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Islamic Mutual Funds' Financial Performance and Investment Style

This particular study scrutinizes the performance of Islamic funds with much more comprehensive data of the existing universe of investment products and at the same time delving deeper into the implications of the data. While some of the conclusions would have been voiced within the industry, this study provides much more solid evidence to support/substantiate them.

Islamic Mutual Funds' Financial Performance and Investment Style: Evidence from 20 Countries
Andreas G. F. Hoepner (1), Hussain G. Rammal (2) & Michael Rezec (1)
(1) School of Management, University of St. Andrews, UK
(2) International Graduate School of Business, University of South Australia, Australia
September 2009

Abstract: "We contribute to the investment literature by pursuing the first sophisticated, large scale analysis of a strongly growing mutual fund type: Islamic funds. Despite hundreds of Islamic funds exist the few previous studies investigate the financial performance of less than 60 and the investment style of 6 funds. Based on unique data access, we analyse the financial performance and investment style of 262 Islamic equity funds from twenty countries. We develop a (conditional) three level Carhart model to simultaneously control for their exposure to different national, regional and global equity markets and investment styles. Our findings are fourfold. First, Islamic funds from eight (mainly western) nations significantly underperform their international equity market benchmarks, while funds from only three nations do the opposite. Second, Islamic funds generally prefer small stocks but have no preference for other investment styles. Third, Islamic funds from the Gulf Cooperation Council (GCC) or Malaysia neither significantly underperform nor clearly prefer small stocks. These three findings have some theoretical appeal, as Islamic funds’ investment universe is limited to Shari’ah law compliant companies, which are more likely small and present in economies with a higher density of Muslims. Fourth, we find some evidence that Islamic equity funds exhibit a hedging function, as their investment universe is limited to low debt/equity ratio stocks."

With thanks to Andreas Hoepner for providing the paper.



  1. By the way, the authors have recently updated the paper - same link as before.

  2. Thanks for sharing these information's on mutual funds, Financial Performance and Investment Style.