Islamic funds have come a long way from the first pilgrimage fund launched in 1969 in Malaysia. According to a recent report by KFH Research, Islamic funds totalled US$60 billion at the end of 2011, up US$2 billion from the previous year.
The global financial industry is still reeling from the aftermath of last year’s disasters — both physical and financial — that began with the earthquake and tsunami in Japan followed by the Arab Spring and then the heightened troubles in the Eurozone. Despite this, the number of Islamic funds increased by 7.88% to 876 funds. However, KFH Research states that this still fell below the industry’s expectations, citing the turmoil in the global equity markets last year.
For Shariah compliant funds globally, equity remained the asset class of choice for investors, making up 49.7% of the total Islamic assets. Interestingly, the other mover in asset classes was money market funds, which comprised 23.3% of the market. KFH Research attributed this to investors regarding this asset class as a safe haven.
Not much is mentioned in the report about fixed income or Sukuk funds, which accounted for 6.7%. This is notwithstanding the surge of Sukuk issuances globally last year setting a new record with a total of US$36.3 billion. This year is expected to be another record with numerous issuances in the coming months, suggesting Sukuk funds could perhaps be another alternative safe haven for investors in 2012.
It was no surprise that Malaysia and Saudi Arabia continued to dominate the Islamic funds space, accounting for more than half of the market’s assets under management (AUM).
Saudi Arabia-domiciled funds edged in front of Malaysia by a margin of 16.5% to take the lead with a 42.4% share. Interestingly, KFH Research noted that in terms of average assets per fund, the US was in pole position with US$516.9 million per fund.
Data provider Eurekahedge lists seven Islamic funds in the US — three of which are the Amana funds managed by Saturna Capital. Saturna’s Malaysia-based subsidiary recently entered into an agreement with Australia’s Crescent Wealth to act as the latter’s portfolio manager to the Crescent International Equity Fund.
Saturna’s Amana Growth Fund is also the third largest Islamic fund globally with an AUM of US$2.17 billion as of last year while its Amana Income Fund took the sixth spot with an AUM of US$1.35 billion.
The largest Islamic fund globally according to KFH Research is managed by NCB Capital’s AlAhli SAR Trade Fund with an AUM of US$3.38 billion. In fact, six of the top ten funds in terms of AUM are domiciled in Saudi Arabia, along with two from Malaysia and two from the US. NCB Capital was also the top Islamic fund manager in terms of asset size, managing a total of US$6.79 billion, followed closely by Malaysia’s Public Mutual with US$6.12 billion.
As mentioned earlier, equity funds took a beating last year with nearly all Islamic equity funds in the major Islamic markets underperforming except South Africa and Pakistan, which managed to provide positive returns in this asset class with the latter recording healthy total returns of 14.4%.
KFH Research believes that the prospects of Islamic funds are much brighter this year based on the increased wealth in Muslim countries backed by what it terms as ‘decent economic growth’ and higher oil prices.
While the prediction is not set in stone, there are continued signs that investors are cautiously moving back into the recovering markets. — RW