What does automated investing mean? Does it involve robots who make big bets? Nope. We believe in tracking the broader market instead of betting on individual stocks, because it's proven to work. It means that Wealthsimple will design a personalized portfolio of investments to meet the financial needs and goals of each client. A portfolio with extremely low fees and total transparency that we build using Nobel Prize-winning financial principles. It also means Wealthsimple creates portfolios that are personalized for clients’ values. That’s why we introduced our pioneering automated Socially Responsible Investing portfolio that invests in firms as interested in their carbon footprint as their bottom line. And it's why we’re announcing our new Halal Investing portfolio now.
Wealthsimple partnered with a third-party committee of Islamic scholars and financial gurus to design a portfolio that allows investors to build wealth while complying with Islamic law. Which means that every company included in our Halal Investing portfolio has been screened to ensure it meets strict guidelines, including rules against profiting from gambling, arms, tobacco, or other restricted industries.
How does it all work? We asked one of the people who designed the portfolio — Yasser Mawji, Wealthsimple’s Head of Research — to explain.
What does halal have to do with the stock market?
As many of us already know, halal is a designation for things that are approved by Islamic law. (The opposite, haram, means forbidden). Really, it’s more informative to talk about what is not halal than what is. For example, pork is not halal, and neither is alcohol, gambling, or usury. Which means that for observant Muslims who want to invest according to their values, the stock market can be restrictive. But Wealthsimple’s Halal Investing portfolio buys only stocks that don’t engage in those activities.
The usury part sounds especially complicated.
It is. We're not talking about illegally high interest rates or loan sharks. But the Quran prohibits making a profit off of debt — lending money and charging high interest is a restricted activity. That means you can’t buy most fixed-income investments like bonds, which have little to no risk. That puts most automated investing portfolios off limits because fixed income is a very common way to make investments less risky.
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How did you make the portfolio? How did you make sure the companies really were compliant — while also being good investments?
We partnered with MSCI, a stock analysis company and one of the world’s largest index providers for places like iShares. MSCI used a methodology approved by a committee of Shariah scholars to exclude companies that derive more than 5% of their revenue from prohibited activities, including alcohol, tobacco, pork, defense and weapons, gambling, music, hotels, cinema, and adult entertainment.
MSCI also screened for companies that derive significant income from interest or that have excessive leverage. To do that MSCI calculated three ratios: total debt over total assets; the sum of a company’s cash and interest-bearing securities over its total assets; and the sum of a company’s accounts receivable and cash over its total assets. For stocks selected for this portfolio, none of those ratios could exceed 33.33%, the proportion widely recommended by Islamic scholars.
How many worthy stocks are there? Enough to make a good investment strategy?
Wealthsimple believes in exchange-traded funds . They are a principle part of our passive investing strategy that keep costs low and effectively track whole parts of the stock market. For the Halal Investing portfolio, we essentially created our own ETF. Eight hundred companies met the halal criteria we laid out. Trading all 800 of them in a single ETF would make our (and your) costs too high, and wouldn't be any more effective, we believe. To minimize cost without losing crucial diversity, we pared that list down to 50. In selecting those stocks, we were careful to track the broad market as closely as possible. We did that by tracking the sector weights of the broader index and kept our exposure to US stocks at 25 to 35% — the same as our traditional Canadian portfolios.
Is the halal portfolio riskier than a regular portfolio?
Because the Halal Investing portfolio includes no fixed-income assets, it is inherently higher risk. If you do invest in it, make sure that you also have some lower-risk investments to diversify your holdings. For observant Muslims, your lower-risk investment is simple: cash. Keep some money in the bank. If you have questions about managing your risk, just give us a call.
Are there other halal portfolios out there from other companies?
Building a halal portfolio is relatively time consuming, and therefore expensive. Which means that there aren’t many of them. And the ones that do offer them often charge very high fees.
Does it cost more? Seems like the fees would be higher, right?
They’re exactly the same. We have a $0 account minimum. You pay no fees on any investment up to $5,000 for a year; you pay a 0.5% fee for investments up to $100,000, and 0.4% if you invest $100,000 or more. We never charge trading, account transfer or rebalancing fees. And since everything in the Halal Investing portfolio is a stock, there are no secondary fees from fund providers.
Am I giving up any of the other good stuff at Wealthsimple by investing in the Halal Investing portfolio rather than a regular portfolio?
Just like all our portfolios, Halal Investing is automated and optimized. It comes with automatic rebalancing, which means we keep your portfolio balanced when your investments drift from their target allocation. We also do gratis dividend reinvesting which means we automatically put your dividends back to work so you can take advantage of the magical powers of compound interest. It's also free (and recommended!) to turn on auto-depositing so you can invest early and often without needing the discipline to do it yourself.
And of course we offer all our clients expert financial advice from real humans. You can call, text, or email us any time you need a helping hand or money advice.
If you invest more than $100,000, you get the advantages of Wealthsimple Black which include an in-depth personal financial planning session with one of our pros and a free Priority Pass, which provides VIP access to more than than 1,000 first class airport lounges in over 400 cities.
Is there an annoying sign-up process?
Nope. We pride ourselves on making everything as simple and intuitive as possible. Just start here — it takes about five minutes.