Singapore is a thriving economy, with real GDP growth averaging 7.1% between 2004 and 2007.
The global financial crisis had caused a contraction of 0.8% in 2009 although it rebounded to 14.5% in 2010. However, the weak global economy and Eurozone debt crisis last year is clearly taking a toll on the island republic’s economic growth, which grew an estimated 5.3% in 2011.
Singapore’s ministry of trade and industry in November last year projected protracted growth of between 1-3% in 2012, citing a cloudy economic outlook for the heavily dependent export nation.
In the Islamic finance arena, news of Singapore Unit Trusts (SUT) withdrawing two of its Shariah compliant funds in the second quarter this year has left a bitter aftertaste for many in the industry, particularly when most Islamic funds in the Southeast Asian region are outperforming their conventional peers.
SUT posted on its website that its Ethical Growth Fund and Ethical Value Fund will be terminated with effect from the 9th May 2012, with subscriptions into the fund no longer accepted with effect from the 17th January 2012.
SUT attributed the closure of the two funds, launched in September 2001, to their small respective fund size as well as the increased management costs.
Since inception the funds have underperformed their respective benchmark, the Dow Jones Islamic Market Index, contracting 32% since inception, according to SUT’s factsheets as at the 30th January.
The factsheet of the respective funds go on to state that both funds have investments not only in the Asia Pacific region but also in Europe and the US – continents that have been plagued with monetary and economic crises.
SUT’s funds are not the only ones underperforming in Singapore. HSBC Insurance has three Shariah compliant investment linked policy funds that have also been registering negative performance.
HSBC-Link Ethical Global Equity Fund, which feeds into the HSBC Amanah Global Equity Index Fund, which in turn invests heavily in the US markets, posted a negative cumulative performance of 18.72% but still outperformed its customized benchmark index by 5.69%.
The fund size stood at SGD61.45 million (US$49.36 million) as at the 30th November 2011. The other two funds are also miniscule with assets under management (AUM) of below SGD20 million (US16.06 million) respectively.
Another fund with a low AUM is the Afdaal Asia Pacific Equity Fund, managed by UOB Asset Management. As at the 30th December 2011, the fund’s AUM stood at SGD5.51 million (US$4.42 million). In terms of returns, the fund also registered in the negative region of 13.94%, but it did outperform the benchmark by 1.03%.
Having a ‘first of firsts’ in terms of Islamic investments has also not been an alluring factor. Case in point is Daiwa Asset Management, which launched the company’s and the country’s first Shariah compliant exchange traded fund in 2008. The Daiwa FTSE Shariah Japan 100 has since accumulated assets of US$2.95million as at the 8th February and despite outperforming its benchmark by 1.16%, its total returns were still -12.14% as at the 30th December 2011.
Muslims make up 14.7% of the total estimated 5.18 million population in Singapore. Relying merely on compliance to Shariah has so far proven unsuccessful for the majority of Singapore-domiciled funds in attracting Muslim investors — retail and institution alike — in this small nation.
At the end of the day, fund managers of these funds should always remember the cardinal rule that performance in terms of returns is still paramount to an investor, Muslim or otherwise. — RW