Where are Islamic ETFs heading?

EXCHANGE-TRADED Funds (ETFs) have emerged as one of the most innovative financial instruments of the 20th century. They are structured similarly to mutual funds, track an index and trade like a common stock on a stock exchange. The ETF’s advantages for investors include diversification, index tracking, transparent portfolio holdings, low fees and tax efficiency, to name a few.

According to Bloomberg, the global ETF market is currently worth more than US$4 trillion (RM16.9 trillion). While there has been unprecedented growth of conventional ETFs, syariah-compliant or Islamic ETFs stood at US$300mil (RM1.27bil) only – about 0.01% of the global ETF market size – since the listing of the first Islamic ETF on the Istanbul Stock Exchange in 2006.