SP Funds SPUS

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Brief information: SP Funds S&P 500 Sharia Industry Exclusions ETF is an exchange-traded fund incorporated in the USA. The Funds seeks to track the performance of the S&P 500 Sharia Industry Exclusions Index. The S&P 500 Shariah Index includes all Sharia-compliant constituents of the S&P 500 Index, which consists of approximately 500 leading U.S.-listed companies.

Introduction to S&P 500 Shariah ETF (SPUS):

The S&P 500 Shariah ETF, or SPUS, is an Exchange Traded Fund designed to track the S&P 500 Sharia Industry Exclusions Index. This unique fund provides diversified exposure to US stocks while strictly adhering to Islamic investment principles. Managed passively by State Street Global Advisors and regulated by the SEC, it is a perfect investment vehicle for those who wish to align their investments with their faith-based values.

What are you investing in?

SPUS encompasses 205 stocks from the US market. A significant portion of its holdings, over half, is invested in the IT sector, including tech giants like Apple, Microsoft, and Nvidia. Health technology, represented by companies such as Abbott Laboratories, is the second-largest industry in the SPUS investment portfolio.

Top 10 Holdings	% of Total Net Assets
Apple Inc	12.99
Microsoft Corp	11.15
Nvdia Corp	5.25
Tesla Inc	3.64
Alphabet Inc	3.58
Meta Platforms Inc	3.20
Alphabet Inc Class	3.09
Johnson & Johnson	1.98
Exxon Mobil Corp	1.97
Broadcom Inc	1.70

How do you grow your money by investing in S&P 500 Shariah ETF (SPUS)?

The primary objective of SPUS is to grow investors’ capital by investing in the constituents of the S&P 500 Sharia Industry Exclusions Index, thereby replicating its performance. As the companies in the index grow and generate profits, the value of the fund’s investments may increase, leading to potential capital appreciation and higher returns for investors. However, it’s important to note that the value of the fund’s investments can decrease as well, resulting in potential losses.

What makes S&P 500 Shariah ETF (SPUS) Shariah Compliant?

To ensure compliance with Shariah principles, SPUS implements a dual screening process (business screening and financial screening). This process excludes companies involved in Shariah non-compliant industries or those that do not meet specific financial criteria.

Industries excluded from the Shariah Screening Process include:

• Advertising
• Media & Entertainment
• Alcohol
• Financial Services
• Gambling
• Pork related activities
• Pornography
• Tobacco and electronic cigarettes/vaping products
• Recreational cannabis
• Trading of gold and silver on a deferred basis

Financial screening criteria include:

Revenue Share from Non-Compliant Activities	Leverage Compliance	Cash Compliance
Non-Permissible Income (excluding Non-Operating Interest Income) / Revenue < 5%	Debt / Market Value of Equity (36-month average) < 33 %	Accounts Receivables / Market value of Equity (36-month average) < 49 %	(Cash + Interest Bearing Securities) / Market value of Equity (36-month average) < 33%

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

ESG Overall Score: 76
Environmental Score: 70	Social Score: 78	Governance Score: 72
Controversies score: 31

 

S&P 500 Shariah ETF (SPUS) has earned a moderate overall ESG score of 76, demonstrating its commitment to addressing environmental, social, and governance factors. While efforts have been made to reduce carbon emissions and adopt sustainable resource management strategies, there is room for improvement.

The fund boasts a commendable social score of 78, highlighting its focus on employee welfare, community engagement, diversity and inclusion, and responsible supply chain management.

Governance is also a strong focus for SPUS, as evidenced by its score of 72. However, there is potential for further improvement in areas such as transparency, ethical practises, and risk management. Addressing controversies is crucial for enhancing the company’s overall ESG performance. Proactive measures and continuous improvement will solidify the company’s position as a responsible and sustainable organisation.

Analysis of S&P 500 Shariah ETF (SPUS)

The following analysis provides an in-depth examination of SPUS’s performance over one-year and three-year periods, covering key metrics such as Alpha, Annualized Standard Deviation, Beta, Correlation, Information Ratio, Maximum Drawdown, Risk-Reward Ratio, R-Square, Sharpe Ratio, Sortino Ratio, Tracking Error, Treynor Ratio, Value at Risk (VaR), VaR Normal ETL, VaR Quantile, and Variance.

Analysis	Over a 1 Year Period	Over a 3 Year Period
Alpha	0.74	0.46
Annualized Standart Deviation	20.04	19.40
Beta	1.01	0.90
Correlation	0.99	0.99
Information ratio	1.18	0.38
Max Drawdown	-14.02	-26.90
R/R Ratio	0.27	0.25
R-square	0.99	0.98
Sharpe ratio	0.18	0.19
Sortinio	0.13	0.16
Tracking error	0.63	1.03
Treynor ratio	1.02	1.20
Value at Risk normal	-7.97	-7.84
Value at Risk normal ETL	-10.39	-10.18
Value at Risk Quantile	-9.25	-9.22
Variance	33.47	31.37

Alpha conclusion of SPUS:

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 0.74% over one year means that SPUS did slightly better than what was expected based on its benchmark index (S&P 500 Shariah Industry Exclusions Index).

Annualised Standard Deviation Conclusion of SPUS:

Think of this as a “roller coaster rating.” A higher number means the ride has more ups and downs, making it potentially riskier but also possibly more rewarding. A 20.04% one-year standard deviation means there have been significant ups and downs over that time period.

Beta Conclusion of SPUS:

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

In this case, the beta values for S&P 500 Shariah ETF (SPUS) are 1.01% for one year and 0.90% for three years. This indicates that the fund is slightly volatile compared to its benchmark over the one-year period but generally has lower volatility over a three-year period as compared to its benchmark.

Correlation conclusion of SPUS:

Correlation is like a dance partnership. If SPUS and its benchmark are perfectly in sync, they have a correlation close to 1. A correlation of 0.99 is extremely high, meaning SPUS and its benchmark move almost identically.

Information ratio Conclusion of SPUS:

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 values for the SPUS are 1.38% for the 1-year period and 0.38% for the 3-year period. This means it has generated excess returns relative to its benchmark over both periods, with a stronger performance observed in the 1-year period.

Maximum Drawdown Conclusion of SPUS:

This is the “worst-case scenario” number. It shows you the biggest drop SPUS experienced at any point in the given time frame. For instance, a -14.02% one-year maximum drawdown means that at its worst point in the past year, the ETF lost 14.02% of its value before recovering.

Risk Reward Ratio Conclusion of SPUS:

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

The Risk-Reward Ratios for SPUS are 0.27% (1-year) and 0.25% (3-year). This suggests a favourable trade-off between risk and reward for both the 1-year and 3-year periods.

R-Square Conclusion of SPUS:

An R-squared close to 1 means that most of SPUS’s performance can be explained by its benchmark’s performance. This is useful to know if you are considering whether to invest in SPUS or stick with a fund that tracks its benchmark.

For SPUS, the R-squared values are 0.99% for one year and 0.98% for three years. This indicates a stronger correlation between the fund and its benchmark, implying that the benchmark’s performance has a significant influence on the fund’s returns.

Sharpe Ratio Conclusion of SPUS:

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 SPUS, the low Sharpe ratio (0.18% and 0.19% ) indicates that the fund has a lower risk-adjusted performance, thus lower returns per unit of risk.

Sortino Ratio Conclusion of SPUS:

This is another way of looking at “risk vs. reward,” but it only looks at the downside, or negative risk, relative to the risk-free rate of return. In this case, the low Sortino Ratio of SPUS (0.13% / 0.16%) means that it is not doing as well in terms of generating returns when only considering the downside risk.

Tracking Error Conclusion of SPUS:

This tells us how well SPUS is mimicking its benchmark. A lower number is good here, as it means SPUS is doing a good job of tracking its benchmark.

In this case, the tracking error of SPUS is 0.63% for one year and 1.03% for three years. Since it has a considerably lower tracking error (most active fund managers have a tracking error of 4-7%), it has been considerably more efficient in its tracking of its index (S&P 500 Sharia Industry Exclusions Index).

Treynor Ratio Conclusion of SPUS:

Think of this as another “bang for your buck” measure but taking into account 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 is calculated by dividing the average excess return of an investment by its beta, which represents the systematic risk. The Treynor ratio values of SPUS are 1.02% for one year and 1.20% for three years. This indicates that the S&P 500 Shariah ETF (SPUS) is providing a considerably high average excess return relative to its systemic risk.

Value at Risk Conclusion for SPUS:

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 SPUS, 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 SPUS:

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 SPUS, the VaR ETL values are -10.39% over one year and -10.18% over a three-year period. 

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

Value at Risk Quantile Conclusion:

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 provides a measure of the potential maximum loss of an investment portfolio at a specified confidence level. In this case, the VaR Quantile values are -9.25% for one year and -9.22% for three years.

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

Variance Conclusion: 

Variance is another measure of how much SPUS’s performance varies. Higher variance means higher unpredictability. But remember, with high risk can come high reward — or, unfortunately, high loss.

In this case, the variance values of SPUS are 33.47% for one year and 31.37% for three years. This suggests that the data points in the dataset have exhibited greater dispersion or volatility around the mean. 

Is SPUS regulated?

Yes, SPUS is regulated by being listed on the New York Stock Exchange (NYSE). Additionally, it is managed by State Street Global Advisors, a well-established investment management firm, and adheres to the regulatory requirements of the Securities and Exchange Commission (SEC).

Conclusion

Investing is not just about throwing your money into a stock or ETF and hoping for the best; it’s about understanding what you’re getting into. Metrics like Alpha, Beta, Correlation, and Sharpe Ratio, among others, can seem daunting at first. However, they are crucial in helping us understand the risks and rewards associated with an investment like SPUS.

Our detailed analysis aimed to unpack these metrics in an easy-to-understand manner. We discovered that SPUS has been a relatively stable investment with a reasonable risk-reward profile. Its Alpha of 0.74% shows that it has outperformed its benchmark slightly over the past year, and its high correlation of 0.99 with its benchmark means that it’s a relatively safe bet for those who believe in the broader market’s potential.

However, with an annualized standard deviation of 20.04% and a maximum drawdown of -14.02%, it’s crucial for potential investors to understand that SPUS is not without its risks. Still, metrics like the Sharpe Ratio and Treynor Ratio suggest that the rewards may justify those risks for many investors.

It’s important to note that past performance is not indicative of future results. Therefore, while these metrics can provide valuable insights, they should not be the only factors considered when making an investment decision.

In summary, SPUS appears to be a promising investment option for those willing to take on a moderate level of risk for potentially higher returns. It’s essential, however, to consider your financial situation, risk tolerance, and investment goals before diving in. And, as always, consider consulting a financial advisor for personalized advice tailored to your specific needs.

Happy Investing!