Algebra, Asia’s first Shariah-compliant robo-advisor, will be launched this December by Farringdon Group Private Wealth Managers. Open to investors from across the globe, with a minimum investment of US$200 per month, they will select funds from the Islamic Master Select Portfolio, a strategy with five risk-weighted baskets.
Shariah-compliant refers to funds that follow basic Islamic principles. For example, no stocks may derive income from gambling, alcohol, tobacco, pork products, adult entertainment or military equipment. It also restricts the use of some mainstream financial instruments such as debt-financing, charging interest or the use of derivatives. Although this shrinks the pool of investible stocks, current trends shows industry expansion with the recently announced Bursa Malaysia-Indonesia Stock Exchange Shariah stock trading link.
The robo-advisor will be operated by Farringdon Group, a private wealth and investment manager with an AUM of USD 170mn, established in Kuala Lumpur in 2007. “Algebra brings together the sound investment principles of Shariah-compliant funds with the next generation of investment tools,” comments Stuart Yeomans, CEO Farringdon Group. “We believe in bringing greater choice to the market, catering to untapped investor appetite.”
This is a size-able market opportunity; of the USD 11.5tln owned by the Muslim world, USD 9.5tln is currently outside global Islamic financial services. However research from the Malaysia Islamic Financial Centre shows burgeoning appeal, with the global Islamic fund industry AUM of USD 58bn expected to reach USD 77bn by 2019. Such investments are posting strong performance. According to Bloomberg, the MSCI World Islamic Index has grown by 3.8 percent in 2016 and is set to outperform its counterpart for the first time in five years.
Shariah-compliant financial products have been available in the West since 1999 with the launch of the Dow Jones Islamic Index. This was followed with the Imam fund from U.S.-based Allied Asset Advisor in 2000. In Europe, Luxembourg was the first exchange to list a sukuk (bond) in 2002, with Ireland following suit in 2005. More recently, GE Capital issued a $500 million sukuk in 2009 and Goldman Sachs with a similarly sized bond in 2014.