April 3, 2022.
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Disclaimer: Anything you hear in this podcast is an opinion. It is not to be considered personalized financial advice. Make sure you do your own due diligence before making any investment decisions.
We’re going to review Wahed’s Robo-advisory service.
As always, I’m not going to mince my words. I’ll call things as I see them but I will aim to stay fair throughout.
Let’s get right to it shall we, no wasting time, straight to the Wahed website we go.
The first thing I noticed on their website is that they have Khabib Nurmagomedov as a brand ambassador, a retired cage fighter, which strikes me as somewhat of an odd choice when thinking of promoting halal investment product but I digress…
By the way you’ll notice I say HHabib, not habib or worse khabib which is what I’m assuming small kebabs are called. I say Hhabib, because I’m a red-blooded Muslim with an XY chromosome. Stop acting fancy and start pronouncing your Ha’s people.
I don’t care if you’ve lived in the west your whole life, it’s not alhamdulillah, it’s Alhhamdulillah. Say it right please.
Ok enough fooling around, my apologies, let’s go back to the top of their homepage.
“Invest in line with your beliefs
We help you choose a risk level that's right for you. Once you fund your account, we'll do all the heavy lifting so you can focus on what matters to you.”
What this statement means is that they’re going to start out by asking you a bunch of questions to determine both your ability and willingness to take on risk.
Based on your answers they’ll assign you to one of their portfolios which range from Very Conservative to Very Aggressive.
This assignment will be done by code, robotically if you will, not manually by a person, hence the category that Wahed’s services fall under which is that of a “Robo-Advisor”.
Robo Advisors are generally good if you have a smaller net worth that doesn’t require individual personalized care and you also don’t have the time or interest to go about managing your investments yourself.
This is because the robotic allocation of your funds, should, in theory, cost you less since there isn’t someone dedicating time to your particular account.
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Back to Wahed, something that I found not good about their site is on March 23rd, 2022, the last date their performance was updated on their website is May 27th, 2021. That’s almost 1 year ago.
As someone evaluating their returns, I would really like to understand how well their portfolios did since May 27th last year because a lot has happened since then, especially from December 2021 until now.
I’m sure this information is available if you ask them for it, or maybe it's available someplace else, but it should be available here as well on their portfolios page.
Now let’s dissect the different assets that are the component parts of their different portfolios.
Global Stocks: Generally no problem with stocks from a halal perspective. There are of course considerations with regards to which stocks are halal which I won’t go into now. You can see our comfort ratings for stocks on practical Islamic finance.com
Emerging Market Stocks, Same Commentary as Global Stocks. Generally halal.
Now let’s talk about Sukuk. Wahed describes Sukuk as follows:
“The Sukuk holder has ownership on the underlying asset which is entitled for revenues generated from the Sukuk asset unlike the bondholder who is eligible to receive interest payments by the bond issuer. The Sukuk limits the value of debt to that of the underlying. It must be asset-backed or asset-based and interest-free.”
So are Sukuk Halal?
Well Wahed mentions in its definition of Sukuk that it is a debt.
They say it limits the value of the “debt” to that of the underlying.
Keyword here: Debt. We are talking about Debt folks. Not equity. Debt.
What have you heard from me regarding Debt in Islam: There are only two types:
Qard Hassan: Which is a debt given as a form of charity. Ribawi Debt: this is debt given in pursuit of profit. Any debt, given, not as an act of charity, in pursuit of profit, in any form, is Ribawi.
No one disagrees with this.
Sukuk are not given as an act of charity. They are debt instruments meant to generate return for the investors. Therefore they are Ribawi loans.
Can we be certain Sukuk are meant to generate returns?
One of the Sukuk funds Wahed invests in is called “Franklin Global Sukuk Fund”. In the list of portfolio holdings for this fund we find: a column with the title “Coupon Rate”.
Showing each of the different coupon rates for the constituent holdings of the fund.
What is a Coupon Rate you might ask?
Well, let’s look it up.
“A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. “
So we have a debt that is meant to generate income for the lender.
This is Riba folks.
Don’t let the word “Sukuk”, an Arabic word that sounds Islamic, fool you.
Sukuk are definitely ribawi loans and are haram.
It doesn’t take a CFA like myself, to figure this out.
This is not something I kind of sort of think is true. This is something I’m 100% certain of. I invite anyone from Wahed invest or any other Sukuk fund, that would like to debate me on this to this channel and let’s figure this thing out together. We’ll have the debate live so no parts are cut out.
My invitation is open any day of the week and twice on Jummah for the Barakah.
Moving on to Real Estate
If you look at their real estate exposure they are getting it through investing in a fund called “SC Global Real Estate Equities Fund - Class D”
Looked this bad boy up and what do I get:
Top ten holdings: Number 1 is Equinix, for the last twelve months, Total Interest Expense / Total Operating Expense = 6%
Second largest position, Prologis, for the last twelve months, Total Interest Expense / Total Operating Expense = 8.4%
American Tower Corporation, for the last twelve months, Total Interest Expense / Total Operating Expense = 15%
Now riddle me this.
How is a company where 15% of its Total Operating Expense is interest expense, not a company where paying riba is a material part of their operations?
How is this a halal company to own and profit from?
A company where 15% of all its expenses are interest expense?
Come on folks. What are we even doing at this point?
The remaining asset classes are Gold and Cash.
So the only asset classes I find are halal, generally, without going into the details of what particular equities they are invested in, are Equities, Gold and Cash.
Sukuk and the way they’ve chosen to gain exposure to Real Estate, I am entirely uncomfortable with from a Halal perspective.
As far as pricing, Wahed charges the following:
0.99% per year if investing less than 50K
0.49% per year if investing more than 250K.
If I look at nerdwallet’s comparison of the best Robo-advisors of March 2022, I see management rates that average around .25% which is 1 quarter of what Wahed charges. Some are 0% some are .5% but I haven’t found any robo advisors charging .99%
Not saying these other robo-advisors are necessarily halal but just comparing their costs.
Keep in mind with these robo-advisor fees, they don’t take into account the fees of the funds themselves.
So for example, in the very aggressive portfolio Wahed put’s clients money into the “Wahed FTSE USA Shariah ETF”, this ETF has an expense ratio of 0.50%.
So add it to the .99% and your paying 1.49% in expenses. Compound that over 5 years and it’s 8% of your portfolio.
So in conclusion, I find Wahed’s Robo-advisory service, for me, is a hard pass. I’m uncomfortable with two of their major asset allocation classes from a halal perspective and I find their pricing to be unjustifiably high.
They may have their reasons for why they have such a high price and why they have additional expenses they must account for, but from a customer’s perspective, I find their product entirely uncompetitive.
If you’re from Wahed, you’re one of the higher-ups, and would like to come on the show, let me know, happy to have you.
The goal is not to bash any company or service, but I’m not going to go easy on anyone either.
What we’re trying to do is give Muslims consumers an honest review of the products available to them.
I personally have no connections to Wahed and I have no interests in the outcome of my review.
I am not sponsored by them nor am I sponsored by a competitor of theirs.
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Until next time make sure to take care of yourself.
Assalamu ‘alaikum and peace be upon you all.