Wahed Dow Jones Review

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Brief information: The Fund seeks long-term capital appreciation. The Fund invests in equity securities, including common stock and American Depositary Receipts, of global companies with characteristics that meet the requirements of Shariah and are consistent with Islamic principles as interpreted by subject-matter experts.

UMMA Introduction to Wahed Dow Jones Islamic World ETF: 

The Wahed Dow Jones Islamic World ETF, trading as “UMMA” on the NASDAQ, presents a distinctive investment prospect. It enables support for companies adhering to Islamic financial principles while targeting potential economic growth. This ETF mirrors the Dow Jones Islamic Market World Index, representing a varied assortment of Shariah-compliant companies globally. By investing in UMMA, you have the opportunity to enhance your wealth in a way that aligns with your faith-based values.

What are you investing in?

UMMA offers an investment path that not only aligns with Islamic ethical standards but also grants access to global equities. It emphasizes long-term growth and diversification and adopts a cost-effective, index-oriented strategy, mainly following the Dow Jones Islamic Market International Titans 100 Index.

 

Top 10 Holdings	Weight %
Infineon Technology	5.04
Taiwan Semiconductor Manufacturing	4.90
ASML Holdings Ltd.	3.94
Samsung Electronics Co	3.89
Shopify Inc	3.08
Novo Nordisk A/S	3.48
Novartis International AG	3.38
Tencent Holdings Ltd	3.02
Roche Holdings	2.08
Nestlé S.A.	2.67

Data collected as of 17/08/2023 (Reference: Refinitiv)

 

For those investors seeking diversification, the Saturna Al-Kawthar Global Equity UCITS ETF (AMAL) has its top 10 holdings constituting 27.75% of its portfolio, which aligns with its strategy of allocation. In contrast, UMMA adopts a more focused strategy, with its top 10 holdings representing 35.48% of the portfolio. Thus, AMAL might suit investors who prefer a broadly distributed portfolio, while UMMA may appeal to those comfortable with a higher concentration in select assets.

 

How do you grow your money by investing in Wahed Dow Jones Islamic World ETF?

The primary aim of UMMA is wealth growth by investing in companies within the Wahed Dow Jones Islamic World ETF, essentially replicating its strategies. Success and profitability of these companies could lead to an increase in UMMA’s value, offering the prospect of profits. Conversely, if these companies underperform, the value of UMMA investments may decline, possibly resulting in losses.

 

What makes Wahed Dow Jones Islamic Shariah Compliant? 

The Index is shaped by a clear, rule-based methodology, encompassing companies from the FTSE USA Index deemed Shariah-compliant based on their business activities and specific financial ratios. Companies indulging in Shariah-prohibited activities generating over 5% of their total revenue are excluded from the Index.

Industries omitted from the Shariah Screening Process include:

• Conventional finance (e.g., non-Islamic banking and insurance)
• Alcohol production or sales
• Pork-related products
• Certain entertainment sectors (e.g., hotels with gambling facilities, cinema that shows adult films, music production with explicit content)
• Tobacco production or sales
• Weapons and defense manufacturing

A company is considered Shariah-compliant if it passes these accounting-based screens:

Financial Screening:

• Total debt less than 33% of the trailing 24-month average market capitalization
• Cash and interest-bearing securities less than 33% of the trailing 24-month average market capitalization
• Accounts receivable less than 33% of the trailing 24-month average market capitalization

(Reference)

ESG rating of Wahed Dow Jones Islamic World ETF

UMMA	ESG Overall Score: 77
	Environmental Score: 72	Social Score: 80	Governance Score: 75
	Controversies score: 58
AMAL	ESG Overall Score: 77
	Environmental Score:71	Social Score: 81	Governance Score: 73
	Controversies score: 59

Data collected as of 17/08/2023 (Reference: Refinitiv)

The ESG (Environmental, Social, and Governance) ratings comprehensively assess the Wahed Dow Jones Islamic World ETF’s sustainability and ethical practices. With an ESG Overall Score of 77, the fund demonstrates a solid commitment to responsible investing.

• Environmental Score (72): 

This score evaluates the fund’s environmental practices. While it shows substantial effort, there is room for improvement in adopting more eco-friendly strategies and supporting sustainability within the companies it invests in.

• Social Score (80): 

The Social Score reflects the fund’s approach to social responsibility. It indicates a positive inclination towards investing in companies prioritising fair labour practices, community engagement, and diversity. However, continuous efforts are needed to  enhance the fund’s positive social impact.

• Governance Score (75): 

Governance Score assesses the quality of management and leadership within the fund’s portfolio companies. A score of 75 suggests satisfactory attention to corporate governance practices, which can further enhance the fund’s stability and long-term sustainability.

• Controversies Score (58): 

This score evaluates any controversies or adverse incidents associated with the companies in the fund’s portfolio. A score of 58 indicates that attention is needed to effectively address and mitigate disputes. This area requires careful consideration to ensure the fund’s alignment with ethical principles.

In summary, both UMMA and AMAL have solid ESG scores, with AMAL excelling in social responsibility, while UMMA has a more balanced approach with slightly lower social but higher governance scores. Both companies have had some controversies, but they are relatively minor in the context of their overall ESG performance.

Investment rating for Wahed Dow Jones World Islamic ETF (UMMA):  

Altar Score UMMA 5.3%

Category Average 8.4%

Data collected as of 17/08/2023  (Reference: etfrc.com)

Based on the provided data, UMMA has an Altar score of 5.3%. In comparison, the category average is 8.4%. The Altar score assesses a company’s ability to generate returns on its assets. UMMA’s score of 5.3% is below the category average of 8.4%.

This lower Altar score suggests that UMMA might not perform as well as other companies in its category when generating returns on its assets.

Given this information, it’s advisable to be cautious and consider refraining from investing in UMMA until a more thorough analysis is conducted to understand why the score is lower and to assess its potential for improvement in generating higher returns.

Industry Sector

Name	Weight
Technology	32.74
Healthcare	2049
Industrials	13.55
Consumer Cyclical	10.56
Consumer Non-Cylicals	8.91
Basic Materials	8.89
Energy	2.42
Financials	1.36

Data collected as of 17/08/2023  (Reference: IBKR)

The Wahed Dow Jones Islamic World ETF aims to expose investors to

companies in the Islamic world while adhering to Islamic principles. Here’s a breakdown of the ETF’s industry sector allocation:

1. Technology (32.74%): This sector commands the largest share, signifying a substantial focus on technology-related companies within the Islamic world. These firms may use software development, electronics manufacturing, telecommunications, and other tech-driven services.
2. Healthcare (20.49%): The healthcare sector makes up a significant portion, indicating the ETF’s exposure to healthcare-related companies in the Islamic world. This includes pharmaceuticals, biotechnology, medical devices, and healthcare services, underscoring the sector’s importance.
3. Industrials (13.55%): The industrial sector has a notable allocation, suggesting exposure to companies involved in manufacturing, construction, engineering, and other industrial activities within the Islamic world. This reflects a focus on infrastructure development, machinery, and equipment production.

In summary, the ETF’s sector allocation provides a glimpse into its investment focus, with technology and healthcare taking the lead, followed by industrials, consumer sectors, basic materials, energy, and financials. This diversified approach aims to capture opportunities while adhering to Islamic principles.

Country Allocation

Name	Weight
Switzerland	13.35
Japan	11.36
United Kingdom	10.19
France	9.56
Canada	9.02
China	7.73
Germany	7.47
Netherlands	6.54
Korea	5.02
Australia	4.97

Data collected as of 17/08/2023  (Reference: Refinitiv)

Based on the provided data, let’s dive into an analysis of investment returns across various countries for the Wahed Dow Jones Islamic Shariah investment:

1. Switzerland (13.35%): Switzerland takes the lead with the highest return. This signifies a robust performance in the Swiss market for the Wahed Dow Jones Islamic Shariah investment.
2. Japan (11.36%): Japan secures the second-highest return, indicating a favourable performance in the Japanese market for this investment.
3. United Kingdom (10.19%): The United Kingdom follows closely with a solid return, reflecting positive results in the British market.

These returns offer insights into the investment landscape across diverse global markets, helping investors gauge performance and make informed decisions

Financial Analysis of  Wahed Dow Jones Islamic World ETF NASDAQ

Analysis	6 month	1 Year
Sharpe ratio	0.03	0.11
Sortinio	0.03	0.12
Treynor ratio	0.03	0.7
Tracking error	0.36	2.3
Information ratio	-0.02	0.04
R/R Ratio	0.06	0.19
Alpha	-0.01	-0.01
Beta	0.99	1.13
Bear Beta	1.05	0.98
Bull Beta	0.94	1.49
R2	0.82	0.91
Adjusted R2	0.82	0.89
Value at Risk Normal	-1.34	-10.63
Value at Risk normal ETL	-1.7	-13.68
Value at Risk Quantile	-1.66	-10.91

Data collected as of 17/08/2023  (Reference: IBKR)

Statistical Analysis	6 month	1 year
Standard Deviation	0.85	25.3
CoVariance	0.6	37.51
Variance	0.72	53.35
Correlation	0.91	0.95
Downside Deviation Population	0.26	1.7
Semi Deviation	0.9	7.31
Semi Variance	0.82	53.43

Data collected as of 17/08/2023  (Reference: IBKR)

• Sharpe Ratio (6 months: 0.03%, 1 year: 0.11%):

Consider UMMA’s Sharpe ratio over the past 6 months, which stands at 0.03%; for the last year, it records at 0.11%. This metric helps gauge the smoothness of your investment journey. A higher Sharpe ratio implies a smoother ride with fewer fluctuations. On the contrary, a lower Sharpe ratio suggests that the investment may not have offered a remarkably smooth journey, considering the risks involved.

• Sortino Ratio (6 months: 0.03%, 1 year: 0.12%): 

Think of the Sortino ratio as assessing your investment journey through the lens of challenging traffic conditions. It focuses explicitly on severe traffic jams akin to adverse market situations. These low Sortino values suggest that the investment needs to navigate these ‘traffic jams’ as smoothly as one might hope, especially during turbulent times.

• Treynor Ratio (6 months: 0.03%, 1 year: 0.7%):

 Now, picture the Treynor ratio as evaluating the scenic views during your investment journey. It measures the investment’s ability to provide attractive returns considering the risks taken. In this case, the acquisition offers moderate ‘scenic views,’ indicating that it has delivered reasonable returns relative to the risks encountered.

• Tracking Error (6 months: 0.36%, 1 year: 2.3%): 

Think of tracking errors like the Deviation between your estimated arrival time and your actual arrival time on a road trip. A higher tracking error indicates that the investment’s performance has significantly deviated from its expected path or benchmark. In this case, the fund has experienced moderate to high deviations from its intended route over the past six months and year.

• Information Ratio (6 months: -0.02%, 1 year: 0.04%)

Consider the information ratio as the quality of the directions you receive during your journey. A negative ratio for the past six months suggests that the ‘directions’ provided by the investment (i.e., returns compared to the benchmark) could have been more accurate and helpful. However, there has been a slight improvement over the past year, with the directions being more reliable.

• Risk/Reward (R/R) Ratio (6 months: 0.06%, 1 year: 0.19%): 

The Risk/Reward (R/R) Ratio is like assessing the cost and comfort of your journey. A higher R/R ratio suggests that the potential rewards of the investment outweigh the associated risks. In this case, the investment has shown a moderate risk-to-reward profile over the past six months and years, meaning that the potential gains have been favourably compared to the risks.

• Alpha (6 months: -0.01%, 1 year: -0.01%):

 Think of Alpha as evaluating whether your journey was more or less efficient than expected. A negative Alpha suggests that the investment’s performance has been less efficient in generating returns than expected over the past six months and years.

• Beta (6 months: 0.99%, 1 year: 1.13%): 

Beta can be likened to the responsiveness of your vehicle to changes in road conditions. A Beta of 1 suggests that the investment generally aligns with the market or benchmark. A Beta above 1 indicates it’s more responsive (volatile), while a Beta below 1 indicates less responsive (less volatile). In this case, the investment has been slightly more responsive to market changes over the past six months and year, with Beta values slightly above 1.

• Bear Beta (6 months: 1.05%, 1 year: 0.98%): 

Bear Beta is like assessing how your vehicle performs in challenging conditions. A Bear Beta above 1 suggests that the investment has been slightly more responsive to market downturns over the past six months and year than during bullish periods, indicating it may be more volatile in bearish markets.

• Bull Beta (6 months: 0.94%, 1 year: 1.49%): 

Bull Beta evaluates how your vehicle handles during favourable conditions. A Bull Beta above 1 means that the investment has been more responsive to market upswings over the past six months and year than bearish periods, suggesting it can exhibit more significant gains in bullish markets.

• R-squared (R2) (6 months: 0.82%, 1 year: 0.91%): 

Think of R-squared as assessing how closely your vehicle follows a particular path. A higher R-squared indicates that the investment’s performance closely correlates with its benchmark. The investment has shown a moderate correlation with its model over the past six months and year.

• Adjusted R-squared (6 months: 0.82%, 1 year: 0.89%): 

Think of Adjusted R-squared as a way to fine-tune your investment’s alignment. A negative value indicates that the investment’s performance didn’t closely match its benchmark in the past six months but has improved over a year.

• Value at Risk (VaR) Normal (6 months: -1.34%, 1 year: -10.68%):

 Value at Risk Normal evaluates the potential loss in unfavourable conditions. Negative values suggest that the investment experienced lower losses than expected in the short term (6 months) and the long term (1 year).

• Value at Risk Normal E.TL (6 months: -1.7%, 1 year: -13.68%): 

Value at Risk Normal E.TL is similar to VaR Normal but focuses on extreme conditions. Negative values here indicate that the investment may have faced lower losses than anticipated during extreme market conditions in the short term (6 months) and long time (1 year).

• Value at Risk Quantile (6 months: -1.66%, 1 year: -10.91%):

 Value at Risk Quantile is another measure of potential losses. Negative values suggest that the investment may have experienced lower losses than expected at a specific quantile level in the short term (6 months) and long term (1 year).

• Standard Deviation (6 months: 0.85%, 1 year: 25.3%):

 Standard Deviation is like assessing how much your vehicle’s speed fluctuates during a journey. A higher Standard Deviation indicates more significant variability in returns. For example, the investment’s returns have been quite volatile over the past year, with a Standard Deviation of 25.3%.

• Covariance (6 months: 0.6%, 1 year: 37.51%): 

Covariance helps us understand how closely two things, like an investment and its benchmark, move together. A positive number means they tend to move in the same direction. In contrast, a negative number suggests they move in opposite directions. A higher value, like 37.51% in the past year, tells us that the investment and its benchmark have a strong relationship, moving similarly most of the time.

• Variance (6 months: 0.72%, 1 year: 53.35%): 

Variance is like fine-tuning your vehicle’s engine to reduce speed fluctuations. A higher Variance indicates a broader range of returns. In this case, over the past year, the investment’s returns exhibited substantial variability with a Variance of 53.35%.

• Correlation (6 months: 0.91%, 1 year: 0.95%): 

Correlation measures how closely two variables move together, with values between -1 and 1. Higher values indicate a stronger positive correlation. Over the past year, the investment had a high positive correlation of 0.95 with its benchmark.

• Downside Deviation Population (6 months: 0.26%, 1 year: 1.7%): 

Downside Deviation Population focuses on evaluating the variability of negative returns. Over the past year, the investment’s negative returns exhibited a Downside Deviation of 1.7%.

• Semi Deviation (6 months: 0.9%, 1 year: 7.31%): 

Semi-deviation is like measuring the variability of your vehicle’s speed when it goes downhill. Over the past year, the investment’s returns were less volatile on the downside, with a semi-deviation of 7.31%.

• Semi Variance (6 months: 0.82%, 1 year: 53.43%): 

Semi Variance evaluates the variability of negative returns. A higher Semi Variance suggests a broader range of negative returns. Over the past year, the investment’s negative returns exhibited substantial variability with a Semi Variance of 53.43%.”

Factor Scorecard on UMMA:

Size	71
Value	10
Yield	12
Momentum	22
Volatility	60
Quality	83

 Data collected as of 17/08/2023  (Reference: etfrc.com)

• Size (71): 

Size refers to the company’s market capitalisation or total asset value. A score of 71 suggests that UMMA has a relatively moderate size compared to other companies.

• Value (10): 

The value factor measures the attractiveness of a company’s stock price relative to its fundamental value. A score of 10 indicates that UMMA might be considered less attractive in terms of its value, possibly implying a higher stock price than its intrinsic value.

• Yield (12):

Yield represents the company’s dividend yield, the dividend payment divided by the stock price. A score of 12 suggests that UMMA has a relatively lower dividend yield.

• Momentum (22): 

Momentum reflects the trend and recent stock price performance. A score of 22 shows that UMMA has experienced some positive rate, indicating that its stock price has been increasing or showing upward trends recently.

• Volatility (60): 

Volatility measures a stock’s price fluctuations and risks. A score of 60 indicates that UMMA might have relatively higher volatility, suggesting that its stock price can experience significant changes.

• Quality (83): 

Quality represents a company’s overall financial health and stability. A score of 83 suggests that UMMA is relatively strong regarding its economic quality.

Conclusion for Factor Scorecard on Wahed Dow Jones Islamic World ETF (UMMA): Based on the provided factor scorecard, UMMA has a moderate size, low value, relatively low yield, positive momentum, higher volatility, and solid financial quality. It is important to note that this analysis is based solely on the provided scores and does not consider other factors or market conditions. Therefore, conducting a more comprehensive. 

Is Wahed Dow Jones Islamic World ETF (UMMA) regulated?

Yes, through being listed on the Nasdaq Global Market Consolidated.

Investors should consult with financial advisors for a comprehensive evaluation before making investment decisions.

Conclusion

In conclusion, while the Wahed Dow Jones Islamic World ETF (UMMA) demonstrates strong performance metrics and a favorable ESG rating, investors need to carefully consider the unfavorable risk factors. The high levels of risk and volatility associated with the fund, as indicated by the negative metrics, should be taken into account. Investors with a higher risk tolerance and a preference for ESG-focused investments might find UMMA appealing, but it is crucial to align the fund’s risk profile with your investment goals and risk tolerance before making an investment decision. Diversification and a well-thought-out investment strategy are also recommended to manage the potential risks associated with this fund.

the Wahed Dow Jones Islamic World ETF (UMMA) presents an investment profile characterized by a strong commitment to ESG principles, as reflected by its individual scores in environmental, social, and governance aspects. However, despite its solid ESG adherence, the fund’s Altar Score indicates that its performance may lag behind the category average, signaling room for improvement in asset return generation. This calls for potential investors to dig deeper into the underlying reasons for this underperformance to make informed decisions.

The ETF’s sector and country allocations emphasise technology, healthcare, and industrials, with notable performances in Switzerland, Japan, and the UK. These insights should be weighed by investors looking to diversify their portfolios while staying aligned with Islamic investment principles. Furthermore, a range of performance metrics, including the Sharpe, Sortino, and Treynor ratios, along with tracking error and information ratio, provide a nuanced view of the fund’s risk-adjusted performance and alignment with its benchmark. The fund’s volatility and risk measures, including Beta, Bear Beta, and Bull Beta, along with R-squared values, offer additional layers of analysis for the risk-conscious investor.

Moreover, the factor scorecard highlights UMMA’s strengths and weaknesses across different financial dimensions, such as size, value, yield, momentum, volatility, and quality. While the fund boasts a commendable quality factor score, it falters in value and yield, suggesting a lesser degree of attractiveness on those fronts. High volatility and moderate momentum add layers of complexity to the investment decision.

Regulated by its Nasdaq listing, UMMA offers a regulated, transparent investment vehicle. Nonetheless, the intricate blend of ESG commitments, financial factor scores, and varied performance metrics across multiple time frames and conditions illustrates the complexity of investment decisions in the context of Islamic finance. Prospective investors should consider these multifaceted factors, balancing ethical alignment with financial objectives, to ascertain whether UMMA aligns with their investment portfolio’s overarching strategy.