Shariah-compliant investments are known to be resilient and even tend to perform better than their conventional peers in troubled times. This was proven during the first half of the year, when the average returns of global and Malaysian equity shariah funds were higher than those of their conventional counterparts.

According to data by Morningstar, Malaysian equity shariah funds in the large-cap and mid- and small-cap categories provided average returns of -3.47% and -5.03% respectively from January to June 30. In comparison, Malaysian equity funds in the same categories provided average returns of -5.58% and -8.3% respectively. Shariah funds that invest in the broader Asia-Pacific ex-Japan region returned -1.38% over the same period, compared with their conventional counterparts’ -7.60%.

Year to date (as at Aug 12), shariah funds are still outperforming their conventional peers. Malaysian equity shariah funds in the large-cap and mid- and small-cap categories provided average returns of 7% and 13.11% respectively. In comparison, Malaysian equity funds in both categories provided returns of 5.87% and 6.55% respectively. Islamic funds that invest in the Asia-Pacific ex-Japan region returned 10.85%, compared with their conventional counterparts’ 1.67%

Meanwhile, global Islamic equity funds outperformed their conventional peers, ­albeit marginally, according to Lipper’s data for the six months ended Aug 7.

The performance of most asset classes took a big hit in the first quarter of the year as there was almost zero economic activity owing to the lockdowns imposed by governments around the world to stem the spread of the Covid-19 pandemic. Akmal Hassan, managing director of AIIMAN Asset Management Sdn Bhd, says against this backdrop, few asset classes were spared from the volatility.

“Similarly, the performance of shariah funds was also impacted. However, the shariah space fared relatively better due to the exclusion of the conventional banking, gaming, tobacco and alcohol sectors, which took a big hit and are likely to see a delayed recovery,” says Akmal.

Ismitz Matthew De Alwis, executive director and CEO of Kenanga Investors Bhd, notes that shariah funds in general have outperformed due to their lack of exposure to the banking sector and a higher weighting in defensive sectors such as healthcare and telecommunications. “As such, shariah funds in general have outperformed. Going into a recovery, the shariah outperformance could reverse as cyclical sectors such as banks rebound faster,” he adds..............to read the full article please click on the Source link below

Published in: The Edge Markets on Monday, 24 August 2020

Source: https://www.theedgemarkets.com/article/cover-story-sustaining-performance-shariah-funds