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The Growth of Islamic Index-Based Strategies

iBoxx USD Asia Ex-Japan Monthly Commentary: November 2022

iBoxx SGD Monthly Commentary: November 2022

iBoxx ALBI Monthly Commentary: November 2022

U.S. Equities Market Attributes November 2022

The Growth of Islamic Index-Based Strategies

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Eduardo Olazabal

Senior Analyst, Global Equity Indices

S&P Dow Jones Indices

INTRODUCTION

Islamic indices provide market participants with a comprehensive set of Shariah-compliant benchmarks for equities and sukuk, covering a wide variety of investment themes and strategies. These have been created to support the investment needs of the Islamic investment community and have gained considerable traction over the past years.

REVIEW OF 2022

Landscape of Islamic Funds

Shariah-compliant investment strategies have been offered for many years in an actively managed mutual fund wrapper, with predominance in traditional Islamic markets such as Malaysia and Saudi Arabia. However, index investing has made significant inroads in this category over the past five years. For example, more than one-half of currently available Islamic index funds were launched after 2017. Also, Islamic index funds, unlike their actively managed counterparts, are now available to most investors around the world—in North America, Europe and other Islamic markets in the MENA and Asia Pacific regions.

As of Sept. 30, 2022, there were over USD 4.7 billion in assets tracking Shariah-compliant indices in mutual funds and ETFs. This represents an increase of USD 425 million year-over-year and USD 3.4 billion since 2017. While it is still a relatively small asset base compared with other major categories, this segment ranks among the fastest growing, with an annualized growth of 30% since 2017. Islamic ETFs have been a key part of this trend, with a general proliferation of new products across investment themes and listing regions.

Growth of Islamic ETFs

This year has been exceptional for Islamic ETFs; there were USD 1.5 billion in assets under management tracking Shariah-compliant indices as of Sept. 30, 2022, which represents 13% growth YTD, despite difficult market conditions. Islamic ETF AUM have been supported by the launch of eight new ETFs this year, along with all-time-high inflows of more than USD 500 million.

These recent launches raise the total number of Islamic ETFs to 24, covering a wide set of investment exposures from global, regional and country-specific core to more specialized investment themes such as factors and real estate.

The Growth of Islamic Index-Based Strategies: Exhibit 1

This article was first published in Islamic Finance News’ IFN Guide 2023 on Dec. 20, 2022.

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iBoxx USD Asia Ex-Japan Monthly Commentary: November 2022

November 2022 Commentary

Major stock and bond indices posted a welcome rally in November after months of consecutive declines.  Markets reversed course this month, driven principally by expectations that policymakers would soon lower the pace of future rate increases.

Market sentiment improved broadly in November.  In China, a 20-point playbook of “relaxed” COVID-19 control measures issued by the National Health Commission sparked hopes of an eventual reopening of the country.  The eurozone inflation figure for November eased more than expected, supporting a smaller European Central Bank rate hike in December. In his recent remark at the Brookings Institution, U.S. Federal Reserve Chair Jerome Powell indicated that the time for a slower pace of rate increases may come as soon as the next Federal Open Market Committee (FOMC) meeting.

This month, the U.S. Treasury yields moderated, with the 10-year yields falling below 4.0% to 3.68%, while the U.S. dollar continued to soften, dropping over 5%. This combination of lower bond yields and a weaker dollar acted as a catalyst for the market reversal.

In Asia, U.S. dollar bonds rebounded in November, with the iBoxx USD Asia ex-Japan Index increasing 5.11%, its best monthly performance so far in 2022.  The index yield dropped by 0.9 percentage points to 6.47%, and the index spread tightened by 53 bps to 253 bps.  As shown in Exhibit 1, the overall index and its major subindices all posted positive returns this month.  The China Real Estate Index recorded the largest gain, surging over 30%, while the China LGFV Index registered a comparatively lackluster performance of 0.31%.

iBoxx USD Asia Ex-Japan Monthly Commentary: November 2022: Exhibit 1

This month, positive performance was observed across the maturity buckets in all credit rating curves.  Strong returns were seen in long-dated investment grade (IG) bonds, while significant gains were observed across the curve in the high-yield (HY) category, particularly in maturity buckets with China real estate debt.

iBoxx USD Asia Ex-Japan Monthly Commentary: November 2022: Exhibit 2

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iBoxx SGD Monthly Commentary: November 2022

November 2022 Performance

On a year-over-year basis, the Monetary Authority of Singapore (MAS) Core Consumer Price Index (CPI) eased in October for the first time in eight months and edged lower to its August 2022 level of 5.1%, a decline from the 5.3% in September due to smaller increases in prices of utilities, retail and other goods and services. MAS Core Inflation is expected to average around 4.0% for 2022, up from 0.9% back in 2021.  The Singapore central bank anticipates the effect of the impending Goods and Sales Tax (GST) increase from 7% to 8% starting Jan. 1, 2023, to be transitory and has also forecasted a core inflation figure of 2.5%-3.5% for 2023.

With global inflation showing signs of cooling and the U.S. Federal Reserve signaling a possible slowdown of its aggressive rate hikes, market sentiments were boosted and a relief rally was triggered across asset classes in November.  Singapore was no exception to the relief rally, with the Dow Jones Singapore Index rallying by 6.92% this month and paring back its YTD losses to -12.82%.

The iBoxx SGD Overall gained 1.91% this month, bolstered by a 2.44% gain from Singapore Government Securities (SGS) and a modest 0.98% gain from the non-sovereigns.  This brings the index’s overall YTD losses to 7.04%.

iBoxx SGD Monthly Commentary: November 2022: Exhibit 1

iBoxx SGD Monthly Commentary: November 2022: Exhibit 2

iBoxx ALBI Monthly Commentary: November 2022

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

November 2022 Commentary

iBoxx ALBI Monthly Commentary: November 2022: Exhibit 1

Protests against the “Zero-COVID” policy in China dominated the headlines in November, causing global stocks to fall in a knee-jerk reaction in the last week of the month.  Despite some jitters caused by the protests, the S&P 500® posted a gain of 5.38% in November, as the market banked on the possibility of a more accommodative stance from the Federal Reserve.  One of the key economic indicators—the 2s/10s spread of the U.S. Treasury yield curve—continued to widen into the red and has remained in negative territory since July of this year.  This was against the backdrop of somewhat easing inflation numbers and a slightly more dovish tone in the Federal Reserve Chair’s latest speech in late November.

U.S. Treasuries—as represented by the iBoxx $ Treasuries—gained 2.83% in the penultimate month of this year.  In Asian fixed income, the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) surged 5.47% in the same period as a result of both capital and FX gains (against the U.S. Dollar) in most eligible local markets.

Most local markets recorded gains (in local currency terms) this month, with South Korea (up 3.88%) and Indonesia (up 3.61%) leading the pack.  In fact, half of the eligible markets returned more than 2%.  China Onshore (-0.99%) and China Offshore (-0.12%) were the only markets in the red.

Gains were observed across the yield curve (apart from China On- and Offshore) and the highest gains were concentrated in the long end of the curve.  Returns of the Hong Kong 10+, South Korea 10+ and Thailand 10+ exceeded 5% this month.

From a yield perspective, the overall index yield (in semiannual terms) dipped slightly (-23 bps), offering 4.23% as of Nov. 30, 2022.  Consistent with performance of local markets, only yields of China On-and Offshore rose this month.  India remained the highest-yielding bond market in the index, offering 7.34%, while China Onshore (2.98%) remained the lowest-yielding market.

iBoxx ALBI Monthly Commentary: November 2022: Exhibit 2

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U.S. Equities Market Attributes November 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

Key Highlights


- The S&P 500® was up 5.38% in November, bringing its YTD return to -14.39%.
- The Dow Jones Industrial Average® gained 5.67% for the month and was down 4.81% YTD.
- The S&P MidCap 400® increased 5.95% for the month, bringing its YTD return to -9.30%.
- The S&P SmallCap 600® was up 3.98% in November and had a YTD return of -11.31%.

U.S. Equities Market Attributes November 2022: Exhibit 1

Market Snapshot

It was a Thanksgiving of hope, specifically that the Fed would see the “weaker” economy and pull back on its interest rate increases, and one of joy, as the S&P 500 was up 5.38% for November and up 14.06% from the Oct. 12, 2022 low.  We remained in awe by the turkey, with the S&P 500 down 14.39% YTD (after a 2022 opening day high), and we overstuffed ourselves, as inflows again picked up, even as the U.S. underperformed in November: the U.S. was up 5.08% compared with the global non-U.S., which was up 11.12%; but before you move abroad, note that the three-year U.S. return was up 27.71% and the global non-U.S. return was down 1.53%).

Black Friday, the day when retail turns its fiscal year to black from red, returned with its usual sales.  Not that they were needed, given that consumers were still spending (just more selectively), but stores needed to incentivize specific merchandise, which fell out of sync (delayed deliveries, prior unmatched orders).  As for my shopping indicator, my wife and daughter ventured out for their 18th Black Friday expedition (continuing their 10 a.m. start in SoHo—gone are the days of 5 a.m. lines for Macy’s in Midtown).  According to them (and their charge slips), both crowds and sales were better than last year, but not better than pre-COVID-19 times, and the deals (from their discussions) were expected to get better.  As for the “official” numbers (from store associations and charge card companies), sales increased 2.3% to a record USD 9.1 billion, but given inflation, the record was due to higher prices, not more unit sales.  As for Cyber Monday, initial reports had sales at USD 11.6 billion, up from 2021’s USD 10.7 billion (which was down 1.4% from 2020).

As for December (and the hoped-for Christmas rally), the lame duck Congress needs to get to work.  Needing to be finished this year is a spending bill, which includes defense spending, unless the government partially shuts down on Dec. 16, 2022.  At this point, there is a bipartisan need to pass a bill.  A stalemate slows the economy—which helps the Fed but hurts corporate earnings and the economy.  A separate fix is needed to extend Medicare payments, which are due to be cut, as some (Democrats) may push for increasing the debt ceiling (currently USD 31.4 trillion; the S&P 500 market value is USD 34.3 trillion), but that one seems unlikely.  From a stock view, the focus is on extending some of the 2017 Trump tax cuts that are due to expire (corporate tax relief), which would cost an estimated USD 100 billion in 2023; corporations are lobbying for the extension (the key components are the write-off of research & development and the limits on deducting interest expenses).  The EU’s Dec. 5, 2022, ban of Russian crude (and Feb. 5, 2023, ban of oil products) has already shifted Russia’s exports to China, India and Turkey; prior to the Russia-Ukraine conflict, the EU accounted for half of Russia’s oil exports.  OPEC+ will meet the day before that ban, on Dec. 4, 2022.

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