Episode Transcript
[00:00:00] Speaker A: This episode of Ghost Stories is brought to you by Satrix, the leading provider of index tracking solutions in South Africa and a proud partner of ghostmail. With no minimums and easy low cost access to local and global products via the Satrix now online investment platform, everyone can own the market. Visit Satrix Co Za for more information. Welcome to another episode of the Ghost Stories podcast. It's another one with the team from Satrix and I'm very excited today because there's a new face on my screen here recording there's a new voice. Not to say there's anything wrong with all the expert voices we've had before from the Satrix team, but of course it's so nice to get different perspectives on the markets and to cover different topics. And on this specific podcast we will be jumping into Sharia compliant investing, which is a really interesting topic that I would like to know more about. I know a little bit about it, but nowhere near enough. So, you know, thanks for listening to this show and joining us for this journey. And Yousef, why do you. Thank you so much for making the time to do this. You are the head of exchange traded products at Satrex. We were talking before we came online about how you were right at the coal face in the global financial crisis in an equity trading role at a different financial services business. So you've got tons of experience, you've seen the markets dish out some good stuff and some bad stuff. No doubt. And I'm really excited to tap into that expertise today. So thank you for doing the show with me.
[00:01:21] Speaker B: Thanks Ghost. Yeah, thanks for having me. It's, it's quite a pleasure to be here with, with you and your listeners and looking forward to interesting conversation.
[00:01:29] Speaker A: Yeah, absolutely. I, I think we, you know, just for a moment, I think let's dive into some of that background before we jump into the Sharia compliance stuff just because I think it's interesting. So I mean, you were an equity trader during the global financial crisis and I think for a lot of people listening to this, you know, they might have either still been studying at that stage or just weren't in a financial markets role at the time. Speaking for myself, I only finished university in 2010. So like I was saying to you before we got on the show, I've literally only ever known post global financial crisis banking environments, which is just a completely different thing. You know, back then there were prop trading desks in the banks, et cetera. And then everything changed in the aftermath of the crisis, didn't it?
[00:02:08] Speaker B: Yeah, certainly was a Very interesting time. You know, it felt like, I guess as far as banking goes, it feels like, you know, before 2008 and a post 2018, you know, back then there was a much more freer sense of capital certainly sitting inside a bank. And the type of things that banks would probably get up to and be part of was super interesting.
You'd see weird and wonderful things that would possibly take place in the bank. That doesn't happen now. I imagine a lot of hedge funds have stepped in type of activity that banks would have played in that space whereby they would play in a lot of different markets and fulfill lots of liquidity, hold and gaps as being a price maker has kind of evaporated to a large extent since. And that's possibly why you see such a big hedge fund business and market has, you know, developed as a result. But it's not to say that skill wasn't there, it's just moved. Right. I think whatever existed in kind of existed in banks. I think all that skill, a lot of that skill, a lot of that background is kind of, a lot of it has kind of moved to hedge funds. So yeah, it certainly was an interesting time back then.
[00:03:12] Speaker A: Yeah, I would agree with that. I mean banks these days are very much flow trading. Know, it's basically just execution on behalf of clients. They don't really take much market risk. Back then prop trading the, the bank was using its balance sheet, you know, to actually try and generate trading profits very much like a hedge fund would do now. So yeah, the world, the world is a little bit different. And of course over that time period, what we've also seen is the proliferation of exchange traded funds and ETFs which is where you are now. I mean out of interest, what was the sort of driver of moving from that, you know, equity structure and environment and trading and all that kind of thing into the ETF environment, which many see as a more vanilla sort of offering. Even though I think on these podcasts we've tried quite hard to show that ETFs are a lot more interesting than most people realize. There's actually a lot going on in them.
[00:04:00] Speaker B: Yeah, so I think it was a natural move, you know, and it's exactly to your point. You know, ETFs aren't just buy side instruments. Well, they are, you know, we're kind of managing buy side third party investment portfolios. But in many ways, you know, an ETF embodies a few parts of the capital market system. You know, we're listing stuff on the, on the stock Exchange and it kind of feels like that kind of feels like a corporate finance, debt, capital markets type activity because we're taking, you know, we're taking structures and we're listing them on the stock exchange. So it has an element of that that probably never used to sit in a buy side environment prior to ETFs. Right. So there's an element of origination, there's also an element of being super JC centric. So you've got to be close to your stockbrokers, you've got to understand the concept of market making, you've got to understand the concept of JC trading. And so a lot of these things are directly resonates with an ETF house, possibly not so much with a traditional buy side house that wouldn't focus as much on, let's say the capital market aspects. That is quite unique to etf. So it was an exciting move for me, you know, certainly, you know, to put in practice a lot of the stuff that I've dealt with for many years prior on the sell side to now, you know, put that in place on the buy side, etc. And it's been an exciting journey ever since.
[00:05:21] Speaker A: Yeah, it's always interesting for me to see where people have come from and where they've gone and why they've done it. And I think moving on now to, you know, basically what the focus on this show, which is Sharia compliant investing. And this is why, you know, I'm quite excited to actually come in here and learn about this. Although it's been great to get more of your background. When I saw it on LinkedIn, I thought, no, I have to ask you about what it was like to be an equity trader in the global financial crisis. So let's move into the Sharia compliance stuff and I think let's just start with why these products exist for your Islamic clients. What is it about the Sharia rules that make it important that these things exist? This whole Sharia compliance side is very interesting for me. I think let's just start right at the beginning, which is why do these things exist for Islamic clients?
[00:06:04] Speaker B: So if you look at the universe of investments available to, let's say Islamic clients or Muslims or followers of the Islamic faith, probably 90% of what's out there, you know, is not suitable for them should they wish to, you know, follow and invest in line with the Islamic faith and in line with Sharia principles. So whether they're looking to save for retirement, whether they're looking to contribute to their tax free savings accounts, or whether they're just looking to, you know, have a discretionary savings investment portfolio. A lot of what's out there is kind of not so suitable when they want, you know, when they want to invest in line with the Sharia compliant lens. And so I guess it brings us to the question, so what is Sharia investing? Right? So I mean, in a nutshell, it means investing in a way that abides with Islamic law. And so if you look at Islam in the Islamic faith, you know, apart from just being a faith, you know, and having certain tenets of faith, Islam also prescribes to Muslims, you know, how to live their lives, you know, how to speak their money, how to earn wealth, you know, and it's a full lifestyle. You know, it's a religion that really describes, you know, a complete holistic life for Muslims. And so what actually happens, and this is sort of where Islamic finance kind of originated because you'd have these scholars, these Islamic scholars who would spend many years, you know, learning about Islamic law and studying Islamic law, effectively Islamic jurisprudence, and they would, based on Islamic law and based on what is permissible and not permissible, you know, they would apply that lens to many facets of a Muslim's life. So for instance, let's take investments as an example. You know, these Islamic scholars, you know, let's call them Sharia advisory boards, you know, based on the principles and the basic tenets of Islamic law, they would apply that to the investment universe. So if I take an example, let's take the MSCI World Index. I mean, it's a great index. It's an index that covers, you know, that describes the entire world. I mean, it's, it's, it's the large cap stocks from the 23 biggest developed markets in the world. It's probably, it's probably the, you know, the single most, you know, overarching index building block, right? So let's take this index. There's 1,400 stocks in this index. So I'm using this as an example. So what would happen for, from a Shuri advisory board? They would take that universe and they would actually screen those 1400 stocks and they would go through those 1400 stocks and go, okay, what is it about these 1400 stocks that makes impermissible, not permissible? And they would look for certain things, okay? So the first thing they would try and screen is business activity. So for example, they would look at alcohol. Do any of these companies, are they involved in the, you know, let's say the manufacture of alcohol, alcoholic beverages, which is, which is not allowed in Islam. So those stocks would not qualify. Tobacco. Are any companies involved in the manufacturing of tobacco something which is not seen in a positive light from a Sherry perspective? So those stocks would be, you know, would be omitted. Pork. Pork related products. Companies that are involved in the manufacturing or in the distribution of pork related products would be, you know, omitted.
Conventional financial services. So companies that are involved in, you know, interest, you know, certainly in the payment of interest, earning of interest or trading of interest. So they would largely exclude all conventional banks. You know, life insurance companies would be omitted because strictly speaking, interest, I.e. usury, is not permissible in Islam. Gambling. So companies are involved in, you know, gaming. Gaming companies or hotel groups that have significant, you know, gaming portfolios or, you know, parts of the income that's derived from the gaming sector would be excluded. Adult entertainment, you know, obviously they would be excluded. So that would be the first level of screening that a Sharia board would actually do. They would screen business activity. Then, of course, there's something called financial ratio screening. You know, they would, they would, they would look at the companies that satisfy each of those things I've just mentioned. And then, however, then they would be further screened. So they would look at the income statements and their balance sheets, and they would look at what percentage of their balance sheets are, you know, exposed to interest. So how much gearing do they have? You know, how much interest are they earning or paying? And so clearly this, this has the effect of removing companies with excessive leverage or interest exposure. And this goes back to the fact that usually an interest is not permissible.
In a nutshell, this is effectively what Sharia investing is.
You start with the universe of stocks. You've got the basic set of Islamic laws that a Sharia scholar or Sharia advisory board would apply their mind to. They would screen everything. And what you're left with at the end is a collection of stocks or portfolio that's very much in line with Sharia investment principles.
[00:10:51] Speaker A: It's incredibly interesting, right? I mean, another example of a framework that gets used but that I'm always very dubious of. And whereas Sharia finance, I think there are just these really well established practices and you can't really get around them. You know, I think of some of the ESG stuff out there and how a company like British American Tobacco features very prominently in an ESG index. And that just tells me logically those rules are not working. You know, logically speaking, if someone thinks, okay, I'm buying an ESG product, I'm buying stuff, that's Good for, you know, society. And then British American Tobacco is in there, you know, all good. And. Well, if you go and buy shares in British American Tobacco, that's fine. You know, it's a personal choice. But why is it in an ESG index? So what I quite like about the Sharia stuff is it feels like, you know, you can't just use some understanding of the rules and then kind of wriggle your way around them. Because I think a lot of that happens in esg. I mean, people talk about green washing and that kind of thing. I've never seen anyone talk about Sharia washing, so I'm guessing that's not a thing. I feel like these rules are applied.
[00:11:49] Speaker B: Pretty well, so you spot it. I mean, I guess when it comes to financial metrics and ratios, you, you know, I guess it's always at the womb of creative CFOs, right? So, you know, you could get a CFO somewhere and. And, you know, they could dress up their financial statements, I guess, in a myriad of ways. You know, they could try and game a lot of downstream filters. But in many ways, you know, the Islamic Sharia principles are pretty. Are pretty steadfast. You know, they kind of. It's not much gray, you know, there's not much leeway in terms of what is permissible. So I guess it's less likely to have a, you know, like you said, the big Tobacco type example. But, yeah, these indices are. For instance, if I look at the fund that we've just launched, we've partnered up with msci, so they do have a Sharia advisory committee. And again, this is what they do. They're constantly looking at, you know, the indices, they constantly looking at the stocks, they're constantly screening. You know, there's always new companies coming on board, and over time, they may need to tighten up or polish up a filter or, you know, revisit their financial statement or look at it more closely. So I guess, you know, it's an ongoing, evolving process, but the idea is always to, you know, after, you know, after all is said and done, you know, to land on a portfolio that's in line with sharia investment principles. 100%.
[00:13:03] Speaker A: Yeah. I think it's the old. It's either Manga or Buffett. I think it's Manga who said, you know, show me the incentive, I'll show you the outcome. And I think that's a problem for a lot of the ESG stuff is, you know, if you can get your ESG score up, you can go and do all kinds of Things like raise finance related to ESG metrics, etc. The great irony of it is that I'm not really sure there's a huge incentive for corporates to try and dress up stuff purely from a Sharia perspective. And you can't go and buy design, you can't go and raise finance based on Sharia principles. So that's not there. There's no incentive around that. You know, it's just, it's just different. And I think it's a, it's an important lesson for financial markets. I mean, we've both worked in financial markets, you for longer than me, and you know how it works in terms of incentivization and outcomes and clever structuring and everything else. So I have a lot of respect for that from a Sharia perspective that, you know, there are just these very well established principles and you know, it's in or it's art and that's it. And there's various tests, you know, starting with what does the company do and then getting all the way down to these financial ratios, etc. And I would imagine that actually the product that gets spat out on the other end is an index that obviously has a lot less financial leverage in it. So in a period of high interest rates, it probably outperforms an equity index that hasn't had the Sharia lens applied to it. Because without the Sharia lens there's a lot of overindebted companies in there, companies that get themselves into serious trouble in a high interest rate cycle or that just end up working really hard so their bankers can have a better life. The Sharia funds wouldn't have any of that. So it's almost quite interesting, you know, I would imagine for non Islamic clients they can invest in this stuff. Right? You don't have to be of the faith. Or do you?
[00:14:37] Speaker B: Yeah, so certainly, because I mean our ETFs are totally available by, for anyone. I mean, you know, ETFs are listed on the stock exchange on the market, right? It's foreign. Yeah, it's foreign, it's listed on the stock market, it's based, it's available on all our platforms, you know, the Cetrix now platform, it's available on all our downstream Lisp platforms. And so anyone really where this product resonates with can buy this etf. So for instance, it's exactly as you mentioned, you know, at Cetrix, you know, we started out with market market cap indices back in 2000 and you know, we started off with the Cetrix 40 and then the Resi and Finney and Indy. And these are all, these are all sector market cap base index portfolios. And if that story resonates with people, then they buy the market cap indices. And then following on from that, we launched, you know, the range of factor indices, you know, we had the value momentum. And again for investors that resonate, you know, a style based investment approach, you know, if that's their flavor, then we've got those ETFs for. And then of course this spills over into the more recent years where we come up with the country based indices. You know, we've got, you know, Citrix China, Citrix India. You know, if you like country stories, you buy that. And then where the Sharia one, where the Sharia product fits, it's kind of under the broader banner of, let's call it sri, you know, social and responsible investing, where you know, where the point is there's kind of a different lens. You know, there's a different lens to investments. That's just financial ratios. You know, you've got, in that lens you've got sr I mean in this cluster you probably have sri, you've got esg, Environmental, social and governance type investment portfolios, you've got Sharia. And I guess the whole point is that, you know, for investors out there, where it's not just about the financial metrics, it's just not about the financial ratios, it's about where your money goes. You know, you actually care about where your capital goes and where your capital gets deployed in the capital markets. You know, if that's important to you. And again, you don't have to be of a certain faith or you don't have to be of a certain creed. You know, if you're just someone who feels that, you know, you'd like your capital and your cash to contribute to a sector of the market you think is productive in its nature, then come spot on. You know, certainly this fund is not just for Islamic or Muslim investors.
[00:16:41] Speaker A: Great. And in terms of those sort of returns, I mean, do you have a sense of, you know, what do they look like versus some of their like traditional counterparts without the Sharia lens? I mean, obviously it all depends on, you know, starting dates and all that kind of thing. But just high level, is the other returns sort of comparable as a roughly comparable over a period of time or is there actually a noticeable difference?
[00:17:02] Speaker B: Yeah, so it's exactly. I mean, so you mentioned debt and that's an interesting thing. You know, so there's clearly not a significant element of debt. In the sure investment funds. And that's because these funds get screened for debt. So any companies that's you know, leveraged to the hilt in debt or you know, significantly trading in interest products would be excluded. So, and that is interesting.
But you know, the point is debt can be double edged. So we've seen this in the property market. An example, you know, pre, pre 2018, you know, property markets were, were running super hard. You know, these are all, you know, generally if you look at average rate, you know, these are all highly leveraged companies, you know, significant portions of debt, high LTVs, some higher than others. And what you find is that I'm using this as, I'm just using property as an example. And what you find is that when things are, when the going is good, you know, the debt works for you. You know, as long as you, you got rental escalations and you've got high occupancies. It's, it's, it's, it's a great story. But if you look at post 2018 where some of these companies started with a bit of a wobble and that wobble sped up with going into Covid and now all of a sudden you got an environment with low occupancy rate. There's an environment of unable to push through rental escalations. Then you start having high debt servicing costs and debt becomes a problem. And then all of a sudden you realize that debt is a double edged sword. It can kind of. And so it is interesting. Sure, these funds probably wouldn't benefit, I don't know if that's the right word, but it wouldn't be exposed to companies that are significantly leveraged. But whether that's a good thing or bad thing, I mean, I guess the time will tell. But if I just look at some of the numbers, If I take 20, 23, the calendar year as an example. So if I look at the new fund we're about to launch, which is the MSCI World Islamic ETF, this fund would have yielded 32% in that year versus let's say the MSCI World, which would have returned 33%. It's kind of very close and again it's coincidentally close. I mean these are very different funds, they're very different indices. For instance, MSCI World has 1800 stocks. The Sharia ETF only has 300 odd stocks. So these are very different ETFs. And we can chat about the sector exposures just now, but the performance has been remarkably similar. And again, it probably talks to what we've seen in the market in the last coup of years, you know, the rising tide kind of, you know, rises all boats, you know, so there's a little bit of that. If I take a slightly longer term horizon, if I take five years, so the last five years annualized, so the annualized return per year would have been 14% for the Sharia ETF. So 14% every year, I mean, which is not too shabby versus the MSCI world of 16%. So it's a little, it's sure it's lagging a little bit behind the MSCI world, but not by a lot. And maybe talks to your point, maybe the debt or exposure to companies with a little bit of debt could play a part, but also maybe not. They are very different sectors, but it is very comparable to other global indices that we've launched. And I think investors would find that quite exciting as South African investors looking to obviously diversify away from South Africa.
[00:20:14] Speaker A: It's really going to depend on the time period. If it's a time in the world where technology companies are driving this in a big way, I imagine the tech companies, companies would pass the Sharia tests. They generally are not over indebted, they're not selling impermissible products. So if that's a big part of the index, it's going to be in both. And I think that's part of what you're seeing there in how close that performance is. You know, in South Africa it might be a bit different. You would have been quite happy to avoid the local banks actually for many years. In South Africa they really were not necessarily great performers at all. You know, you would have been very happy to avoid companies with too much debt because that's the other thing. You know, in the South African market, companies are borrowing at structurally high interest rates relative to the equity returns that they can generate. It's not the case in the developed world. You know, a lot of high growth companies can get their hands on debt finance quite cheaply. So it's, it's just interesting. I think it's important, you know, if you are able to weigh one against the other. And again, the whole point of this is that, you know, if you need to invest in Sharia compliant funds, you're not sitting there going, oh well, I could alternatively have the other index. You know, you're looking at this and saying, within the Sharia compliant basket, what's available to me and what am I looking for? You know, I don't need to invest in Sharia compliant funds. But it's just interesting for me to understand the differences between them. It's just fascinating to see how finance really works in practice. You know, I really do love it, obviously, otherwise I wouldn't do what I do. So I think let's maybe, let's maybe claw it back from my little intellectual, you know, curiosity down to something a bit more practical, which is for investors who are looking for Sharia compliant funds. You know, what does the basket look like from a Satrix perspective? What's on offer? You've already mentioned the World Islamic Feeder etf, which is the new one, but I think there's other stuff in there as well. Right?
[00:21:55] Speaker B: Yeah. So I mean, yeah, I mean let's spec this etf. I mean it's a super interesting etf. The way we structure it is, it is a feeder. So we will not be replicating the index ourselves. We do feed into an iShares BlackRock ETF. I mean there's lots of benefits of that. You know, we achieve scale pretty quickly. You know, we get the benefit of, of a larger investment team right off the bat. And so that's a model that works for us. You know, a lot of our ETFs are structured as feeders. So that works well. The other thing I want to mention is that we do purify the dividends. So what happens is these funds do generate cash. So they do pay a distribution what our index partner MSCI does. They maintain a tally of stocks or let's call it unpurified dividends. So let's, or let's call it unpurified component of the distribution whereby let's say it happened to be derived from an illicit source. What MSCI will do is they'll publish that and they'll maintain a tally of what that is and Adsetrix will dispose of that in a surely compliant fashion. So investors receive purified dividends out from our fund on our side.
I mean that's a hallmark of all surely compliant funds in South Africa. And so our funds will be structured the same way and is no different in terms of sectors. And this is where I think it becomes quite interesting. You talked about what is the sector. So we're launching the MSCI World Shira etf.
It's an ETF that's chosen from the MSCI world from the large and mid cap stocks globally. So it's a super big universe and from the 23 biggest developed markets in the world. So I mean you're literally choosing from the cream of the crop. So this is really super high quality blue chip companies that Exist globally. Right. And so after screening, what we left with is the sector exposure and I think this is quite interesting. So the sector exposure for the Islamic ETF is we've got tech at about 38% which is quite interesting versus the MSCI world, the normal MSCI world of 32%. So it's got a little bit more tech. And I guess this talks to your point that tech does sort of qualify.
[00:23:52] Speaker A: A little bit easier, kind of as expected, Right, sure.
[00:23:54] Speaker B: No, exactly, exactly. What is interesting though is that there's a bit more broad based tech. So 18% of the tech is in broad based stack that sits outside of the Magnificent Seven. And that's not the case in the MSCI world. I mean, MSCI world, you only got 13% that sits outside of the Magnificent Seven. So there is a tech play. There's an upweighting effect of tech, but you're getting, you're getting stuff that's longer, you know, in the tail of the tech, which I think is interesting. You know, I mean, you know, tech, techs run hard and this could be, this could be an interesting play for investors in this portfolio. So you've got a bigger tech play, but the upweight has come from, you know, sort of stuff that's, you know, further down the magnificent seven. Right. There's no financials, so versus the MSCI world which has got 15% financial. So there's kind of. That 15% needs to find a home. Right. So there's this. And so that 15%. You can kind of see where it goes in the Sharia fund, it goes into healthcare. So healthcare gets bumped up from 11% in the world, it gets bumped up to 13%. So it's another 2% bump in healthcare and energy gets a big bump. Energy goes up to 13% where energy is only 4% in the MSCI world. So I do think you left with quite an interesting portfolio. I wouldn't want to say it's more value based, but clearly you've got whatever was in the Magnificent Seven kind of is now spread down into the tail of the tech, which I think is interesting. And healthcare and energy gets a bump, which I think it makes for an interesting, it certainly makes for an interesting fund.
If I look at some of the stocks, I mean the stocks are the who's who of global blue chips. You got companies like Microsoft, Tesla, Exxon, Procter and Gamble, you got Johnson and Johnson in there. So certainly all the big pharma, the big pharma is there, is certainly represented in this, in this fund.
You've got the car manufacturers, you know, you've got the likes of Suzuki, Toyota, you know, you've got beauty companies like L'Oreal, Intel, Rio Tinto, you know, you got tire companies like Bridgestone, Continental. So this is certainly a, you know, it's a very blue chip fund that is looking quite exciting for Islamic investors.
[00:25:57] Speaker A: So Yusuf, listening to you talk about what happens with distributions and the different weightings, et cetera is really interesting. Does that mean that the dividend yield is probably lower on a Sharia compliant fund or do some of those sector exposure differences then make up for it? Because it sounds like there are some bigger dividend payers sitting there like energy, potentially healthcare, that more sort of value based sectors that you've mentioned.
[00:26:19] Speaker B: Yes, I mean we wouldn't expect dividend to be a massive difference. I mean we wouldn't expect it to be too different from some of the global headline indices like the MSCI World. You know, it will be very comparable, you know, if you've got MSCI World at 1.5%, 1% odd or, you know, just slightly more than that. I mean we would expect this ETF to be very similar. And that's because whatever you foregoing in the financial stocks, you know, you're probably topping up in, you know, pharma or you're topping up in energy, you know, and these are also big Debbie payers. So certainly I think, you know, I think it would be very comparable from a distribution perspective. And again, because it's kind of what we see for most global stocks, certainly South Africa is a big divvy player and that's just because we are pes are and our multiples are. So South African stocks are traditionally been the big distribution payers globally though, and these markets have run hard.
So whilst there's still lots of growth potential, you generally find the scale of the distribution, the dividends that you'd earn from these global indices aren't, aren't directly comparable to what you would earn locally. But having said that, again, yeah, we wouldn't expect there to be a penalty or anything like that on this etf.
[00:27:27] Speaker A: Absolutely. The components of returns internationally are just so different, right? High multiples, multiple expansions and more capital growth and dividends are a smaller part of the total return. Whereas to your point, in South Africa, because of where we've been for the last 10 years and how low sentiment has been and how poor it's all been, the dividend's actually been quite a big component of what's going on. So again, it Helps to understand these different markets, I guess. That brings me to second last question, which is that I know you also have a Sharia Top 40 ETF as part of the Satrix offering, you know, which would track, I imagine the JSE top 40, but again in a Sharia compliant manner. So I would imagine no British American Tobacco, no banks, no Anheuser Busch AB and Bev. I would think, you know, those would be some of the obvious differences. Right, yeah, sporting.
[00:28:11] Speaker B: I mean, look at this. This was a fund we acquired from IPSA. So a few years ago Citrix bought out EPSA's exchange traded funds business. So we acquired about 19 odd exchange traded funds. So we pretty much bought all the ETFs except the commodity ETFs, so that stayed with EPSA. And in amongst the funds that we bought, this was one of the funds, the Cetrix, or rather at the time it was the new funds, Sharia top 40 ETF. It's been in existence for a good few years, so we took it over and we rebranded it.
It's one of our new funds in our stable. So we're looking to try and support it and see where we can take this fund from here. But it's a fund that we have acquired with EFSA via the EPSA transaction. A little bit about this fund, you know, it's constructed using a FTSE JSC index. There's a company called Yasar. Yasar is a, is a independent Sharia advisory committee out of, out of, out of the uk. And they, and they, and they provide Sharia services for, you know, global multinationals out of the uk. And so they've partnered with FTSE to come up with the FTSE JSE Sharia index. And so that's the license for this ETF. So it tracks the top 40, but it's a surely compliant version of the top 40. It is quite interesting though. There's only 18 stocks in this portfolio. So it's very different to what we've just been discussing. It's only 18 stocks in this portfolio.
[00:29:28] Speaker A: It's because of the South African market. Right. Lots of property and all that kind of stuff which has got to come out because of the leverage.
[00:29:33] Speaker B: No, exactly, exactly. The South African stock market. I mean the universe isn't that vast. There's only so much in this universe and I guess it talks to the challenges of trying to launch broad based, robust Sharia ETF in South Africa. It's much easier to do globally.
The Sandpit is so much bigger, but locally it is a bit Restricted.
Just for comparison, this ETF, like I said, only 18 stocks in there, which I think is a nice mix to give you a sense if the biggest sector in the top 40. I am talking about the standard top 40. If the biggest sector is financial services at 32%. For the Sharia version, the biggest sector is metals and mining at 57%. So it's exactly to your point. You know, after you kick out financial services and a lot of the REITs, you kind of, you kind of just left with a, with a mining play. And I think that's been a story for, with a lot of local studio funds. You know, they do tend to become resources centric and again it's just a function of a limited universe that's available.
[00:30:35] Speaker A: Interesting. Okay, very, very interesting. So last question, Yusuf. This has been such a great show. I really enjoyed this. The fees on these ETFs compared to the sort of non Islamic funds, are they more expensive? Because you need to, I mean someone in this whole process needs to make some money for doing all of the Sharia work. So are the fees a little bit higher on these ETFs?
[00:30:54] Speaker B: Yeah, so certainly, you know, Sharia has been around in South Africa. So Sharia investing has been around for a few years. There's certainly a few players that play in this space and traditionally Sharia product has been offered between 1 and 2% a year total expense ratio. So and that's really been where Sharia product has been, has been priced at in it. However, Ascetrix is, you know, you know, you know our ethos is all about index tracking and low cost and efficient portfolio management. So we're looking to bring, and so our global ETF will come in at 55 basis points. So we think that's super competitive.
[00:31:25] Speaker A: That's very good.
[00:31:26] Speaker B: Yeah, yeah. I mean so this is the equivalent of 35 basis points for the non Sharia version. So the normal MSCI World is 35, this version is 55. You know, the additional 20 points is exactly as you do to what you said. You know, there's a little bit more administration, there's a little bit more screening and Sharia licensing services that we need to incur on our end. And that's possibly where the, you know, the additional 20 basis points can be attributed to. Likewise for the local version, you know, the local, the local cetric share top 40 comes in at 40 basis points. This is sort of in keeping with where we, you know, we've priced in our other sector and specialized indices, you know, it's around about 40 basis points. You know our headline indices are super, super efficient and cheap. I mean we've got top 40 at 10, you know, we've got the capped all share, you know, between, you know, around about there 15 basis points. Cetrix Global Investor. But those are the very different, you know, those are the broad based, low cost front facing funds that we've got. But again, you know, the sure ETF is in keeping with our other sector funds, Rezi, Feni, Indy Divi, you know, in the 40 basis points mark, which we think is super competitive for clients.
[00:32:32] Speaker A: Yeah, absolutely. I mean for context, you know, the difference between I think you said 55 basis basis points on that fund and then going and investing in some kind of actively managed career compliant fund at 1.5 to 2% a year and that fund manager has got to do 100 basis points or more outperformance every year just for you to be in the same place. And it doesn't sound like much, but it's a lot. Some of the rockstar investors in the world are that because they've built or rather because they've beaten the index by maybe 100 or 200 basis points over a long period. And that's the difference between someone who no one's ever heard of and someone who's world famous. So it's a huge difference. And that's the benefit of low cost. That's exactly the point.
[00:33:08] Speaker B: I mean in a long term game of. And that's exactly what this is, right? This is a 20 year, 30 year game. You know, you're investing for very long term horizons and it's exactly. It becomes a game of inches. These 50 points, 1%, you know, they add up, they add up and they become super significant over time. So spot on, you know. Yeah. Investors are well advised to consider what they pay for financial services product and, and review these things from time to time.
[00:33:34] Speaker A: Definitely the use of. Thank you. This podcast is actually quite a bit longer than I originally planned but it's been so interesting that I was very keen to just keep on digging into this with you. So thank you so much for everything that we've talked about on the show. And for investors who want to learn more, go check out the Satrix website or you'll be able to navigate there to the various Sharia compliant funds. And good luck with this MSCI World Islamic Feeder etf. I mean it sounds like a super interesting product. I think anything that lifts South Africans heads to the broader global opportunity set is always worthwhile. As lovely as it is to have such positive sentiment at the moment locally. Let's not forget the diversification is a huge part of portfolio management. And you know, to your point on that top 40 ETF, I think you said 18 stocks for it to be Sharia compliant. So you know, for true diversification you need more than that. And that's why this Islamic feeder ETF on the Satrix MSCI World is now coming in. And congrats on that and all the best with it. And thank you for the time today.
[00:34:31] Speaker B: Thank you.
[00:34:32] Speaker A: Satrix Investments Pty Ltd. And Satrix Managers RF Pty Ltd. Are authorized financial services providers. Nothing you have heard in this podcast should be construed as advice. Please do your own research and visit the Satrix website for more information on all their ETF products.
