Personal Finance | Wahed Invest | Fund Review
This is the more in depth look at the Wahed Invest app - especially popular because they are Shariah compliant. I’ll be sharing the general features and what makes up the funds in the Wahed Invest app.
This blog post is mainly covering what the Wahed Invest app allows you to invest in. I’ll be mostly covering it from a Malaysian perspective.
Disclaimer out of the way: I’m not a financial advisor and this is not meant to be construed as financial advice. This is just meant to share what I’ve found out about the funds and my personal experience using the app. I’m not sponsored or paid by Wahed Invest and have no affiliations with. the company whatsoever.
If you’d like to try Wahed Invest, use the code : “limlaw1” and you will get RM10 bonus funds into your account if you deposit at least RM100 and maintain that balance for >30 days (I’ll get RM10 as well, full transparency).
Just a separate note: the limited number of investment vehicles that Wahed Invest uses is likely due to the lack of Shariah-compliant ETFs. The slightly higher expense ratio that their ETF (HLAL) is likely because it requires more money to manage and navigate in order for it to be Shariah-compliant.
What you should also know is that Wahed has been charged by the SEC for misleading clients - both related to marketing material related to how their funds were adopting shariah-compliant practices and how they used people’s funds to seed their own ETF without their prior knowledge (which in itself is quite a big conflict of interest - their ETF has a high expense ratio as well, relative to other ETFs - I talk about their expense ratio compared to others later on.
Selecting Your Portfolio
Overall, I would say that it is really easy to use and really quick to get running. I think what people need to understand is that this is an investment whereby you will see your funds growing 10% or so consistently over the next few years.
The way to understand it is that the trends are such that index funds perform 10% (or thereabouts) on a yearly basis. There can be periods of recession, etc. but over a 10 year time frame when you average it out, it roughly works out to 10% annually (S&P, QQQ among other index funds).
I did their questionnaire for them to suggest a portfolio - they suggested a more aggressive portfolio for me personally : 45% Global Stocks 25% Sukuk 17.5% Emerging Market Stocks 10% Gold 2.5% Cash. You can only select between their 8 profiles - you can’t adjust the ratios (something you can do with MyTheo.
There are 8 portfolio allocations that you can select from using Wahed Invest
The questions include age, purpose of investing, monthly income, amount in savings, whether your income source is stable, how familiar you are with investing, your preferred portfolio exposure and your risk tolerance pertaining to investing. I think that their roboadvisor is definitely more detailed than MyTheo (more questions).
Note: You can have multiple investing portfolios, but just consider this:
If you have more than 1 portfolio in your Wahed account, either a minimum monthly fee of RM2.50 or an annual fee of 0.39-0.79%, whichever higher will be applied. The minimum monthly fee of RM 2.50 doesn't apply to you if you have only 1 portfolio in your Wahed account. Additional charges or fees may apply if you wish to transfer funds through FPX or Direct Debit.
Once you deposit (either FPX or Bank Transfer), it took me 1 business day before they accepted my deposit and it was almost instantly allocated to the portfolio they suggested.
The Investments
I would say that Wahed Invest doesn’t have as many funds that they allocate to relative to other apps.
Global Stock Exposure is entirely allocated to the Wahed FTSE USA Shariah ETF (HLAL), the Sukuk exposure is weighed a bit more to the RHB Islamic Bond Fund and a smaller allocation towards the Malaysia Maybank Sukuk Fund. I’ll talk about Sukuk funds later on.
Just note this about the dividend stocks as well though:
Only dividends of Wahed FTSE USA Shariah ETF is subject to a 30% dividend withholding tax
But I think that ultimately this amounts to a really small amount of your entire portfolio.
Emerging Market exposure is through the MyETF MSCI Malaysia Islamic Dividend (MyETF-MMID) and VP-DJ Shahriah A-Shares 100 ETF and gold exposure is only through the TradePlus Shahriah Gold Tracker.
Global Stocks
So for starters, the Wahed FTSE USA Shariah ETF (ticker: HLAL). So what’s interesting about this is that they actually use their self-managed ETF. This is interesting because other Roboadvisor apps like Stashaway and MyTheo use a number of ETFs in their Global Stock basket. Wahed Invest uses 1: their own one.
I think the simple way to look at this is that their fund has a fairly high expense ratio - and not only that, it is going to Wahed Invest themselves as management fee. Their ETF has an expense ratio of 0.5%. This, compared to Invesco QQQ (0.2%), SPDR S&P 500 (0.095%) and other ETFs in Large Cap Growth Equities ETF (average in the category: 0.37%).
It seems like a small percentage, but you have to remember. It compounds. So just keep that in mind because there is only one ETF being used by Wahed Invest Global Stocks - Stashaway and MyTheo use a bigger bag of ETFs. Of course there is also the consideration that these stocks have to be Shariah Compliant - which can factor into those higher management fees.
The dividend rate is also lower compared to others in the Large Cap Growth Equities ETF category, sitting at 0.97% compared to the average of 1.14%.
The fund started in 2019 - so not too big of a track record, per se, but 1 year performance sits at about the average at 31.29% compared to the average of 31.79%.
As I was doing research for this, I. was looking at what makes this particular ETF shariah compliant. So, the short summary is: companies must have <5% of revenue coming from prohibited business sectors (alcohol, pork, firearms, debt/financing activities, etc). They must also not have excessive debt (<1/3 total assets). There are other conditions as well, but that’s the gist of it.
Capital gains (rise in stock price) are fine, but in terms of dividends, 5% has to be purified (donated to charities) because it may have been earned by impure means. In the grand scheme of things, this is a really small portion - you ultimately lose 0.05% of the maximal extractable value (5% of the 0.97% dividend rate). This really isn’t something to make you change your mind about investing in this fund. The bigger factor is definitely the expense ratio.
Overall, although some other funds have a lower expense ratio, this is a decent ETF, especially if you want to invest in something that is Shariah-compliant. If that isn’t a requirement for you, it might be worth considering other apps to get exposure to US Stocks.
Sukuk
I think this video is really succinct in describing the features of a Sukuk in comparison to conventional bonds.
I think the easier way to think of them would be bonds but with lower perceived risk. There is a proof of ownership of underlying assets, services or investments. The assets the Sukuk takes partial ownership of may lead to higher/lower profits.
But strictly speaking, I’ve been impressed by the performance of these Sukuk funds. The weightage is a bit heavier towards the RHB Global Sukuk fund compared to the Maybank Malaysia Sukuk fund.
Just for reference, the iShares 1-3 Year Treasury Bond ETF 3 year return rate has been 7.21% and 1 year performance is -0.02% (heavily impacted by pandemic). RHB Global Sukuk Fund has returned 2.8% (1 year) and 6.32% (3 year). Average government bond performance has been -2.36% (1 year) and 9.46% (3 year).
Maybank Malaysia Sukuk has returned 0.42% (1 year) and 5.64% (3 year). Overall, I think that Sukuks are fairly similar in level of risk and expected return in the grand scheme of things.
Emerging Market Stocks
2 components here: MyETF MSCI Malaysia Islamic Dividend (MyETF-MMID) and VP-DJ Shariah China A-Shares 100 ETF. No Japan/India/Vietnam exposure but I guess it keeps the portfolio very simple and easy to follow.
MyETF-MMID tracks companies that have higher than average dividend rates deemed acceptable by the MSCI - Petronas, Maxis, Sime Darby and IOI among companies in the index. Dividend rate was around 4% and purification is negligible (according to annual financial reports).
VP-DJ’s China A Shares 100 ETF is a really new fund (Established June 2021), so there’s not much meaningful data to analyse, but they have a management fee of 0.6%. The fund intends to be for those with a high risk tolerance and want exposure to Chinese stocks.
Below are the stocks in the ETF.
Gold
Exposure to gold comes in the form of the TradePlus Shariah Gold Tracker. Not much to say about this apart from the fact that the expense ratio is 0.5%. Comparatively, the iShares Gold Trust has an expense ratio of 0.25% and SPDR GLD is at 0.4%.
Overall
If you want a Shariah compliant way to get exposure to stocks in the global and local market, this is arguably one of the easiest way to do it. If not, there are arguably better ways to be a passive investor - Stashaway, MyTheo, etc. I’m just saying this from the perspective that the fees - from expense ratio to management fee are on the higher side.
The funds could have lower expense ratios and the 0.79% (0.39% if >RM500,000) management fee isn’t the lowest in this field (Stashaway has rates of 0.2-0.8%) but what Wahed Invest does well is make investing both simple and Shariah compliant, which is something most other apps can’t compete with.