The Investment Performance of U.S. Islamic Mutual Funds

Francisco Climent,Paula Mollá,Pilar Soriano

doi:10.3390/su12093530

Abstract

Islamic investment funds have become increasingly important because of high demand from many investors, including those outside the Muslim investment community. This article compares the performance and risk sensitivity of Islamic mutual funds in the United States with that of their conventional peers. This article also analyzes the performance of Islamic funds, and compares this performance with that of socially responsible investment (SRI) mutual funds. Capital Asset Pricing Model (CAPM)-based methodology was used for the analysis. The results suggest that over the entire study period (1987–2018), Islamic funds outperformed conventional funds with comparable characteristics. However, over the most recent period (2000–2018), there were no significant differences in performance. Moreover, Islamic funds achieved levels of adjusted performance that did not significantly differ from those of SRI funds. Conversely, for the earlier period (1987–2000), Islamic funds performed worse than SRI and conventional funds with similar characteristics.

Highlights

In 2016, almost one in every four people on the planet (23%) was a Muslim
The results shown are from the Capital Asset Pricing Model (CAPM)-based regressions
To construct the “difference” portfolios, the socially responsible investment (SRI) fund returns and the conventional mutual fund returns were subtracted from the Islamic mutual fund portfolio returns

Summary

Introduction

After Christianity, the biggest religion in the world is Islam (see [1]). The basis of Islamic finance and banking is provided by Sharia principles. Under these principles, riba, which is often confused with interest, may be neither paid nor received (see [4]). Riba, which is often confused with interest, may be neither paid nor received (see [4]) These principles have their origin in Islamic law (Sharia), which is derived from the Quran and Sunnah (see [5]). Islamic investment guidelines are well documented in the academic literature on finance (e.g., [3,6,7,8])

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Conclusion