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Opalesque Islamic Finance Intelligence

Manager Interview: Brint Firth, Javelin Investment Management

Friday, July 03, 2009

Manager Interview:

Brint Frith Javelin Investment Management

Regarding the product range you are developing, it seems indexation products have not been widely developed in the Islamic finance space. What is your take on this?

There are actually plenty of Islamic indexes, just not a lot of index based investment products available. We were surprised to realize that, despite the success of Islamic investing within the mutual fund format, no Islamic ETF has existed in the U.S. It may be a sign of the youth of the ETF industry that such an important niche had been left underserved.

Why has the industry been slow in taking up these products? Is this a case of a business-as-usual approach that delays product development or precludes product innovation?

As ETFs have gained market share on the mutual funds, the industry has been busy covering the basics -- country funds, sector funds, leveraged funds, etc. But now the bases are covered and this catch-up phase is near its end. Asset growth will require innovation in the coming years.

Can you describe your product pipeline, how do these fit in the current universe of Islamic investment products?

Javelin intends to create and market unique ETFs that can be utilized in underserved markets. Javelin will continue to listen to the Islamic community in order to create new products that are most needed.

What is the investor appetite for actively managed solutions, and how would you incorporate these under your umbrella?

While there may be opportunities in the actively managed space, Javelin believes that indexed products, by nature, provide a disciplined approach that can most benefit long term investors.

You have undertaken extensive market research on this area, in your view what are the key drivers of growth for ETFs and specifically for Shariah compliant ETFs?

In general terms, ETFs have and will continue to evolve as the low cost alternative for individuals and institutions to achieve a measure of diversification in a single transaction. This can be particularly useful for Islamic Investors who wish to achieve competitive returns within a compliant investment strategy.

Considering the competitive landscape, and increasing interest of ETF investments, how do you plan to position yourselves in the market and what are your differentiating factors?

Javelin is not seeking to avoid competition. Rather, we think that Javelin will lead the way into new markets with cutting edge products and the competition will follow.

What regions and investor segments do you intend to target first? What particular challenges do you see in efficiently accessing these?

Javelin is based in the U.S. and will try to grow in our home market before branching out. While there are institutional and cultural challenges in most global markets, Javelin will establish relationships with other individuals and other firms that are familiar with their respective local customs .

Marketing and distribution are often underestimated by fund managers, what strategies would you consider for distributing ETFs?

We are aware of the difficulties that all fund managers face when trying to increase Assets Under Management. Because ETFs are investment products that trade like stocks, they are distributed differently. Javelin has thoroughly considered a number of third party options to enhance distribution. We found very few professionals that properly recognized that difference and have decided that we should control the process internally.

Innovation has become a bad word lately, does this present a challenge when the industry is trying to develop fresh new solutions for investors?

In the financial world, innovation is often just another word for leverage. Innovation that creates real solutions for the benefit investors, without increasing or concealing risk, will always be a good thing.

Competitor Snapshot:

Provider Launch Date Mandates
iShares MSCI Dec 2007 Emerging Markets, USA, World
EasyETF DowJones Jan 2007 Global
db x-trackers March 2008 Japan, USA, Europe
Daiwa FTSE May 2008 Japan
SGAM FTSE April 2008 USA, Europe, Japan

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