The first thing I noticed on Wahed’s website is that they have Khabib Nurmagomedov as a brand ambassador. For those who are unfamiliar, Khabib Nurmagomedov is a retired cage fighter who strikes me as somewhat of an odd choice when thinking of promoting halal investment products…but I digress.

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.

Performance

Something that I found not good about Wahed’s site is the fact that I reviewed their performance on March 23rd, 2022. The last date their performance was updated on their website was May 27th, 2021. 

That’s almost 1 year ago! 

As someone evaluating their returns, I would 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.

Portfolio return

My Comfort Rating with Wahed’s Portfolios from a Halal Perspective

Now let’s dissect the different assets that are the 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.

Emerging Market Stocks

Same Commentary as Global Stocks. Generally halal.

Sukuk

Wahed describes Sukuk as follows: “The Sukuk holder has ownership of the underlying asset which is entitled to 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.”

Are Sukuk Halal?

Wahed mentions in its definition of Sukuk that it is a “debt”. They say they limit the value of the “debt” to that of the underlying. 

The keyword here is debt

We are talking about debt folks. Not equity. debt.

There are only two types of debt in Islam:

  1. Qard Hassan: Which is a debt given as a form of charity.
  1. 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 returns for investors. Therefore they are Ribawi loans. 

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 the issue date until maturity. “ [1]

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 ribawi loans and are haram.  

This is not something I kind of, sort of, think is true. This is something I’m 100% certain of. 

Real Estate

If you look at Wahed’s real estate exposure they are getting it through investing in a fund called “SC Global Real Estate Equities Fund – Class D”

Looked this 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%

How is a company where Interest Expense is as large as 15% of its Total Operating 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?

The remaining asset classes in Wahed’s portfolios are Gold and Cash. Halal of course.

So the only asset classes in Wahed’s portfolios which 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 it from a Halal perspective.

Pricing

As far as pricing, Wahed charges the following:

  • 0.99% per year if investing less than 250K
  • 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 0.25% which is one-quarter of what Wahed charges. Some are 0% some are 0.5% but I haven’t found any robo-advisors charging 0.99%.

Keep in mind that these robo-advisor fees don’t take into account the fees of the funds themselves.

So for example, in the very aggressive portfolio, Wahed puts clients’ money into the “Wahed FTSE USA Shariah ETF”, this ETF has an expense ratio of 0.50%. So add it to the 0.99% robo-advisory fee and you’re paying 1.49% in expenses. Compound that over 5 years and it’s 8% of your portfolio. 

Conclusion

I’m uncomfortable with two of Wahed’s major asset class allocations from a halal perspective, I find their pricing to be unjustifiably high and on top of all of this their performance, net of fees, is rather unclear too.

Consequently, Wahed’s Robo-advisory service, for me, is a hard pass.

Sources:

[1] https://www.investopedia.com/terms/c/coupon.asp

Disclaimer: Anything you read in this article 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.