Halal investing is a type of ethical investment governed by Islamic principles laid down in the Qur’an and Sunna, the two primary sources of guidance for Muslims. The underlying principles of halal investing dovetail very closely with socially responsible investing. Socially responsible investing (SRI) typically includes environmental and human rights screens which halal investing could include, even though most halal mutual funds do not.
What are the screens used by halal mutual funds?
The Dow Jones Islamic Market Indexes screen for Shari’ah-compliance (acceptability under Islamic law) have been used by most halal mutual funds and provide a commonly accepted standard on which Rubicon’s halal portfolios will be based. To be halal, an investment must pass through two screens: an ethical or ‘sin’ screen and a financial screen. The ethical screen filters out companies engaged in the following business:
- Weapons and defense
- Alcohol
- Tobacco
- Pork
- Pornography
The financial screen excludes companies that use a significant amount of debt and pay or receive a significant amount of interest. Specifically companies are excluded which meet one of the following criteria:
- Total debt divided by trailing 12-month average market capitalization less
- The sum of a company’s cash and interest-bearing securities divided by trailing 12-month average market capitalization less than 33%.
- Accounts receivables divided by trailing 12-month average market capitalization less than 33%.
Does Rubicon Halal use additional socially responsible investing screens?
Rubicon’s philosophy is grounded in flexibility; we seek to meet the client’s ethical and religious world view. This can be limited to basic halal constraints or reach further to include labor and environmental standards. The principal at work is our belief, based on experience, which returns don’t have to be sacrificed to achieve a greater degree of social responsibility.
