Online broker eToro has partnered with Arabesque AI, an investment advisory and technology company, to launch a new Sharia-compliant portfolio for users in the Middle East.

Named ShariaAI-Growth, the portfolio leverages Arabesque’s AI technology and bank of environmental, social, and governance (ESG) data to identify high-growth US stocks that comply with Sharia principles.

“Since our launch in the UAE six months ago, our goal has been to tailor our services to meet the evolving needs of our users in the region,” explained George Naddaf, GCC & MENA Regional Manager at eToro. “Our recent survey of retail investors in the UAE found that 84% consider ESG factors before investing, with 35% emphasising the importance of their investments being Sharia-compliant.1 We are thrilled to announce our collaboration with Arabesque AI to offer a portfolio that leverages advanced AI technology and ESG data.”

Sharia-compliant investment products have provided competitive returns over the long term. The S&P 500 Shariah Index returned 14.25% per year for the 10-year period to the end of March 2024, compared to 12.96% per year for the regular S&P 500 Index.

Omar Selim, Group CEO of Arabesque said: “We are delighted to partner with eToro to deliver faith-based investment products at scale, powered by Portfolio Dragon and ESGBOOK.”

The ShariaAI-Growth portfolio comprises up to 40 US equities. The selection process is as follows:

• Step 1: From the pool of US stocks available on the eToro platform, only those with a market cap of over US$1 billion and an average daily trading volume of over US$10 million are eligible.
• Step 2: The eligible stocks then have to pass a business activities screen and financial ratio screens to guarantee their compliance with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Sharia principles.
• Step 3: The compliant stocks are evaluated with Arabesque’s AI technology to select those with the highest expected returns, strong earnings growth over the previous 12 months and high ESG scores to be included in the final portfolio.

The portfolio is rebalanced quarterly taking into account expected returns, as well as risk and transaction costs. The Sharia screening process is based on the AAOIFI Shari’ah Standard No. (21).

Initial investment starts from US$500 and investors can access tools and charts to track the portfolio’s performance, while eToro’s social feed will keep them up-to-date on developments in the sector.