Sharia Stock Screening: A Fund Manager's Conundrum

A fund manager has to abide by a set of business and financial parameters before selecting and including a particular stock in an Islamic fund portfolio. There are various Islamic screening methods followed by stock indices and banks, namely Dow Jones Islamic Market Index (DJIMI), FTSE Global Islamic Index Series, S&P 500, MSCI (Morgan Stanley Capital International) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Sharia stock screening is based on the business activity performed by the companies; their financial ratios are generally perceived as an easy and direct function because they rely on data feeds from the various data providers (e.g., Bloomberg). But in real life, it is far from simple; there are various issues that plague the Sharia screening of a stock and its subsequent selection/omission from a fund portfolio.