Here is how Wahed Invest compares to other ‘automated’ platforms. This is not 100% comparable as different platforms have different strategies, but where a choice is presented I have gone for ‘aggressive’ or equivalent.
|Platform||Link||Target Rate (%)||My XIRR (%)||Status||Live Rating|
What is Wahed Invest?
Set up in 2015, Wahed Invest claims to be the first automated Islamic finance-based investment platform in the world. The rules are pretty complex, but Sharia law provides many restrictions on what exactly qualifies. There are many upsides of Islamic finance for those not initiated. The most famous restriction is of the payment of interest – so a different type of system needs to accommodate risk and return. In general many investments are more ethical, as investments into certain industries are not permitted. Further, a greater degree of stability can be gained. Risky investments and excessive leverage do not qualify for investment. During the last financial crisis, funds such as Wahed would not have shown the sharp decreases evidenced by many other assets.
One of the troubles with this is that it may be very difficult for an investor to create a list of qualifying investments. This task has been made much easier with the creation of Sharia-compliant funds which spread risk over a number of companies. Even so, with transaction costs and fees it may be not efficient for smaller investors to access these markets.
Wahed offer a range of different funds which can be selected upon the users attitude to risk. This takes away much of the uncertainty involved when selecting a fund, and for smaller investors is also saves many costs as fees are a percentage of the assets under management.
Despite being still relatively unknown, Wahed have gone from strength to strength. Arguably, the Islamic finance industry has been one of the last to have been disrupted by technology. They are now available in 130 countries, have developed their own mobile app and also have their own index-tracking funds.
Here is a table showing their features:
|Investment Type||Islamic Finance|
|Available in ISA?||Yes|
There are currently no sign-up bonuses available. There are also few comparative companies in the market. Simply Ethical appear to offer a similar service on a much smaller scale. Abundance Investment also offer ethical-based investments but is not hands-off.
Is Wahed Invest profitable?
Wahed Invest are domiciled in the USA. I have not had sight of their financial statements. The company appear to be well-backed. They have had a latest funding round in June 2020, which takes their total to $40m.
Wahed Invest Review: Operating Model
Despite offering a different type of investment to other platforms, using Wahed Invest is pretty much the same as many others. Once you have signed up, you can add money to your bank account via bank transfer. Then it is simply a matter of setting your preferences to get your funds allocated to a portfolio. Importantly, you can hold Wahed investments inside a standard investment account, or a tax-free ISA or SIPP.
There are six different types of portfolio at Wahed. These range from very conservative to very aggressive. The conservative portfolios tend to have a higher concentration of gold, cash and sukuk (bond-type) holdings. The aggressive ones features almost all equities. Your portfolio will not invest into any one company directly, but via an ETF fund which has many other holdings.
There are no regular payments of interest under this structure, although the ETF funds and sukuk investments may pay dividends. This, together with any increase of the price of the underlying funds produces a return overall. Like other robo platforms, the process is entirely hands-off. The system will re-balance your portfolio for you automatically, allocating money across the different products. This will remain the same until you change your investment preferences.
All this comes at a cost. However, Wahed are pretty upfront about the fees. The annual platform fee is 0.99% of monies invested, plus another 0.74% for the fund transaction costs and spreads. This compares a little unfavourably to other platforms. Moneyfarm for instance have a 0.20% fund transaction cost fee plus their platform fees starts at 0.75%. The lowest cost is Vanguard which starts at 0.20%, but obviously you would have to manage the investment.
How are funds protected?
Wahed Invest are members of the Financial Services Compensation Scheme. This covers users for up to £85,000 if Wahed were to cease trading. This does not cover losses incurred due to investment performance, but represents an important last line of defence that other platforms may lack.
Wahed Invest Review: Pros
There are a few things to like about Wahed Invest:
Low Minimum Investment: The low £100 offers an easy way to get started. This amount can also be topped up by Standing Order which allows a regular amount to be saved.
Transparency: The site is well designed, and it is easy to see actions taken on the portfolio. The fee structure is clearly displayed and a projected cost is shown.
Islamic Finance Specialist: For those who are required to invest by Sharia law, the site offers a great way to access eligible funds. The mobile application also displays a database of compliant businesses.
FSCS Protected: Backstopped ultimately by the UK government, this provides a good insurance against platform failure.
Low Maintenance: The platform is genuinely hands-off and requires no further input after setting up.
Wahed Invest Review: Cons
There are also a few things to be wary of:
Higher Fees: The effective fee is 1.73% – this is slightly higher than other platforms. If you have sufficient cash, buying the underlying ETF may be better value.
Reduced Volatility: The nature of investments means that many speculative investments are avoided. This may cause funds to underperform the broader market if there are large-scale increases.
Lack of flexibility: The hands-off approach also limits the amount of investment decisions possible. It is not possible to have different portfolios running simultaneously (although it is possible to open more than one account).
Wahed Invest are fulfilling a quite under-served niche in the market. Offering users the option to invest in a range of Sharia-compliant businesses will be of interest to many, even those looking for a more ethical approach to lending. However, this may turn out to be worthless if returns are eaten up by fees, which are slightly higher than those seen on other platforms. So far performance has been good, and it’ll be interesting to see if this can continue into the future.
Disclaimer: This Wahed Invest review represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).