Global business information provider, Thomson Reuters, and Australian Islamic investment manager, Crescent Wealth, today launched the first research-based Islamic index for the Australian market, giving investors wanting to build Islamic-compliant Australian equity portfolios a powerful new benchmarking tool.

The Thomson Reuters Crescent Wealth Islamic Australia Index screens ASX-listed companies for compliance with Islamic investment principles, and will initially span 143 securities with combined market capitalisation of more than $160 billion. It will be the only research-based Islamic filter used in the Australian market.

Screening filters used by the new index exclude banks and conventional financial stocks, companies with high levels of debt or leverage such as property trusts, and other stocks that conflict with Islamic principles. The index produces a dynamic bias towards resources and energy firms, and includes blue-chip stocks BHP Billiton and Rio Tinto.

Creation of the index is a key step toward positioning Australia as an attractive destination for global Islamic investment funds. It is estimated Islamic banking assets globally now exceed US$1 trillion, and that there is US$50 billion in managed funds investing in equities according to Islamic principles.[1]

Rushdi Siddiqui, Global Head of Islamic Finance and OIC Countries at Thomson Reuters, said: “Australian markets are stable and have attractive growth fundamentals that Islamic investors are looking for in today’s challenging macro-environment. Using the well-documented and objective Shariah screening process, the new co-branded index will highlight these investment opportunities across our terminals by necessarily focusing on many highly-regarded compliant companies with low levels of balance-sheet debt.  It is a powerful new tool for Islamic investors to geographically diversify their portfolios while increasing investment opportunities into an important G-20 country like Australia.”

Managing Director of Crescent Wealth, Talal Yassine, said the new index was a natural fit for Crescent Wealth, as Australia’s first purely Islamic-focused fund manager.

“There is a huge untapped potential to grow Islamic-compliant investment in Australia from investors here and in Asia and the Middle East. This index gives these investors a local performance benchmark for the Australian market, and will help companies like Crescent sell the Australian Islamic investment proposition to investors offshore,” Mr Yassine said.

“The investment theme reflected in the new index has broad appeal to conventional investors beyond those driven by Islamic principles. With its natural weighting towards low levels of debt and leverage, an Islamic investment strategy is a sound one in the current environment. Many companies that make up the index carry low account receivables and a greater portion of their funds are invested in the business rather than sitting as cash or short-term investments. That is very important in this market,” he said.

“Moreover, the screens applied to this index are not dissimilar to those used in many socially responsible or ethical funds, and in some ways bring a new level of clarity and rigour to ethical considerations. As such, this type of investment should appeal to investors attracted to an ‘ultra-ethical’ investment strategy.”

Crescent Wealth is targeting the significant potential for Islamic investment in Australia, estimated to grow to as much as $13 billion in funds under management by 2019, from a potential pool of $8 billion today.

The Thomson Reuters Crescent Wealth index applies a powerful research-based approach to screening, which allows for a better understanding of companies than the automated screening used to construct many indices. The compliant companies are reviewed on a quarterly basis for continued compliance with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards. The index uses the same free float, market capitalization weighting methodology as all other Thomson Reuters global equity indices, and employs the Thomson Reuters proprietary liquidity filter. This ensures that all index constituents, including those in frontier markets, are liquid and therefore investable.