Exchange-traded funds have long been associated with efficiency, scalability and transparent exposure to defined investment strategies. Malaysia took it to a new level 14 months ago with the introduction of an ETF that integrates portfolio management with Islamic social finance.
The Eq8 FTSE Malaysia Enhanced Dividend Waqf ETF is the world’s first publicly listed waqf-featured ETF. Launched by Eq8 Capital, the ETF arm of Malaysian asset manager Kenanga Investors Bhd, it’s notable not only for the novelty, but for what it signals about the evolving role of asset managers in a market increasingly shaped by sustainability, value-based investing, and outcome-driven capital allocation.
Embedding waqf, a centuries-old Islamic concept into a modern, listed investment vehicle challenges conventional assumptions about the separation between philanthropy and portfolio returns.
For the asset management industry, the ETF is a case study of how traditional ethical frameworks can be operationalised through scalable market instruments, potentially expanding the toolkit available to fund managers seeking to deliver both financial performance and measurable social impact.
Beyond charity
Waqf is often described as charitable endowment, but this understates its economic significance. At its core, the concept involves permanent dedication of assets for the benefit of society, with capital preservation as the defining feature.
Once endowed, the asset cannot be sold or consumed; only the income or utility it generates may be deployed for approved purposes. The structure closely resembles an evergreen endowment fund, prioritising sustainability over capital drawdown.
Historically, waqf served as a decentralised mechanism for financing public goods across the Muslim world. Educational institutions, hospitals, public infrastructure and welfare services were frequently funded by income derived from waqf assets, often with minimal reliance on state financing.
Waqf has re-emerged in modern finance discourse as a potential anchor for long-term, impact-oriented capital. Its emphasis on perpetuity, income generation and social utility aligns naturally with contemporary themes such as sustainable investing, intergenerational equity and responsible asset stewardship.
The challenge has been translating these principles into instruments compatible with modern capital markets. This is the gap that the Eq8 FTSE Malaysia Enhanced Dividend ETF seeks to address.
Scale without liquidity
Malaysia occupies a unique position in the global Islamic finance ecosystem, combining regulatory sophistication with a deep domestic investor base. Waqf assets form a substantial part of this ecosystem. Official estimates indicate that waqf assets in Malaysia are valued at more than 1.3 trillion ringgit (US$334.12 billion), comprising primarily of land.
But the economic productivity of these assets remains limited. Most of the waqf land is reserved for traditional religious use, with only a relatively small share developed for income-generating purposes. This does not fully harness the economic potential of waqf assets as sources of recurring funding for broader social development.
Governance plays a role in this dynamic. Waqf administration in Malaysia is decentralised, with state Islamic religious councils acting as trustees for assets within their jurisdictions.
At the federal level, Yayasan Waqaf Malaysia provides coordination, while the Department of Waqf, Zakat and Hajj supports policy development and institutional capacity-building.
Although this structure preserves religious oversight, it may have limited the ability to aggregate assets and deploy them at scale through investment markets.
Regulators have gradually introduced frameworks to integrate waqf with managed investment products. Securities Commission Malaysia’s waqf-featured fund framework was a key step in this direction, allowing fund managers to incorporate structured waqf allocations into professionally managed portfolios.
New model
The Eq8 FTSE Malaysia Enhanced Dividend Waqf ETF which made its debut on Bursa Malaysia in December 2024 represents a significant evolution of the framework. It’s constructed as a shariah-compliant equity fund tracking a custom index focused on dividend-paying Malaysian stocks.
From a portfolio design perspective, it resembles more common income-oriented equity strategies. The distinguishing feature lies in how income is treated. Instead of distributing all investment income to unitholders, the ETF applies a fixed allocation mechanism. Half the income generated is distributed to investors, and the rest is irrevocably designated as waqf, administered by Yayasan Waqaf Malaysia. This waqf is deployed toward approved social programmes, including education, healthcare, economic empowerment and community development initiatives.
Importantly, the waqf allocation applies only to income, not to capital or capital gains. This ensures that the underlying investment remains commercially viable while delivering a predictable stream of social funding.
For asset managers, this structure offers a template for integrating impact objectives directly into product architecture rather than treating them as ancillary outcomes.
The ETF remains fully tradeable, transparent and subject to market discipline, preserving the characteristics expected of listed funds.
Product positioning
As with many first-of-its-kind products, early asset accumulation has been modest. As of December 31, 2024, the ETF reported assets of approximately 2.1 million ringgit, according to disclosures in Kenanga Investors’ sustainability report.
Within Kenanga’s broader product ecosystem, the ETF sits alongside other waqf-featured funds that provide useful performance context.
In 2024, the Kenanga Waqf Al-Ihsan Fund declared income distributions amounting to 17.72% of net asset value, while the Emergency Waqf Musa’adah Fund declared income distributions totalling 24.96% of NAV. Both funds allocate a portion of income toward waqf purposes, demonstrating that charitable features need not preclude competitive returns.
As of late 2024, Eq8 Capital managed around 348 million ringgit of assets across five equity ETFs. In this context, the waqf ETF is not positioned as a flagship asset-gathering product but rather as a strategic offering aimed at expanding the boundaries of what listed funds can achieve.
Implications
For asset management professionals, the ETF illustrates how impact objectives can be embedded into mainstream investment vehicles without compromising liquidity, governance or regulatory oversight.
From an allocator’s perspective, the ETF offers exposure to dividend-paying Malaysian equities with an additional social dimension. For shariah-compliant portfolios, it provides an option that aligns with both financial and ethical mandates. For non-shariah investors, it presents a novel form of impact allocation that does not require concessionary returns or bespoke structures.
The model also raises broader questions for product development. As investor demand for sustainability and impact grows, asset managers will likely be expected to demonstrate how portfolios contribute to real-world outcomes. The waqf framework offers one pathway, particularly in markets with strong Islamic finance ecosystems.
One of the most compelling aspects of the waqf ETF is its potential for cumulative impact. Since the waqf allocation is tied to income, contributions grow in line with asset growth and portfolio performance. Over time, this can create a stable, market-linked funding stream for social initiatives, reducing reliance on periodic donations or public funding.
At scale, these approaches could get investors’ money flowing into projects that help communities grow. While the fund alone will not unlock Malaysia’s 1.3 trillion ringgit waqf asset base, it demonstrates how capital markets can be used to activate dormant value in a disciplined and transparent manner.
A blueprint
Malaysia’s experiment with waqf-linked investment products has implications beyond the domestic market.
Globally, waqf assets are estimated to run into the hundreds of billions of dollars but they remain largely outside of formal capital markets. For asset managers operating in Islamic finance jurisdictions, the integration of waqf into listed products could open new avenues for innovation.
The Eq8 FTSE Malaysia Enhanced Dividend Waqf ETF should be viewed as a blueprint rather than an endpoint. Its success will ultimately depend on investor education, distribution support and long-term performance.
But its existence alone signals a shift in how asset managers conceptualise their role from pure return generators to stewards of capital with broader societal responsibilities.
It also marks a meaningful step in the evolution of Islamic asset management, bridging the gap between traditional charitable institutions and modern investment practice.
For the asset management industry, the ETF offers valuable lessons in product innovation, impact integration and long-term value creation. As investors increasingly seek alignment between financial objectives and social outcomes, such models may become less of an exception and more of a feature in future portfolio design.
*Ahkter Abdul Manan is a former chief investment officer of MNRB Holdings, a Malaysian reinsurance and takaful firm.
