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Saturday, April 20, 2024

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Hong Leong Asset Management debuts Islamic ESG fund following pandemic-related setbacks

Hong Leong Asset Management (HLAM) has launched its first Shariah compliant ESG fund, the Hong Leong Global Shariah ESG Fund, to cater to demand for Islamic ESG investment options following COVID-19 related setbacks.

“The launch of the Hong Leong Global Shariah ESG Fund addresses investors’ demands for sustainable and Shariah compliant investing opportunities. In other words, the Islamic ESG fund provides additional Shariah compliant criteria into the investment consideration policy and processes,” Hoo See Kheng, CEO of HLAM, told ISFI.

While the fund was launched in January 2023, it was added to the Securities Commission Malaysia’s list of Islamic SRI funds in January 2022. According to Hoo, the launching of new products since the COVID-19 pandemic is challenging due to both global and domestic factors which financial institutions have no control over.

The Islamic ESG fund follows the launch of its conventional counterpart, the Hong Leong Global ESG Fund, on the 24th April 2022. While the primary differentiating factor for the two funds is Shariah compliance, their investment strategies, asset allocation and performance benchmarks also differ.

Figure 1: Key differences between the funds

Hong Leong Global ESG Fund

Hong Leong Global Shariah ESG Fund

Objective

Aims to provide medium- to long-term (a period of three to five years) capital growth by investing in a globally diversified portfolio of companies with a focus on ESG criteria in the investment process.

aims to provide medium to long-term (a period of three to five years) capital growth by investing in a globally diversified Shariah compliant portfolio of securities with a focus on ESG criteria in the investment process.

Investment strategy

Follows a rule-based strategy and will only invest in securities of companies with a strong ESG scoring. The Fund will incorporate the principles of ESG in its securities selection through MSCI ESG Ratings.

Invest in Shariah compliant component stocks of ESG indices to cater for investors who wish to incorporate sustainability considerations into their investments. The S&P Global 1200 ESG Shariah Index, which seeks to track all Shariah compliant constituents in the S&P Global 1200 ESG Index, will serve as a reference for the Fund.

Asset allocation

Allocates a minimum of 70% to a maximum of 98% in equity and invests in equities and equity-related securities globally.

Allocates a minimum of 80% in equity and invests in Shariah compliant equities and Shariah compliant equity-related securities.

Performance benchmark

MSCI ACWI ESG Universal Index

S&P Global 1200 ESG Shariah Index

Source: HLAM

The investment decision process for the newly launched fund excludes companies with significant business activities and interests in thermal coal, tobacco and controversial weapons and/or companies with disqualifying United Nations Global Compact scores. 

According to Hoo, HLAM is currently working on strengthening internal capabilities and enhancing impactful digitalization as part of its sustainability efforts.

“We have integrated ESG considerations into our research processes and developed quantitative and qualitative metrics in ESG rating methodologies which serve to guide the fund managers in making informed decisions and we are working on ramping up our ESG coverage to include all stocks in the portfolio,” Hoo detailed.

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