Online broker eToro has partnered with Arabesque AI, an investment advisory and technology company, to launch a new Sharia-compliant portfolio for users in the Middle East.
Called ShariaAI-Growth, the portfolio leverages AI technology and Arabesque’s environmental, social and governance (ESG) bank to identify high-growth US stocks that comply with Sharia principles.
“Since launching in the UAE six months ago, our goal has been to adapt our services to meet the evolving needs of our users in the region,” explained George Naddaf, Regional Director GCC & MENA at eToro. “Our recent survey of retail investors in the UAE found that 84% consider ESG factors before investing, with 35% emphasizing the importance of their investments being Shariah compliant.1 We are excited to announce our partnership with Arabesque AI to deliver a portfolio that leverages advanced AI technology and ESG data.”
Sharia compliant investment products have delivered competitive returns over the long term. The S&P 500 Shariah Index returned 14.25% per annum for the 10-year period to the end of March 2024, compared with 12.96% per annum for the regular S&P 500 Index.
Omar Selim, Group CEO of Arabesque said: “We are pleased to partner with eToro to provide faith-based investment products at scale, powered by Portfolio Dragon and ESGBOOK.”
The ShariaAI-Growth portfolio includes up to 40 US stocks. The selection process is as follows:
- Step 1: Out of all the US stocks available on the eToro platform, only those with a market capitalization of more than US$1 billion and an average daily trading volume of more than US$10 million are eligible.
- Step 2: Eligible stocks must then pass a business activity screen and financial ratio screens to guarantee compliance with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah principles.
- Step 3: Compliant stocks are evaluated with Arabesque’s AI technology to select those with the highest expected returns, strong earnings growth over the previous 12 months and high ESG scores for inclusion in the final portfolio.
The portfolio is rebalanced quarterly taking into account expected returns as well as risk and transaction costs. The Shariah screening process is based on AAOIFI Shariah Standard No. (21).
Initial investment starts at US$500 and investors can access tools and charts to monitor portfolio performance, while eToro’s social media feed will keep them updated on developments in the sector.