Wahed Invest is a recent entrant into the targeted robo-advisor field. This unique robo-advisor claims to be the world’s first automated Islamic investment platform governed by Sharia, a religious law that governs not only religious rituals, but day-to-day aspects in Islam. Wahed is certified as an ethically compliant wealth advisor. The investments are scrutinized by a committee of Islamic and ethical 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; the service has a $7,500 minimum investment. According to CEO Junaid Wahed in a recent press release, the Wahed portfolios have performed better—with less risk—than their traditional competitors. Beta-tested since 2015, the portfolio is currently available in the U.S. with plans to expand internationally in 2017. (For related reading, see: Hybrid Robos to Outpace Traditional Ones.)
Sharia Compliant Investing
Sharia compliant investing, also known as Halal investing, might be considered 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 Wahed governing board uses a strict set of guidelines to scrutinize the individual investments. Wahed doesn’t invest in companies that provide non-Islamic financial services. The ethical board shuns investment in providers/supporters of things such as gambling, liquor, tobacco and pornography. In compliance with Islamic lending practices, Wahed won’t invest in companies earning interest income greater than approximately 5% of total revenue unless the excess is given to charity. Also, the Wahed investments are required to maintain a certain percentage of non-liquid assets.
U.S.-based Sharia financial advisory firm, Straightway Ethical Advisory LLC, oversees the compliance and financial ethics of the individual Wahed holdings. The types of investments in Wahed are distinct, yet the investing approach is similar to several other robo-advisory firms.
How Wahed Invests
The investor begins by responding to several risk-related questions. The initial queries focus on investment goals, liquidity needs, time horizon and risk comfort levels. Using modern portfolio theory, the Wahed approach optimizes the investor’s portfolio with Sharia compliant investments offering 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
- Moderately aggressive
- Very aggressive
For example, a very conservative portfolio would own 15% equity, 72.5% fixed income, 5% gold, 5% REIT and 2.5% cash. (For related reading, see: Robo-Advisors and a Human Touch: Better Together?)
What is Wahed’s Rebalancing Approach?
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 $49,999—0.99%
$50,000 to $249,999—0.79%
$250,000 to $499,999—0.49%
$500,000 and over—0.29%
The Bottom Line
For religious Muslims governed by Sharia that requires strict compliance with high moral and ethical standards, Wahed Invest Inc. is likely a welcome platform in the robo-advisor environment. Particularly for investors who lack large sums of money, this automated investment platform opens the door to a professionally-managed investment portfolio. Even non-Muslims interested in an ethical investing approach may want to investigate Wahed Invest. (For related reading, see: Betterment Says New 'Tax Drag' Algorithm Will Boost Returns.)