Update on the BlackRock ACWI Islamic Equity Index Segregated Fund (Shariah Fund)

September 11, 2025

Plan sponsors may wish to consider whether this investment news has any implications for the investment options available within their plans. Sun Life Assurance Company of Canada purchases units of the funds listed below, which are established as segregated funds in accordance with the Insurance Companies Act (Canada).

This is an update only and you don’t need to take any action as a result of this news.

If you offer the Shariah Fund in your Registered plans, Sun Life will automatically add the fund to any Non-Registered plan(s) and TFSAs you may offer to your plan members on December 4, 20251.

We are providing an update on the BlackRock ACWI Islamic Equity Index Segregated Fund (“Shariah Fund”).

The key updates in this communication are:

  • Structure of the fund – to remain invested in 2 ETFs (will not transition to holding individual equity securities);
  • Fund now available to Non-Registered (taxable plans) and TFSAs;
  • Update on declining operating expenses with fund growth;
  • Shariah board certification

Background

BlackRock and Sun Life jointly created the Shariah Fund in April 2022 to provide plan members with a global equity fund option which is compliant with Islamic investment principles. Since launch, the Shariah Fund has grown to $38.2 million in assets.  Over 250 Sun Life plan sponsors now offer the Shariah Fund to their members. The fund is also available on other recordkeeper platforms and other wealth channels. The underlying BlackRock MSCI ACWI Islamic Equity Index Fund has total assets of $47.6 million, as of June 30, 2025.

Structure of the Shariah Fund

The Shariah Fund aims to closely track the MSCI ACWI Islamic Index. It invests in a pooled fund managed by BlackRock, which in turn invests in two underlying exchange traded funds (ETFs) also managed by BlackRock - the iShares MSCI World Islamic ETF (developed markets) and the iShares MSCI EM Islamic ETF (for emerging markets).

At launch, we communicated the expectation that the Shariah Fund would eventually move from the current ETF structure to a structure that holds individual equity securities directly. We expected this to occur when the Shariah Fund reached a sufficient size that it could invest in direct securities, while still closely tracking the returns of the MSCI ACWI Islamic Index. The benefit of moving to directly held securities would be a reduction in fees, since the investment management fee and expenses of the direct approach were expected to be lower than under the ETF structure. Given this expected structural change to occur in the future, Sun Life opted to only offer the Shariah Fund to Registered (non-taxable) money. This avoided the potential realization of taxable capital gains for taxable accounts at the time of the expected structural change.

BlackRock recently informed us that they are no longer planning to change from the current ETF structure. BlackRock has indicated that the primary reason for this change of approach is the loss of Registered Investment (RI) status for the underlying BlackRock fund that would result from moving to directly held securities, as well as transaction costs.

The Sun Life Shariah Fund holds the BlackRock pooled fund within a segregated fund and has thus far limited investment to registered plans only. As a result, most of the negative impacts from a transition to directly held securities would not have been applicable to plan members invested in the fund through Sun Life. However, the BlackRock pooled fund is also open to investors outside of Sun Life who would be negatively affected by the change. If the BlackRock pooled fund lost its Registered Investment status, some investors would no longer be eligible to invest in the fund.

Sun Life GRS relied on BlackRock’s guidance in the initial set-up of the Shariah Fund to first invest in ETFs, then change structure to directly held securities as the fund grew. BlackRock had not considered the implications of switching from an ETF structure to directly held securities for different types of investors in their pooled fund. With the information available, Sun Life communicated BlackRock’s intention to change the structure of the Fund on a few occasions.

Going forward, the expectation of the long-term structure of the fund is to continue to invest in the two ETFs mentioned above.

Shariah Fund now available to Non-Registered (Taxable) plans

Until now, Sun Life has only made the Shariah Fund available to registered plans. The expected transition from ETFs to directly-held securities would have resulted in significant tax consequences to plan members in non-registered plans. We are now opening the Shariah Fund to Non-Registered and TFSA plans. Sun Life will automatically add the fund to any Non-Registered plan(s) and TFSAs you may offer to your plan members on December 4, 2025. If you wish to opt out of this fund addition, please contact your Sun Life representative by October 20, 2025.

Shariah Fund fees and expenses

There are three components to the total Fund Management Fee (FMF) of the Shariah Fund:

  1. The Asset Based Fee (ABF) or Investment Manager Fee, includes the investment manager’s fees, as well as Sun Life’s record-keeping fees. The ABF is a fixed percentage and will not decline as assets under management in the fund increase.
  2. The Investment Manager Operating Expense includes the operating expenses for the underlying BlackRock Shariah pooled fund (custody, accounting, audit costs etc.), as well as the costs to manage the two ETFs held within the pooled fund. The current costs for are currently estimated as follows (based upon 2024 actual expenses).
    • BlackRock Shariah Pooled Fund – 0.17%
    • The two ETFs – 0.31% based upon Total Expense Ratios (TERs) of 0.30% for the iShares MSCI World Islamic ETF and 0.35% for the iShares MSCI EM Islamic ETF.
  3. The Sun Life GRS operating expense is the cost to operate the Sun Life segregated fund. These expenses are currently estimated at .05%.

    The Investment Management Operating Expense has decreased as the fund assets have increased substantially since fund inception. We expect operating expenses to continue to decline as the fund grows over time. 

Shariah board certification

The MSCI ACWI Islamic Index excludes non-Shariah-compliant securities through business activity screening and total asset and market cap financial ratio screens. MSCI adheres to Shariah investment principles, including incorporating dividend purification — donating a portion of income from non-compliant activities — into the total return calculation of its Islamic indexes.

The Shariah Fund invests in two ETFs in order to replicate the returns of the MSCI ACWI Islamic Index.  Both of these ETFs are certified as Shariah compliant on an annual basis by a panel of Shariah scholars.  If the fund had transitioned to direct securities, BlackRock would have needed to obtain Shariah board certification of these securities for the pooled fund.   Since this transition will no longer occur, Sun Life and BlackRock do not believe it is in the best interest of investors to obtain Shariah board certification at the pooled fund level at this time. Shariah certification of the pooled fund would add approximately $70,000 in costs. At current asset levels, this would result in 18 basis points (bps) in additional expenses. Sun Life and BlackRock may revisit pooled fund full Shariah board certification in the future, as fund assets increase and the impact of the additional certification expense decreases. 

How are we notifying members?

We will communicate these updates to impacted plan members in the week of November 3, 2025. You can view a copy of the plan member communication. We will deliver the communication via email and a notice on mysunlife.ca. We’ll provide a contact number for questions. 

Questions?

Please contact your Sun Life Group Retirement Services representative.

1If you wish to opt out of this fund addition, please contact your Sun Life representative by October 20, 2025.