Most halal investors are stuck at square one due to a lack of time and resources to get started on their long-term investing goals.
Screening of stocks takes hours for each name. Rebalancing a portfolio requires a lot of discipline. Staying on top of all changes with regards to Shariah compliance issues is very time-consuming. Most people do not have enough time to work on their investments in this manner. As a result, they end up spending extra time and effort that they could have spent on other priorities instead.
Ready-Made Halal Portfolios exist to solve that.
What They Actually Are
So what really are Ready-Made Halal Portfolios? At their core, they are a bundle of investments built, weighted and maintained for you by professionals. The investor selects holdings for you to help you achieve your investment goals. You do not pick the individual holding. Instead, you choose a goal, such as broad market exposure, income, growth, or a particular theme. You then select the professionally built managed portfolio aligned to that goal. The portfolio will be diversified. It will be rebalanced as required on a set frequency or as a result of a change that may occur from time to time. It will be monitored on your behalf. All you have to do is to fund the portfolio and, from time to time, check on its progress.
Our range of four Musaffa Ready-Made Halal Portfolios include a US Core portfolio, a US Growth portfolio, a US Income portfolio as well as a US themed portfolio – the US Innovation portfolio. Each of the 4 portfolios is structured around a particular investment objective and each portfolio has been constructed with 5 different risk profiles in mind from a very Conservative investor through to an Aggressive investor, allowing for far greater flexibility than a single ‘off the shelf’ portfolio.
Why This Is Different From an ETF
A common question: isn't this just an ETF?
In the majority of cases, an ETF is a singular investment product that is made up of a variety of other investment products which are all managed together as one ‘brand’ and objective, therefore the investor purchases one single product (the ETF) and that in itself becomes their investment.
Managed portfolios consist of individual stocks from around the world, screened for Shariah compliance with Shari’ah rules in accordance with AAOIFI screening standards, Sukuk ETFs, which offers regular income, and Gold ETFs. Each of these individual investment products is designed to play a specific role in your overall investment portfolio. Importantly, the key aspect of any managed portfolio is the determination of the optimum weight of each individual asset, on an on-going basis as the market goes through its typical cycles of high and low volatility. Rebalancing your portfolio to stay on track as required. Combining similar investment products, such as ETFs, would require similar due diligence and constant review to achieve a similar end.
So how does a Ready-Made Halal Portfolio differ in practice from a halal ETF? The two can serve different purposes, and the right choice depends on your individual circumstances and objectives. Some of the key distinctions include:
1. Tailored to your risk profile, rather than one-size-fits-all. A halal ETF is generally a single, standardized basket that every investor buys in the same form, regardless of their objectives, time horizon or risk tolerance. The Ready-Made Halal Portfolios are offered across a range of risk levels, from Conservative to Aggressive, and the underlying mix of assets is set with the intention of aligning to the risk profile and goals of the investor allocated to it.
2. Ongoing management and adjustment. Because a managed portfolio is actively overseen, the managing firm can rebalance holdings, adjust weightings, and add or remove individual positions in response to Shariah compliance changes or evolving market conditions. An ETF's composition is typically governed by its stated index or methodology, and an individual investor generally cannot influence which holdings it contains or how it is weighted.
3. A direct advisory relationship and fiduciary duty. As an SEC-registered investment adviser, we owe a fiduciary duty to our advisory clients, which means we are obligated to act in each client's best interest in managing their portfolio, subject to the terms of our advisory agreement and disclosures. By contrast, an ETF sponsor or its adviser generally manages the fund itself and does not enter into a personalized advisory relationship with, or owe an individualized fiduciary duty to, each investor who buys fund shares.
4. Direct ownership and holding-level transparency. In a managed portfolio, you generally own the individual securities held in your account, which allows visibility into each holding's Shariah compliance status and purification estimates. With an ETF, you own a single fund share and rely on the fund's aggregate approach and disclosures.
5. Continuous, holding-level Shariah screening and purification tracking. Each position can be screened on an ongoing basis against AAOIFI standards, with purification estimates tracked at the level of each holding rather than only at the level of a single pooled product.
That said, ETFs offer their own potential advantages, such as intraday liquidity and, in some cases, lower ongoing costs. Neither approach is inherently better for every investor; the suitable choice depends on your individual objectives, resources and preferences, and many investors use both in combination.
What "Halal" Has to Mean
Labelling something “halal” on the launch of a new product is child’s play. The real challenge starts after the launch of the new product.
For the holding in Musaffa’s managed portfolios, a two-layer screen has been designed to identify / remove holdings as appropriate based on AAOIFI standards. Firstly, a business activity screen is implemented which removes holdings with material business involvement in industries such as alcoholic beverages, conventional finance, gaming, adult entertainment, armaments, and holdings of companies that have business activities involved with pork and other similar products. A financial ratio screen is then implemented, which compares ratios of the holding such as debt to asset value, interest-bearing assets to total assets, and non-Shariah compliant income to total income against the same ratios as stipulated by AAOIFI.
The screening process for these investment portfolios is an ongoing one. Businesses change from time to time. Companies can take on more debt than before. Their income can change too from time to time. Hence, an ongoing screening process is adopted whereby holdings that cease to be Shariah-compliant from time to time will be removed at the next scheduled rebalancing date. The holding’s compliance history is tracked for each individual holding, so you can be assured that only halal stocks in the market are held in your portfolios.
Purification estimates also are disclosed and tracked for each holding so that you can see how much incidentally non-compliant income each holding has earned from time to time and an estimate of how much you would need to pay in order to purify such income should you choose to do so. (As noted above, such income and required purification amounts are disclosed on your online account, not buried in some back-end disclosure.)
Who It's Actually For
We often associate Ready-Made Portfolios with new investors who need to get started quickly, but really, Ready-Made Halal Portfolios are for any investor with part of their portfolio that they wouldn’t wish to manage themselves.
For new investors to get invested quickly, without having to understand 50+ financial indicators to manage a portfolio. For seasoned stock pickers, their high conviction stocks are usually just a few, and the rest of their portfolio can sometimes drift, be unmonitored, or be full of cash. A managed portfolio can be set up to manage that portion of an investor’s portfolio for them, while they focus on their high conviction positions.
Common strategies used by long-term investors include maintaining a managed portfolio for broad halal exposure and a smaller, separate conviction sleeve for individual stocks for which they have conducted genuine research. They may also have a separate portfolio to service a specific job such as generating income, innovation or a particular theme where they wish to have targeted exposure. The two approaches are not mutually exclusive and can be used in tandem.
The Underlying Logic
For decades, Halal Investors were left with only three options. Firstly, they could opt for a halal managed portfolio, which is mainly composed of ETFs and large-cap companies. Secondly, they could invest in halal ETFs, which might not always represent their specific goals and risk profiles. Thirdly, they could spend hours and even days researching and screening individual stocks to add to their investment portfolios.
What was missing from the market were Ready-Made Halal Portfolios – they are Halal-first investment portfolios which are continuously screened, created and managed within the same platform where users currently research and screen individual stocks for Halal compliance.
Identify your risk level and pick a goal, fund a portfolio and trust that the investments within will align with your values on an ongoing basis, not just when you bought them.
Disclaimer: The content is for educational purposes only and is not a substitute for personalized advice from Musaffa. It does not constitute fatwa, legal, or tax advice, an offer, or a solicitation to buy or sell any security or investment strategy. The information is believed reliable as of publication date but may not reflect recent changes, and Musaffa does not guarantee its accuracy, completeness, or timeliness. Musaffa's Shariah compliance screening is based on AAOIFI Shariah standards. Any methodologies or assessments presented are for informational purposes only and should not be relied upon as the sole basis for any investment decision. It is important to conduct your own research or consult with a financial advisor or tax professional before making any investment decisions. All investments involve risk, and the value of securities and other investments may fluctuate due to market conditions, economic factors, or other external influences. Content may include historical or hypothetical data. Past performance is not indicative of future results. The views expressed are those of certain Musaffa personnel as of the publication date, are for informational purposes only, and may change without notice. They may differ from views of other areas of the firm, and any forward-looking statements are not guarantees and may not come to pass. Logos, brand names and external links are used for identification only and do not imply endorsement. For additional information and statements, see our disclaimers: https://musaffa.com/disclaimer
Nusrat Ahmed
Nusrat Ahmed