A Comparative Study between the Investment
Characteristics of Islamic and Conventional Equity
Mutual Funds in Saudi Arabia

Abstract

The study provides empirical evidence that the shari’ah screening process does not seem to have an adverse impact on the absolute or the risk-adjusted performance of Islamic equity mutual funds in Saudi Arabia, compared to their conventional counterpart equity mutual funds and compared to their market benchmarks. This is regardless of the subgroup examined and the market benchmark used whether Islamic or conventional. In addition, the systematic risk analysis shows that in most cases Islamic equity mutual funds in Saudi Arabia tend to be significantly less exposed to the market risk compared to their conventional counterpart equity mutual funds and compared to their conventional market benchmarks. Thus, the assumption that shari’ah investment constraints lead to inferior performance and riskier investment portfolios because of limited investment universe seems to be rejected. This implies that Muslim investors in Saudi Arabia can choose Islamic investments that are consistent with their beliefs without being forced to either sacrifice performance or become exposed to higher risk.

TOPICS: Mutual fund performance, ESG investing, global