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By Bernardo Vizcaino
Oct 2 (Reuters) - Seattle-based Falah Capital is preparingto launch an Islamic exchange-traded fund (ETF) that trackslarge U.S. stocks, the latest sharia-compliant product in amarket that has yet to fully embrace such low-cost investmenttools.
The ETF will be advised by Exchange Traded Concepts andMellon Capital Management, with Bahrain-based Shariyah ReviewBureau acting as sharia advisor, according to a filing with theSEC.
ETFs are funds which track indexes of shares, bonds orcommodities and are traded like stocks. Their sharia-compliantversions follow religious principles such as bans on interestand gambling; omitting financial institutions while tilting tosectors such as technology and energy.
The ETF will track an index from Russell-IdealRatings, whosetop ten holdings include Apple Inc, Microsoft Corp, IBM and Intel Corp.
Falah Capital joins BlackRock's iShares, the world's largestETF provider, Deutsche Bank and BNP Paribas in offering similarproducts, although raising capital for the Islamic ETFs remainsa challenge due in part to limited marketing networks.
In the Gulf region, investors usually deal with placementagents and fund marketers, who prefer to sell private equity andhedge fund products as they gain higher sale commissions.
In contrast, ETF products have been favoured in the West asweak asset markets have prompted a focus on minimizinginvestment costs - one of the major attractions of ETFs.
Falah's ETF carries a 0.7 percent management fee, whilethose from BNP Paribas and Deutsche Bank have a 0.5 percent fee.
For ETFs to be fully cost-effective they need to reach anoptimal size but none of the current Islamic ETFs have assets ofmore than $100 million. By comparison, total BlackRock ETFassets outside of the U.S. are about $280.5 billion, about 36percent of the $700 billion total market.
In 2007, BNP Paribas launched the world's first Islamic ETF which currently has only $34.8 million in assets.
That same year, iShares followed with three Islamic ETFs
which had a combined $165.8 million asof August. (Editing by Edwina Gibbs)