BlackRock has expanded its Shariah-compliant ETF range with the launch of an emerging market sukuk ETF.
The iShares $ Sukuk UCITS ETF (SKUK) is listed on Euronext Amsterdam with a total expense ratio (TER) of 0.40%.
Its launch comes after HSBC Asset Management unveiled Europe’s first sukuk ETF in September last year.
The HSBC Global Sukuk UCITS ETF (HBKU) has a TER of 0.70%, making BlackRock’s the cheapest on the market, but without the global exposure of HBKU.
SKUK tracks the JP Morgan EM Aggregate Sukuk index, which offers exposure to US dollar-denominated sukuk bonds, also known as ‘Islamic bonds’, in emerging markets.
The index consists of investment grade, high yield and unrated sovereign, quasi-sovereign, supranational and corporate securities, which must have a minimum outstanding amount of $500m.
Only issuers that meet the standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) are eligible for inclusion.
The index is weighted by market value, subject to a cap of 8% for larger issuers and a secondary cap of 4.5% to ensure the aggregate weight of larger issuers does not exceed 36%.
As of 18 January, the index contains 112 holdings, with an effective duration of 3.93 years.
Sukuk were first issued in the early 2000s to circumvent the interest-paying bond structure which is prohibited under Shariah law.
Demand has been rising steadily for sukuk in recent years with global issuance topping $765.3bn in 2022, 7.6% higher than the previous year, according to Fitch Ratings.
The launch of BlackRock’s ‘Islamic bond’ ETF adds to its three-strong range of Shariah-compliant ETFs in Europe.
These include the iShares MSCI USA Islamic UCITS ETF (ISUS), the iShares MSCI World Islamic UCITS ETF (ISWD), and the iShares MSCI Emerging Markets Islamic UCITS ETF (ISDE), all launched in 2007.
