Investment opportunities for observant Muslim clients
Finding fixed income solutions as interest rates rise
A growing Canadian religious minority has billions saved up, and advisors may be missing out on an opportunity to help them invest according to their faith.
A “large portion” of Canadian Muslims want to strictly adhere to Islamic finance guidelines, which prohibit them from earning interest, said Jesse Reitberger, financial advisor with Winnipeg-based Canadian Islamic Wealth. But only a “handful” of Canadian advisors specialize in the area, he said.
Canadian Islamic Wealth, which launched in 2019, manages about $10 million of investments from 200 Canadian families.
In 2019, 3.7% of Canadians reported they were Muslim, according to Statistics Canada. Mohamad Sawwaf, founder and CEO of Toronto-based fintech and Halal financial service provider Manzil, said Canada’s Muslims probably have more than $20 billion in assets to potentially invest.
Rising interest rates have made income-oriented investments more popular, with money flowing into high-interest savings account products and GICs. But Reitberger said there are few Islamic finance choices for income-oriented Canadian retail investors.
One option is Sukuks, which are complex, bond-like instruments that fund land development and generate rental income, Reitberger said. They may also invest in manufacturing or infrastructure such as roads and bridges.
Other options include the Manzil Mortgage Fund and the SP Funds Dow Jones Global Sukuk ETF (NYSE Arca: SPSK), Reitberger added.
Sukuk funds are usually based outside of Canada and often require an up-front investment of more than $100,000, Sawwaf said. There are publicly traded options available (from Florida-based SP Funds for example), but many Canadian clients don’t like foreign currency volatility, he said.
Through CI Direct Investing, retail clients can invest in Manzil Halal Portfolios. The portfolio allocates some money to the Manzil Mortgage Fund, an operating-memorandum fund launched as a private placement that earns income from Manzil-provided residential mortgages. The remainder is allocated to the passive U.S. equity-based Wahed FTSE USA Shariah ETF (Nasdaq: HLAL). The higher the client’s risk tolerance, the higher the percentage allocated to HLAL, which excludes certain industries such as alcohol, pork production and casinos.
The Manzil Mortgage Fund is a “fixed-income equivalent style fund,” Sawwaf said. Investors must give two months’ notice if they want to withdraw funds from the mortgage component of Manzil Halal Portfolios, according to CI Financial. It could take up to six months to receive withdrawals, and clients wanting to withdraw more than $20,000 might have to wait a year.
More than 12,000 families are on the wait list to finance their home through Manzil, Sawwaf said. The firm does not charge interest but gives home buyers a choice of a partnership agreement (Manzil shares ownership of the property and sells its share to the client) or an arrangement in which Manzil buys the home and re-sells it to the client at a profit, payable in instalments.
The Manzil Mortgage Fund provides funding to and earns income from those residential mortgages. Manzil self-finances the mortgages from capital raised through the Manzil Mortgage Fund. “You’re investing in sharia-compliant mortgages, so every time someone makes a payment on their mortgage, that is going back to the investors,” Reitberger said.
Sawwaf said Manzil is developing other solutions for income-oriented investors. The firm is working on an equity-based income fund (which he said could launch by November) focused on dividend-paying value stocks. It’s also looking at creating a Halal real estate investment trust and a commercial mortgage fund.
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