Wahed Invest: A Look at the New Islamic Robo-Advisor

There was a time when the only way you could invest your money was to seek out the services of a financial professional, such as an investment broker or financial advisor. But technology has changed that, leading the way to what the industry calls robo-advisors. These are digital platforms that offer investors an automated investment experience. But how do they work? It's easy: Sign up, fill out a profile or questionnaire that outlines how much you can afford to invest, your goals, and your investment time horizon, and make your initial investment deposit. Once that's done, the algorithms do the rest—often with little to no human supervision.

The robo-advisor industry is large and is expected to continue to grow. Assets under management (AUM) in this field are likely to exceed $1.8 trillion in 2022. Annual growth is projected to be in the neighborhood of $3.13 trillion by 2026. The number and types of robo-advisors are just as expansive and include different investment strategies like Sharia investing. Wahed is one of those platforms.

What Is Wahed?

Wahed is a targeted robo-advisor. Established in 2015, the company launched two years later in the United States and the United Kingdom in 2018. It claims to be the world’s first automated Islamic investment platform governed by Sharia law. The law governs religious rituals and certain areas of the day-to-day lives of Muslims, including important decisions like finances and investments.

As such, Wahed is certified as an ethically compliant wealth advisor that adheres to halal investing principles. It actively seeks out socially responsible investments (SRIs) that have no ties to the tobacco, alcohol, firearms, and adult entertainment industries to name a few. These investments are scrutinized by a committee of Islamic scholars. And the platform is designed to appeal to the 2 billion Muslims across the globe.

Both access and investments are tailored for the smaller investor, with a $100 minimum investment requirement. It also boasts no lock-in periods, which means investors can make deposits and request redemptions at any time. And the company states its fees are lower than traditional investment firms because investing is done on its digital platform.

Sharia-Compliant Investing

Although its approach is similar to other robo-advisors, Wahed's investments are distinct. The key difference is that Wahed is aligned with Islamic financial principles or Sharia-compliant investing. This is often considered to be a subsector of ethical and socially responsible investing. In contrast with the goals of traditional investing to maximize returns and minimize risk, Sharia-compliant investing is designed to fit with the ethics and social-welfare beliefs of Islam.

The company's governing board uses a strict set of guidelines to scrutinize individual investments. Wahed doesn’t invest in companies that provide non-Islamic financial services. The ethical board also shuns investment in providers/supporters of things such as:

• Gambling
• Liquor
• Tobacco
• Pornography

In order to remain compliant with Islamic lending practices, Wahed won’t invest in companies that generate interest income greater than approximately 5% of total revenue unless the excess is given to charity. Investments are also required to maintain a certain percentage of non-liquid assets.

The compliance and financial ethics of individual Wahed holdings are overseen by a Sharia board. These board members provide their approval of the pool of investable securities along with Wahed's platform.

How Wahed Invests

Here's how the process works. An investor who is interested in using Wahed's services begins by responding to several risk-related questions. The initial queries focus on investment goals, liquidity needs, time horizon, and risk comfort levels. The Wahed approach uses modern portfolio theory, which optimizes the investor’s portfolio with Sharia-compliant investments. As such, it promises to offer the greatest returns for the minimum amount of risk.

The broad investment categories include global equity, emerging markets equity, U.S. equity, REITs, commodities, and fixed income. Using investments from these categories, the investors' percentages in specific asset classes are determined according to their risk category:

• Very conservative
• Conservative
• Moderate
• Moderately aggressive
• Aggressive
• Very aggressive

For example, a very conservative portfolio would own 92.5% fixed income, 5% gold, and 2.5% cash as of May 2022.

The frequency of rebalancing is determined by several factors. If the investor’s goals or risk profile changes, the portfolio will be rebalanced. The assets will be rebalanced when funds are added to or withdrawn from the account. A major change in market volatility might spur rebalancing. The portfolio may also be rebalanced if there’s a great deviation from the consumers expected return.

What Is the Wahed Fee Structure?

Wahed has a wrap account approach to fees. Like most robo-advisors, the company levies fees based upon investors' total assets under management without charging commissions for trades and other activities. Here is the current fee structure:

• $7,500 to $249,999: 0.99%
• $250,000 and over: 0.49%

Wahed doesn't charge investors any rebalancing fees. There are no transaction fees involved when it comes to buying and selling securities and Wahed promises investors that it doesn't charge any hidden fees.

The Bottom Line

For religious Muslims governed by Sharia, which requires strict compliance with high moral and ethical standards, Wahed is likely a welcome platform in the robo-advisor environment. This automated investment platform is especially important for smaller investors as it opens the door to a professionally-managed investment portfolio for those who lack large sums of money, Even non-Muslims who may be interested in an ethical investing approach may want to investigate Wahed Invest.