One of the main challenges with the performance of Shariah compliant funds is related to the fact that historically fund managers in this sphere have charged management and performance fees in excess of their conventional counterparts for a similar type fund. With the growth of the Islamic finance industry, management and performance fees have come more in line with market practice. Although the average size of the funds measured by assets under management is still relatively low, track records are becoming available that show that the performance of Shariah compliant funds can be comparable to the performance of similar type conventional funds thus providing an attractive alternative investment opportunity.
DR NATALIE SCHOON
Head of product research, Bank of London and The Middle East
PROFESSOR RODNEY WILSON
Director of postgraduate studies, Durham University
Generally, the application of Islamic screens means that Islamic funds are defensive in their strategies and dip less than other funds. But, depending upon how Islamic fund managers chase alpha, the funds are either likely to underperform in a rapidly rising market, or face sector concentrations. Generally, most of us have been happy with the long-term performance of our Islamic funds.
ABDULKADER THOMAS
President and CEO, SHAPE™ Financial Corp
Comparing similar actively managed funds with different managers is not a fair comparison because it speaks more about the competence of the fund manager than Islamic vs conventional. A better comparison is to compare a conventional index to its Islamic counterpart. Studies have shown that in the long-term, there is no difference. As such, it is more important to hire a great fund manager.
MONEM SALAM
Director and vice president, Saturna Capital Corporation
Some Islamic funds would have unquestionably fared better over the course of the global financial crisis. There would be two reasons for this. The first: Islamic finance doesn’t allow investment into finance or banks. The second: that Islamic finance restricts equity investments in many ways, but the most relevant over the past few years would be the restriction on leverage. This undoubtedly helps in the performance of Islamic funds since the last few years have been riddled with the effects of a crisis of credit. Islamic funds and Islamic finance promise an ethical form of finance. The industry is still growing and lacks the foundation and support. There are only a handful of jurisdictions that have been able to accommodate Islamic finance to date. Issues such as investor relations, security agency, and asset custody all remain at the fore. Islamic funds, in the whole industry, have the greatest advantage because these issues are less in their segment (due to funds being straight equity investments).
USAMA DELORENZO
Associate partner, Praesidium