Effective July 27, 2009, the selection universe of the Dow Jones Islamic Market World Index includes the components of more than 65 country-level benchmark indexes. These securities are screened to determine whether the company is acceptable as an Islamic investment.
This process excludes any company whose core business involves alcohol, pork-related products, conventional financial services, or entertainment since these are not acceptable investments. In addition, defense and weapons companies and those that produce tobacco or tobacco products are excluded, although they are not strictly forbidden under Shari'ah law. You can view a complete list of forbidden industries in the DJIM Rulebook
After eliminating companies that profit from unacceptable business activities, Dow Jones Indexes evaluates those that remain using several financial screens, or ratios. These ratios are established by the Shari'ah Board to exclude companies that have unacceptable levels of debt or earn impure interest income.
According to the financial ratios, each of the following amounts must be less than 33%:
Liquidity is an addition criterion for inclusion in the DJIM Indexes. The indexes include only actively traded stocks that are easily accessible to investors. The selection universe expressly excludes the very smallest and most thinly traded stocks.
The DJIM Indexes are reviewed on an ongoing basis and adjusted as necessary to confirm that the underlying components continue to accurately track the Shari'ah compliant investment universe. The indexes are also monitored to ensure the companies whose issues constitute the underlying securities continue to be compliant with Shari'ah principles. Securities that no longer meet Islamic investment standards are removed from the index.
The composition of the DJIM Indexes is reviewed quarterly, replicating the universe creation and component selection process, and employing both core business and financial screens. Changes are implemented on the third Friday in March, June, September and December.
Any component removed from the index universe is subsequently removed from the DJIM Indexes. In addition, when a new issue qualifies for and is added to the index universe, it is evaluated according to the criteria of the Shari'ah Board to determine whether it will be included in the DJIM Indexes.
For a detailed description of the DJIM methodology, download the DJIM Rulebook
Note: The methodologies of certain indexes in the DJIM family, such as the DJIM Titans indexes and the DJIM Sustainability Indexes, are tailored based on the index objective. To download the methodologies of individual DJIM indexes, please visit our literature center.