indexes during market downturns. Another factor has been lack of exposure to conventional bank and financial institutions. He added that Shariah-compliant indexes have outperformed conventional indexes in the developed markets for the past five years.
Hamedanchi said after the NYSE listing, we will move to the London Stock Exchange (LSE). The LSE will be gateway to the Gulf region."
Hamedanchi, who had worked at the Jeddah-based Islamic Development Bank (IDB) for nearly four years from 2003 to 2006, said Florentez, which was founded in 2006 by Hamedanchi and Jim Altenbach, CFA, is planning to list ETFs in the GCC exchanges in the future.
"We are planning to offer products in the GCC region, especially in Saudi Arabia. We believe that Saudi Arabia has a big future in Islamic finance because of its solid economic fundamentals and the desire of investing public to invest according to their faith" he added.
Hamedanchi said very few ETFs are there in the Gulf region now. It is a new market in the GCC and very exciting to be in this market.
ETFs are investment funds traded on the exchange during trading time, similar to stocks. ETFs enjoy several advantages over mutual funds and stocks.
Like other investment funds, ETFs are composed of a basket of assets (listed companies shares), however unlike mutual funds, ETFs are traded on the exchange. ETFs are more transparent since they track the movement of the underlying assets index and investing in the index by the same proportions. It is easier for investor to measure the performance of the ETF by tracking the movement of the underlying assets index. ETF units are traded by Bids and Asks during trading time.
Hamedanchi said "We are in the middle of a road show and talking to potential investors in Saudi Arabia and other GCC countries about our exciting venture. For the best interest of investors, we are offering low investment management fees and great value for our fund management services."
He said Florentez is planning to have big presence in the region by opening offices in GCC countries. "We are looking for distribution partners in GCC countries, probably first in Saudi Arabia because of its big market size."
Hamedanchi said Saudi Arabia launched its first ETF on Sunday. The first ETF by Falcom Financial Services, which will be accessible to foreign investors, was listed and started trading on Tadawul on Sunday. Falcom won approval from the Capital Market Authority (CMA) earlier this month to list a Saudi Equity ETF on the bourse.
Hamedanchi said the Falcom ETF would be a huge success as Saudi Arabia is trying to attract more foreign money to its bourse. This will increase the number of offered tradable products consequently help investors to diversify their investments.
Global banks and fund managers have opened up their offices in Riyadh and are exploring ways to tap opportunities on the best performing bourse last year and so far in 2010. Despite gains of more than 10 percent since January and 27 percent in 2009, investors still see potential for stocks.
Hamedanchi said many other ETFs would be launched in the GCC countries during this year and next year as well. The Kuwait-based Global Investment House (Global) said Dow Jones, leading global index provider, has given National Bank of Abu Dhabi a license to launch Dow Jones UAE 25 Index, which measures the performance of the 25 largest and most liquid equity securities trading in UAE.
ETFs entered global markets for the first time in the year 1989 through the Canadian market followed by the US in 1993. Since then ETFs have experienced very rapid growth, the ETF assets have increased from $72 billion in 2001 to $700 billion by the end of 2009 in the US market alone. The ETF industry has witnessed 40 percent annual growth rate for the past ten years, according to the industry sources. Furthermore, the industry expects growth of 20-25 percent in the next five years, according to Euromoney. Furthermore, assets under management reached $1 trillion by at the end of 2009, according to Black Rock's Debbie Fuhr.
