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Turns out, the Canadian stock market is a good place for Islamic investors.

On Wednesday, Standard & Poor's launched the S&P/TSX 60 Shariah Index, which is essentially the S&P/TSX 60 index stripped of companies that do not meet Shariah principles that keep investors away from interest-charging companies (banks), pork producers, alcohol producers, casinos and tobacco companies.

The good thing about the Canadian blue chip index is that, apart from banks, there isn't a whole lot of these no-no companies around. No tobacco. No casinos. No alcohol. No pork.

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Ah, one of the upsides to having a narrow index. Indeed, S&P noted the Shariah index represents about 73 per cent of the Canadian equity market capitalization, meaning that there is a lot of overlapping stocks.

In other words, there are a lot of resource stocks here, plus Research In Motion Ltd. According to S&P, energy stocks in the Shariah index have a 45.7 per cent weighting, versus 28.7 per cent in the broader index. For materials, the Shariah weighting in 33.6 per cent versus 16.4 per cent in the broader index. Add them together and resources represent 79.3 per cent of the Shariah index.

The top 10 stocks in the index, based on their weighting: EnCana Corp., RIM, Potash Corp. of Saskatchewan Inc., Barrick Gold Corp., Suncor Energy Inc., Goldcorp Inc., Petro-Canada, Talisman Energy Inc., Canadian Oil Sands Trust and Cameco Corp.

Shariah-compliant indexes have sprung up all over the world, including the United States where S&P has launched the S&P 500 Shariah index. These indexes have attracted a considerable amount of attention recently, because avoiding financials - at least during the downward swing in the stock market - has been a prudent move.

But will a huge bet on resources prove similarly rewarding?

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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