Cerulli International released a report this month in which its international head provides his opinion on the industry sentiment and outlook for the remainder of 2012. Stating, obviously for the record, that the conventional asset management industry in the US has suffered major setbacks since the global financial crisis.
However, he notes that with positive economic data in the US over the last six months, such positive trends will be felt globally. He also cites that aside from the popular markets of Asia and Latin America, many of these conventional fund managers who had already seen the performance of their products ‘hammered’ were still looking towards the battered European markets. While the conventional space particularly in the US reels from the losses over the last few years, Islamic asset management continues to show promise.
Currently at US$60 billion, the total assets of global Islamic funds have slowly but surely climbed by US$2 billion from 2010, according to KFH Research. KFH Research attributes the lower than expected growth to the turmoil in equity markets amid the economic crisis experienced globally. This has been particularly so in the US and Europe.
The rather strong performance from the Islamic asset management industry has unfortunately not translated into investor attraction. Outside of Malaysia and Saudi Arabia, the two biggest markets for Islamic mutual funds, funds have hardly moved in terms of assets under management. With only a handful of funds reaching the US$100 million threshold, funds become expensive to manage and this trickles down to the investor, who eventually bears the costs. This factor has actually led some asset management companies, despite having a good track record and numerous accolades, to close some funds.
Emirates NBD’s Emirates Islamic Money Market Fund, which is our fund focus this week, is testament to the positive performance of money market funds. Domiciled in Jersey, the fund has a gross yield of 1.8% as at January 2012 while the returns since inception stand at 3.67% against its benchmark – the three month Libor +50 basis points – 1.59% as at the 31st January 2012.
Investor education and proper marketing play a key role in ensuring Islamic funds obtain due credit. And, credit must be given to US-based Saturna Capital’s fund managers, who despite having only three Islamic funds have amassed total assets under management (AUM) of over US$3.5 billion, placing Saturna fourth after leader Saudi Arabia’s National Commercial Bank (26 funds — AUM US$6.79 billion), Malaysia’s Public Mutual (35 funds — AUM US$6.11 billion) and Saudi Arabia’s Samba Capital (nine funds– AUM US$3.81 billion).
Saturna’s Amana funds are domiciled in the US where Muslims only constitute 0.6% of the total population. However, the funds have been taken up by Muslims and non-Muslims alike including institutional investors.
The industry cannot merely rely on good returns as a means to lure investors towards Islamic funds. This is the perfect opportunity to educate investors of the advantages and comparable returns when measured up against conventional funds. As the saying goes: “time and tide wait for no man.” — RW