Invesco Dow Jones Islamic Market

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Brief information: The Invesco Dow Jones Islamic Global Developed Markets UCITS ETF is a UCITS compliant exchange-traded investment fund incorporated in Ireland. The investment objective of the Fund is to achieve the net total return performance of the Dow Jones Islamic Market Developed Markets Index.

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Introduction to Dow Jones Islamic Market Developed Markets Index (IGDA):

The Dow Jones Islamic Market Developed Markets Index is a benchmark index designed to measure the performance of developed market companies that adhere to Islamic principles. Developed by Dow Jones Indices in collaboration with the Islamic Market Index, the DJIM Developed Markets Index applies specific screening criteria to ensure compliance with Shariah principles.

What are you investing in?

The Jones Islamic Market Developed Markets Index (IGDA) invests in a diversified portfolio of developed market companies that adhere to Islamic principles. The specific holdings within the index may vary over time, but it generally includes companies from various sectors such as finance, technology, healthcare, consumer goods, and industrials, among others. The index aims to provide investors with exposure to Shariah-compliant investments within developed markets.

Top 10 Holdings	% of TNA
Apple Inc	7.38
Microsoft Corp	6.35
Amazon	3.03
Nvidia Corp	2.94
Alphabet Inc	2
Tesla Inc	1.83
Meta Platforms INc	1.79
Alphabet Inc Class	1.73
Johnson & Johnson	1.11
Exxon Mobil Corp	1.1

How do you grow your money by investing in Jones Islamic Market Developed Markets Index (IGDA)?

Investing in the Jones Islamic Market Developed Markets Index (IGDA) allows for potential growth of your money by participating in the performance of developed market companies adhering to Islamic principles. As the companies in the index grow and generate profits, there is a possibility of capital appreciation and higher returns for investors. However, it’s important to note that investment values can also decrease due to market conditions and other factors.

What makes The Jones Islamic Market Developed Markets Index (IGDA)  Shariah Compliant?

No investments will be made by the Fund in companies that derive more than 5% of total income from prohibited activities or industries not compatible with Shariah as interpreted by the Shariah Supervisory Board. Such activities or industries include: 

• Alcohol 
• Tobacco
• Pork-related products
• Conventional financial services (banking, insurance, etc.) 
• Weapons and defense
•  Entertainment (hotels, casinos/gambling, cinema, pornography, music, etc.) 

Companies classified as Financial according to a unique proprietary classification system by Dow Jones Indices are considered eligible if the company is incorporated as an Islamic Financial Institution, such as

• Islamic Banks 
• Takaful Insurance Companies 

For Financial Screening:

No investments shall be made by the Fund in companies with capital structures, financial ratios or investment structures that do not comply with the following financial parameters

All of the following must be less than 33%:

• Total debt divided by trailing 24-month average market capitalization
• The sum of a company’s cash and interest-bearing securities divided by trailing 24- month average market capitalization 
• Accounts receivables divided by trailing 24-month average market capitalization

ESG rating of S&P 500 Shariah ETF (SPUS)

ESG Overall Score: 74
Environmental Score: 69	Social Score: 77	Governance Score: 75
Controversies score: 43

IGDA has an overall ESG score of 74, indicating a moderate commitment to environmental, social, and governance factors. It performs relatively well in social responsibility and governance practices, scoring 77 and 75, respectively. The fund focuses on employee welfare, community engagement, diversity and inclusion and has implemented measures for transparency, ethical practices, and risk management.

However, there is room for improvement in environmental performance, as indicated by the score of 69. Efforts have been made to address environmental concerns, but further enhancements are needed. Additionally, the controversies score of 43 suggests that IGDA has faced some issues in ESG areas, emphasizing the importance of addressing and resolving these controversies.

Overall, while IGDA demonstrates a moderate commitment to ESG factors, there is potential for improvement in environmental performance and addressing controversies. By taking proactive measures and continuously improving in these areas, IGDA can enhance its overall ESG performance and solidify its position as a responsible and sustainable investment option.

Analysis of S&P 500 Shariah ETF (SPUS)

Analysis	Over a six-month	Over 1 Year
Sharpe Ratio	0.12	0.14
Sortino Ratio	0.13	0.1
Treynor Ratio	0.09	0.76
Tracking Error	0.2	1.26
Information Ratio	0.15	0.02
Risk Return ratio	0.15	0.23
Alpha	0.03	0.02
Beta	1.06	1.02
Bear Beta	0.94	1.18
Bull Beta	1.12	0.82
R2	0.94	0.95
Adjusted R2	0.94	0.94
Value at Risk Normal	-1.17	-7.97
Value at Risk Normal ETL	-1.49	-10.32
Value at Risk Quantile	-1.16	-9.39

• Alpha conclusion of IGDA:

Alpha is like your “extra credit” in school. If the benchmark index (what you are comparing against) goes up by 5%, and your investment in SPUS goes up by 6%, that extra 1% is your Alpha. An Alpha of 0.14% over one year means that IGDA did slightly better than what was expected based on its benchmark index (The Dow Jones Islamic Market Developed Markets)

• Beta Conclusion of IGDA:

Beta tells us how closely IGDA follows its benchmark index. If the index goes up or down, we can expect IGDA to behave similarly. A Beta close to 1 means it’s behaving almost exactly like its benchmark.

In this case, the beta values for the Dow Jones Islamic Market (IGDA) are 1.06% for six months and 1.02% for one year. This indicates that the fund is slightly volatile compared to its benchmark over the one year but generally has lower volatility over three years than its benchmark.

• Information ratio Conclusion of IGDA:

This metric tells you how much extra return you’re getting for the extra risk you’re taking by not just investing in the benchmark. Positive numbers are good; they mean you’re getting rewarded for the extra risk you’re taking.

The Information Ratio for IGDA for the six months is 0.15%, and for the one year is 0.02%. This indicates that the fund’s ability to generate excess returns, adjusted for risk, is relatively low over both periods.

• Risk Reward Ratio Conclusion of IGDA:

This is like the “value for money” metric of investing. A positive number means you get more rewards (returns) than risks, which is generally a good sign.

The Reward Return ratios for IGDA of 0.15% for the six months and 0.23% for the one-year period indicate that the fund has experienced relatively low returns in proportion to the level of risk taken. The ratios suggest the fund’s performance has not been solid in generating returns compared to the risk involved over both periods.

• Bear Beta Conclusion of IGDA:

Bear beta measures an investment’s sensitivity to downward movements in the market. A bear beta below 1 indicates that the investment tends to be less volatile than the overall market during bearish (downward) market conditions.

The Bear Beta values IGDA of 0.94% for the six months and 1.18% for the one year suggest that the portfolio is expected to have lower sensitivity to market downturns or bearish market conditions than the overall market or benchmark index.

• Bull Beta Conclusion of IGDA:

Bull beta measures an investment’s sensitivity to upward movements in the market. A bull beta above 1 indicates that the investment tends to be more volatile than the overall market during bullish (upward) market conditions.

The Bull Beta values IGDA of 1.12% for the six months and 0.82% for the one year suggest that the portfolio is expected to have a higher sensitivity to market upswings or bullish market conditions than the overall market or benchmark index.

• R-Squared Conclusion of IGDA:

An R-squared close to 1 means that most of IGDA’s performance can be explained by its benchmark’s performance. Knowing if you are considering investing in IGDA or just sticking with a fund that tracks its benchmark is useful.

For IGDA, the R-squared values are 0.94% for six months and 0.95% for one year. This indicates a stronger correlation between the fund and its benchmark, implying that its performance significantly influences the fund’s returns.

• Sharpe Ratio Conclusion of IGDA:

This ratio measures how much reward you’re getting for each unit of risk. The higher the number, the better the risk-reward trade-off. Lower values indicate that the investment may not be worth the risks involved.

For IGDA, the low Sharpe ratio (0.12% and 0.14% ) indicates that the fund has a lower risk-adjusted performance, thus lower returns per unit of risk.

• Sortino Ratio Conclusion of IGDA:

This is another way of looking at “risk vs. reward,” but it only looks at the downside, or adverse risk, relative to the risk-free rate of return. The Sortino Ratio for IGDA for the six months is 0.13%, and for the one year is 0.1%. These low values suggest that the fund’s risk-adjusted performance has been relatively poor, indicating higher downside volatility than the returns generated.

• Tracking Error Conclusion of IGDA:

This tells us how well SPUS mimics its benchmark. A lower number is good here, which means SPUS is tracking its benchmark well.

In this case, The Tracking Error for IGDA for the six months is 0.2%, and for the one year is 1.26%. These values indicate the degree of deviation between the fund’s returns and its benchmark index. A lower tracking error suggests a closer alignment between the fund’s performance and the benchmark’s performance.

• Treynor Ratio Conclusion of IGDA:

Consider this as another “bang for your buck” measure, but consider how the market is doing. Higher numbers are better, showing you’re getting a good return for the market risk you’re taking.

The Treynor Ratio of IGDA, 0.09% for the six months, suggests a relatively low excess return per unit of systematic risk, while the ratio of 0.76% for the one year indicates a higher excess return per unit of systematic risk.

• Adjusted R-Squared  Conclusion of IGDA:

Adjusted R-squared is a modified version of R-squared that considers the number of variables in a statistical model. It adjusts for the degrees of freedom to provide a more accurate measure of the model’s explanatory power.

The Adjusted R-squared value of IGDA, 0.94% for both the six-month and one-year periods, indicates a strong correlation between the fund’s returns and its benchmark index.

• Value at Risk Conclusion for IGDA:

VaR is like your weather forecast but for investment loss. It gives you an estimate of how much you could lose with a certain level of confidence. For example, of IGDA, a VaR of -7.97% with 95% confidence means you can be 95% sure you won’t lose more than 7.97% over one year.

• Value at Risk Normal ETL Conclusion for IGDA:

Value at Risk Normal Expected Tail Loss (VaR ETL) is a risk measurement tool that estimates the average tail loss beyond normal based on historical returns, assuming an asymmetric normal distribution. With IGDA, the VaR ETL values are -1.17% over six months and -10.32% over one year.

The effect of a negative VaR ETL value, as indicated by IGDA, illustrates the potential average tail loss beyond normal that the investment portfolio may experience.

• Value at Risk Quantile Conclusion for IGDA:

In conclusion, the Value at Risk (VaR) Quantile is a method of estimating VaR by ordering the historical return series from lowest to highest. It measures the potential maximum loss of an investment portfolio at a specified confidence level. In this case, the VaR Quantile values are -1.16% for six months and -9.39% for one year.

Based on historical return data, the effect of a negative VaR Quantile value implies the potential estimated maximum loss that the portfolio may experience at the specified confidence level.

Is SPUS regulated?

Yes, IGDA  is regulated by being listed on the London Stock Exchange.

Conclusion

Understanding investment metrics like Alpha, Beta, Sharpe Ratio, and Sharpe Ratio and, among others,  is crucial for assessing the risks and rewards associated with investments in IGDA.

Although a detailed analysis was not provided for IGDA, the given Beta values of 1.06% six month and 1.02% one year  suggest a slightly higher volatility than the benchmark. The Risk Return Ratio of 0.15% (six months) and 0.23% (one year) indicates relatively modest risk-adjusted returns.

It’s important to consider that past performance does not guarantee future results. While these metrics offer insights, they should not be the sole basis for investment decisions.

Before investing in IGDA or any other financial instrument, evaluate your financial situation, risk tolerance, and investment goals. Seeking guidance from a financial advisor can provide personalised advice tailored to your needs.

Investing always carries risks, and conducting thorough research and considering multiple factors is crucial for making informed investment decisions.

Happy Investing!