Islamic Equity Mutual Fund
Islamic Equity Mutual Fund Performance in Malaysia: Risk and Return Analysis
Nik Maheran Nik Muhammad Universiti Teknologi MARA, Kelantan nmaheran@kltn.uitm.edu.my Masliza Mokhtar Universiti Teknologi MARA, Kelantan masliza@yahoo.com
Abstract Mutual funds in Malaysia have experienced a considerable growth over the last decade in terms of the number of funds offered and the volume of capital managed by unit trust management companies. A higher growth can be expected due to a strong participation in Islamic equity funds among Muslim private investors and institutions because Islamic mutual funds have high 'correlations ' with the Sharia (Islamic Law) principles of equity participation and the sharing of risks. Traditionally, the bulk of Islamic funds have been channeled into low-risk and modest return instruments such as Murabaha (short-term, secured commodity and trade finance) and structured medium-term investments in Ijara (leased assets such as aircraft-shipping operations and equipment or machinery). However, since the mid-1990s, interest in Islamic mutual funds has grown, largely due to a fatwa on investment banking issued by the Islamic Jurisprudence Academy in Saudi Arabia. The decree ruled that, within certain parameters, equity investment is acceptable under Sharia. Therefore, this paper investigates the unit trust potential in Malaysia by examining the performance of such funds by focusing on more aggressive equity types of fund by analyzing their risk and return. This is done by measuring the performance of mutual fund, that is the Net Asset Value (NAV) of nine equity mutual funds and the prices on market portfolio or Kuala Lumpur Syariah Index (KLSI). Based on the nine Malaysian equity unit trust under studied over the weekly period of 2002-2006 using the method used by Sharpe and Treynor, the researchers are able to formulate explicit measures of a portfolio’s performance on the dimensions of risk and return. The findings are indeed a bag of
Nik Maheran Nik Muhammad Universiti Teknologi MARA, Kelantan nmaheran@kltn.uitm.edu.my Masliza Mokhtar Universiti Teknologi MARA, Kelantan masliza@yahoo.com
Abstract Mutual funds in Malaysia have experienced a considerable growth over the last decade in terms of the number of funds offered and the volume of capital managed by unit trust management companies. A higher growth can be expected due to a strong participation in Islamic equity funds among Muslim private investors and institutions because Islamic mutual funds have high 'correlations ' with the Sharia (Islamic Law) principles of equity participation and the sharing of risks. Traditionally, the bulk of Islamic funds have been channeled into low-risk and modest return instruments such as Murabaha (short-term, secured commodity and trade finance) and structured medium-term investments in Ijara (leased assets such as aircraft-shipping operations and equipment or machinery). However, since the mid-1990s, interest in Islamic mutual funds has grown, largely due to a fatwa on investment banking issued by the Islamic Jurisprudence Academy in Saudi Arabia. The decree ruled that, within certain parameters, equity investment is acceptable under Sharia. Therefore, this paper investigates the unit trust potential in Malaysia by examining the performance of such funds by focusing on more aggressive equity types of fund by analyzing their risk and return. This is done by measuring the performance of mutual fund, that is the Net Asset Value (NAV) of nine equity mutual funds and the prices on market portfolio or Kuala Lumpur Syariah Index (KLSI). Based on the nine Malaysian equity unit trust under studied over the weekly period of 2002-2006 using the method used by Sharpe and Treynor, the researchers are able to formulate explicit measures of a portfolio’s performance on the dimensions of risk and return. The findings are indeed a bag of
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