eToro and Arabesque AI launch Sharia-compliant AI-based portfolio

Named ShariaAI-Growth, eToro’s new 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.

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.

Officials from eToro said that since their launch in the UAE, their goal has been to tailor their services to meet the evolving needs of their users in the region. Their 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.

How the portfolio is created

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 USD 1 billion and an average daily trading volume of over USD 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 USD 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.