Which shariah standard to follow?

[highlight]

Salam aleykum everyone

I want to start investing and have seen that there are multiple different Shariah standards. As example: FTSE, MSCI, AAOIF, D&J or S&P

FTSE and MSCI are using the total assets to see if the depth is lower than 33%.

AAOIF as example takes the market capitalization.

Which one is more trustful? Who defined those standards?

My gut feeling says I should use the ones using the total asset.

Thank you

 

[yellowastra]

@highlight Assalamualaikum. I spoke to mufti who specializes in Islamic finance from NY. He recommended me using Zoya. Excerpt from his email below

"I do not know about the Islamicly app, but Zoya used AAOIFI standards, which are reliable. With the assumption that the app applies the standards correctly, you are safe to use it as a guideline for where to invest."

 

[jacob98]

@yellowastra So you mind mentioning the name of the Mufti?

If not, can you at least give his background and which institutions he studied/affiliated with?

 

[yellowastra]

@jacob98 Mufti Abrar.
He was redomm3nded by Mufti Azeemuddin who runs Darussalam seminary

 

[jacob98]

@yellowastra MashaAllah, Mufti Abrar DB is legit and one of brightest minds in Islamic Finance in the US. I was not aware of his 'endorsement' of Zoya (as a guide).

JazakAllahu Khayra!

 

[yellowastra]

@jacob98 Welllllll, let me rephrase. He didn't exactly endorse it. He said that the app follows the ASOFAI(something) and standards, and if they implemented it properly, it can be taken as a source.

 

[jacob98]

@yellowastra I figured that was the case

That's why I put 'endorsement' in quotes and added (as a guide). The excerpt from your email shows the extent of his endorsement "... you are safe to use it as a guideline for where to invest."

 

[beardedyouthpastor]

@highlight FTSE & MSCI use of total assets is far superior to AAOFI, there is no question.

 

[brotherian]

@highlight Debt free stocks - the way to go.

 

[resjudicata]

@brotherian Do u know of any debt free stocks or ways to find them? Ive been looking for awhile but havent found any good ones

 

[michaelleemason]

@resjudicata Yeah -- i dont see any debt free stocks

 

[beardedyouthpastor]

@resjudicata Look for stocks with a Net Cash position. Any screen can provide this.

 

[martinwarner]

@beardedyouthpastor Net cash doesn't mean it's debt free...

 

[beardedyouthpastor]

@martinwarner Correct. But it does mean it is liquid enough to pay off its debts. In the public markets it is very difficult to find a company with no debt as most have a line of credit that they pay a standby fee for even if not used. Thus no cash is a great filter to start.

 

[martinwarner]

@beardedyouthpastor

But it does mean it is liquid enough to pay off its debts

For that you should be looking at the company's current ratio.

Most companies try to go for a minimum net cash position of zero - unless they're storing cash offshore for taxation purposes or acquisition purposes. Think about it as your own chequing account - you would never want too much cash in it and likely have just enough to cover your monthly expenses.
Also, almost all companies use a revolving credit facility and dip into it frequently to manage their working capital.
My point is that, a large net positive cash position is usually a sign of an inefficient company.

 

[beardedyouthpastor]

@martinwarner First current ratio does not address the issue of screening for debt.

Second, if you believe a net cash position is a sign of an inefficient company, you have been influenced by the CFA nonsense. The most efficient companies returning the highest ROI have net cash. Like life, nothing is absolute, exceptions exist.

 

[martinwarner]

@beardedyouthpastor Net cash is inefficient - no matter how you see it. Do you think AAPL wouldn't like to mobilise it's cash it has stored to avoid taxes? Does that make AAPL inefficient? Not completely but it does have $38B that's idling, or in other words being inefficient.

Also on your claim on ROI correlating with a net cash position - if you look at the S&P500, and examine the top 30 companies with highest 5yr average ROI...only 3 companies out of 30 have a net cash position. Also the worst performing stock on ROI (5 year avg), has a $285m positive cash position... Coincidence? I believe not.

Current ratio addresses a company's ability to cover it current debt...which is what you were suggesting. Net cash isn't as commonly used (I've never heard it and I'm in the finance field)

And no need to get angry at the CFA - it does hold it weight in the world on investments.

 

[beardedyouthpastor]

@martinwarner Please share the analysis/report refernceing the 30 companies..

 

[martinwarner]

@beardedyouthpastor Sorry brother I miscounted - it's 5/30 instead of the 3/30. Point remains however. Almost all of the 5 companies are very capital light companies (tech and services) so makes sense they don't require much capital or debt to invest. It's an equity screen grab off Bloomberg. And you can see it here:

https://imgur.com/a/3Wq1BWe

 

[micco]

@resjudicata There are a few. some one made a post about it . I will leave the link here:

https://www.reddit.com/r/IslamicFinance/comments/hvk8of