Deutsche Bank x-tracker ETF business is liquidating its sharia exchange traded funds. This reduces exchange traded investment options for ethical investors and means existing investors will receive cash by the 26 March 2015. What’s the impact and choices?
The news was published on 4 February 2015 that the db x-trackers S&P 500 SHARIAH UCITS ETF (1C: LU0328475362), db x-trackers S&P EUROPE 350 SHARIAH UCITS ETF (1C: LU0328475107) and db x-trackers S&P JAPAN 500 SHARIAH UCITS ETF (1C: LU0328475289) will cease trading on the London stock exchange on 6 March 2015. The total size of these ETFs is £22.99 million so small by conventional assets standard but is average size for sharia funds – the S&P500 is £8.75m, Europe £9.18m and Japan ETF £5.06m according to http://etf.deutscheawm.com.
Whilst the secondary market closed on the 6 March 2015 the primary market dealing will be available until the 10 March 2015.
Liquidations on these three vehicles will be paid by the latest the 26 March 2015.
This is an unfortunate development for Islamic investors as they lose three passive investment options in major regional markets . There are alternative passive investments for the USA and also active options. In Europe the options are more limited with active funds the main avenue and at the time of writing there is no direct Japan investment option. Most Asia Pacific funds exclude Japan and at a time when Japan is a favourite of asset allocators and emerging markets is an active underweight with asset allocators this does remove an investment tool.
The liquidation of the DB Sharia ETFs comes at a time of shifting investor trends so it could be an opportune time for affected investors to consider their options.
Stockmarket traded ETFs are a favourite with retail and self directed investors as they can access them easily from online stockbrokers. A shrinking investable universe makes self directed investing more difficult as some superior products are not on these platforms. Looking at the financial adviser market and advised clients they are increasingly picking risk rated products and delegating investment management. The regulatory weight, compliance oversight and resource intensiveness to build a research database, complete and maintain investment diligence and build a portfolio means financial planners prefer to select a professional fund manager. in the UK since the introduction of the Retail Distribution Review (RDR) the trend has been for risk rated funds to gather more assets than single region or standalone investment funds. Wealth managers are increasingly the conduit of financial assets. The Salam Pax Funds were designed for investors wanting an invest and hold solution where a professional manager makes decisions on asset allocation and security selection. With x-tracker investors losing investment options maybe they will review the investment approach?