gif Ethical Investment
to optimize market opportunities created by the financial crisis, such as QInvest’s joint fund with Fortis Bank Nederland. The USD 200 million five-year mezzanine fund buys shipping assets in order to take advantage of failing prices in the maritime sector. The importance of the Islamic fund in an inves- tor’s portfolio is set to expand in line with the industry.
The Ernst & Young Islamic Funds and Invest- ment Report for 2009 states, “The funda- mentals of the Islamic fund industry remain strong. With almost USD 50 billion in fund assets under management and a large, ex- panding and untapped Muslim population, there are likely to be considerable opportu- nities in the future. This is a time when stra- tegic choices have to be made and market participants have to adapt and survive”.
One type of sharia’a-compliant that is cur- rently outperforming its conventional coun- terpart is the Islamic insurance fund. In the past three or four years the returns of this sector’s funds have been as high as 109%, compared to the CNX NSE Nifty Index’s high of 70% in the same period (Ajmal, 2010). More specifically, Bajaj Allianz Life Insur- ance’s Pure Stock Fund registered a 97% return over the six month period between September 2009 and March 2010, in com- parison with the Nifty index fund which was 72% over the same period.
Private Equity and Venture Capital
The Islamic private equity industry is still in its infancy (Boerner et al). Most of the litera- ture declaring that Islamic private equity is outgrowing conventional private equity was written in 2007, before the peak of the finan- cial crisis. Nowadays, it is more realistic to advise the Islamic investor to wait and see how sharia’a-compliant private equity de- velops in the context of the global recovery, before committing himself to that type of in- vestment. Similarly, Islamic venture capital is a relatively new sector.
However, some Islamic venture capital firms are beginning to hold their own in terms of returns. The Bahraini-based Venture Capital Bank (VCBank), in 2008, reported a 27% re- turn on equity. Given that the average return for conventional US venture capital firms was, on 30th September 2008, -0.9% (Rao, 2010). VCBank did not do too badly at all.
It is still worth waiting to see if such a pace can be maintained before structuring your investment portfolio around Islamic ven- ture capital. Another thing for the would-be Islamic venture capitalist to bear in mind is that those with expertise in the field of the start-up in which their investing often reap the most rewarding returns. The investor’s
62 GlobalIslamic Finance June 2010
ability to pick a winner is, to a large extent, is dependant on the degree to which that investor intimately understands the sector or industry he is looking to become involved in (Boerner et al, 2010).
Islamic vs. Conventional Indices
Equities are another major asset class in all types of investing. In fact, so important is this segment to the entire investment sec- tor, it is worth focusing extensively on the issue of sharia’a-compliant indices versus conventional indices.
We have thus far concentrated on securities in terms of the industries they hail from; let us now compare indices as a whole to gauge the current performance of Islamic indices against their conventional counterparts. We will compare the Dow Jones Islamic Market (DJIM) US Index with the conventional Dow Jones US Broad Market Index.
Looking at these indices from the past ten years, they are of a similar shape, suggest- ing that the Islamic index is not so differ- ent from its conventional counterpart. The Islamic index’s relatively smaller prices, of course, are only to be expected considering Islamic finance is a niche market, especially in the US.
From the start of the DJIM World Index, it is again apparent that is has proportionally fol- lowed a similar pattern to the conventional index. These figures may well be surprising to those who believed the gap between Is- lamic and conventional prices to be much bigger.
Sharia’a-Compliant Investment- the Advantages
So far in this article we have only looked at the so-called disadvantages of Islamic in- vestment. Now we shall turn our attention to the advantages, and in what context an Islamic investor might find his returns to ac- tually be healthier than those of his conven- tional peer.
High leverage is one of the factors that contributed to the US Subprime Mortgage crisis, which in turn lead to the global finan- cial crisis. We do not need to be reminded that this near collapse of the international banking system led to the value of many companies taking a nosedive, leaving their investors severely short-changed. Sharia’a- compliant companies, however, are not al- lowed to be excessively leveraged in their capital management.
As Kamso explains, the DJIM index is a fine example of a regulatory system that ensures Islamic companies meet the criteria re-
2002 2004 2006 2008 2010
April 29, 2010
DJIM US Index
10 Years Price - IMUS 3.00k
2.50k 2.00k 1.50k 1.00k
quotemedia.com
Dow Jones US Broad Market Index
10 Years Price - DJUS
400.0 300.0
350.0 250.0
200.0
150.0 100.0
2002 2004 2006 2008 2010
April 30, 2010
Source: Dow Jones Indexes
The similarity also applies on a global scale. Here is the DJIM World Index in comparison with the Dow Jones Global Index:
DJIM World Index
10 Years Price - DJIM
quotemedia.com
3.00k 2.50k
2.00k 1.50k
1.00k 500.0
2002 2004 2006 2008 2010
April 29, 2010
Dow Jones Global Index
10 Years Price - W1DOW
quotemedia.com
350.0 300.0
250.0 200.0
150.0 100.0
2002 2004 2006 2008 2010
April 29, 2010
Source: Dow Jones Indexes
quotemedia.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80