Clearing doubts and answering questions.

Recently one of our well-wishers asked us some genuine questions, which we believe should be answered publicly, so here goes.

"Few questions on your Multi-Asset Portfolio:

1. What's the segregation percentage of large-cap and mid-cap or even small-cap (if you're adventurous) in your portfolio?
2. How many names of your holdings are part of ESG?
3. Is the portfolio actively managed or passive?
4. What's the expense ratio of your portfolio and the total wrap fee?
5. Do you provide discretionary portfolio services for HNWI?
6. What is the concentration percentage of sectors in your holdings?
7. Who is the Shariah authority which gives Ethica Invest a sign-off on its Shariah compliance for its portfolio and whether it monitors it daily?
8. Do you have a Shariah committee or any experienced scholar who sits on your board?
9. Do you have or are in talks with AAIOFI or Shariyah Review Bureau etc for Shariah Compliance endorsement for Ethica Invest?
10. What is the opportunity set from your portfolio?
11. Who is the fund manager, their credentials and track record for past funds managed by him and also whether he is a certified Islamic Finance professional from a recognized body?"

Answers -

1. We churn the portfolio, so the composition does not remain fixed. As of now, around 40% of the portfolio is in large and mid caps, 50% is in small caps, and 10% is in precious metals (Gold/Silver).
2. 11 out of 14 of our holdings implement ESG practices. (PS - Some really small-cap companies do not disclose much info, also to some extent ESG is a marketing stunt by corporates so we should take it with a pinch of salt)
3. The portfolio is actively managed, but the churn is low. We hold for the long term. But we do carry out some rebalancing if required on a quarterly basis.
4. We have a fixed fee model for advisory. Another service we offer is discretionary portfolio management for HNIs for which we charge 1.5% of the AUM. The total wrap would be around 2% (by including brokerage, GST, etc.)
5. Answered above.
6. I would say we are pretty well diversified, with the portfolio having less than 25% exposure to any particular sector. This may change in the future depending on our view of the market. Sometimes a particular sector gets higher concentration if we sense that the sector would get significant tailwinds (growth, positive policy change, etc) or if we feel that the sector as a whole has deeply corrected and will revert to mean.
7. We have our own in-house shariah compliance team, that screens all the stocks listed on NSE and BSE. Our screening is available for free to all users in a beautiful UI on our website and upcoming app. I have done my MBA in Islamic Banking and Finance and have spent time studying the issue of Shariah compliance. I also consult with my professors who have extensive research and PhDs in the field, over the matter of shariah compliance. We follow the guidelines issued by AAOIFI and TASIS. However, I do not consider any organisation to be a gatekeeper of Shariah, and see various shortcomings in their compliance guidelines, as such I do not (and will not) feel the need for someone else to "sign off" on our Shariah compliance. In fact, our compliance criteria is more stringent than most others that I have come across.
8. Answered above.
9. We would love to get in talks with AAOIFI.
10. We don't believe in modern portfolio theory (MPT) and therefore efficient frontiers and calculations of opportunity sets are things we feel are useful only in theory. I do however implement prudent risk management by being mindful of position sizing based on my conviction on the stock and its fundamentals, and if the story goes wrong then I know where to cut losses and take an exit.
11. The portfolio is built and maintained by our SEBI registered investment advisor Mr Anees Ahmad. (SEBI - INA100016266). He has previously been the Product Manager for ICICI Investment advisory division. His job is equity research, stock selection and asset allocation, not Shariah compliance. As mentioned we have a different team for that. Mr Anees builds and maintains the portfolio from the shariah compliant universe of stocks that we give him.

I hope this answers the questions.

I would add that we are still in our very early days, and as such there is huge scope for improvement in every aspect of our functioning. We work 7 days a week to make sure we get to the high grounds sooner, rather than later. We welcome and actively seek all suggestions and feedback. We are open for collaborations and partnerships with meaningful partners who would share our values and our vision.

May Allah accept.