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haven’t seen them) who has actu- ally taken the inventory of accept- able sharia-compliant products and actually created model port- folios in Income, Balanced and Growth strategies. My work con- centrated on the three calendar years from 2006 through 2008, and was benchmarked to some conventional asset allocation in- dexes that we created.
Our model portfolios were op- timized and back tested. We sometimes had to reconfigure a bit here and there, like having 3% in cash instead of the origi- nal target of 5%. But overall our Islamic model portfolios would have looked nearly identical to any model portfolio you would find at a big bank in Switzerland or England. The only real differ- ence was that the securities in our model allocations all had fat- wa from respected scholars.
How did our Islamic portfolios work? We were stunned with the results. On a 3-year basis the Is- lamic Balanced portfolio returned a nominal total 16%. The com- parative conventional Balanced portfolio has a minus 9% return. That means for this 3-year period the Muslim investor would have made 25 percentage points more than a conventional investor!
It’s pretty clear Muslims can make as much or even more money than anyone else if they follow Is- lamic wealth management.
The hardest thing in Islamic wealth management is finding someone who is competent and knowledgeable to do the job.
What can be done to increase the number of wealth managers who
understand sharia?
Understanding the basic concepts of sharia doesn’t require a life’s effort. There really isn’t a great need to train or equip armies of wealth managers on the principles of sharia. They of course need to know the basics, but not much more. What is much more critically needed is products, prod- ucts and products, all with good fatwa.
What are the advantages of Islamic
mutual funds?
There really should not be any advantage to any fund just because it’s Islamic. Why should there be? A mutual fund that also
38 GlobalIslamic Finance June 2010
has a fatwa needs to stand shoulder-to- shoulder with the same funds without fat- wa. Muslims will not and should not buy any fund simply because it has a fatwa. It has to be a good fund, a peer leader, and appropriately priced.
One could say there are times when an individual fund with fatwa will outperform non-Islamic funds. We saw that in 2008, with stock prices crashing globally. The sharia-compliant funds outperformed con- ventional funds simply because of the lack of highly leveraged companies, and the lack of banks and other financial institutions.
However, this was short lived. During 2009 the sharia-compliant funds lost their edge as heavily indebted companies and finan- cial institutions came back from the brink and strongly outperformed the Islamic in- dexes.
God shows us all that it is impossi- ble to see the future and since we can’t see it, we really shouldn’t be trying to guess which time periods will be best or worse for sharia- compliant funds versus conven- tional funds.
What we can say, however, is that a professionally assembled portfo- lio of Islamic funds should perform equal or better to the same type of conventional portfolio.
What can be done to im- prove both the quality and
John A. Sandwick has been a private banker in Geneva, Switzerland, since 1993, and an independent investment and banking professional since 1989. A pioneer in Islamic wealth manage- ment, John’s other areas of expertise are Islamic asset management, Islamic asset securitisation and Islamic real es- tate financing.
quantity of these funds?
Our survey of over 800 investment products showed the vast major- ity are completely unacceptable to professional investors. So why should anyone else buy them? They are either too small, too il- liquid, too strange, too opaque, or too new to be of any use to anyone who wants to seriously invest their money.
The main reason for this sorry state of affairs is that the Islam- ic asset management industry (which in part provides the prod- ucts we need in the Islamic wealth management business), is in the hands of banks and investment companies that produce and dis- tribute funds.
Until now they have found a thou- sand reasons not to “go Islamic.” The very few that have actually de- veloped a somewhat impressive family of funds, just haven’t had the will to “go international.”
Most the large mutual fund companies and big banks with mutual funds have perfect- ed the agonizingly difficult and tedious task of cross-border distribution. A customer in Brazil and a customer in Saudi Arabia can invest in the same mutual fund.
These same mutual fund producers, how- ever, have never found a compelling rea- son to enter the sharia-compliant space. Perhaps they’re confused, but I doubt it. I think they haven’t made any progress with Islamic mutual funds simply because no one else has. When one is bold enough to apply the same resources to Islamic funds as is given conventional funds, there will very likely be an explosion of sharia-com- pliant products.
The other side of the coin are large regional banks in Arabia who have families of funds,
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