It was a busy period for asset managers in the first quarter. Volatile markets meant that many were trying to keep their heads above water — many of them couldn’t — as the markets caught a bit of the global subprime fever.
Still, the asset managers found time to launch no less than 21 funds during the first quarter, nearly half of them focused on the region, while the rest had an international outlook. Crucially, two thirds of all the funds launched in the first quarter were Shariah-compliant.
Jadwa Investment alone was responsible for four such funds, suggesting that the appetite for Saudi investors for Islamic investments is on the rise.
“If you take a look at the overall Saudi market, you realize that mutual funds comprise only 3 percent of total investor base,” Fadi Tabbara, head of asset management and chief investment officer, Jadwa Investment, told Zawya.com. “In the US, it is a lot larger — up to 40 to 50 percent. We are trying to educate investors and focusing on investors with different appetites such as the risk-averse investor, moderate investor, and the risk-taking investor.”
Tabbara is planning to launch another five to six funds this year focused internationally and on the region, with some country-specific funds as well, adding that there is tremendous demand for such products.
“Jadwa wants to mirror the products available in the conventional space, as Islamic finance is still new and we need benchmarks,” says Tabbara. “We want to be the leading provider of Shariah-compliant funds both locally, regionally and internationally.”
Islamic funds already have $20 billion in assets under management, according to research consultants Failaka Advisors, a figure that is set to rise.
There are around 125 funds based in Asia and 120 in the GCC, including 75 based in Saudi Arabia, according to Failaka. “There is a lot more interest in Islamic funds and it has become much more acceptable to investors,” says Craig Roberts, chief executive officer of Apex Fund Service Dubai. “You are beginning to find that Islamic funds are producing the alpha returns that regional investors expect.”
And there is more on the way. Dubai Multi Commodities Center (DMCC) is set to launch as much as five commodity-linked Islamic funds this year, while other investment houses are gearing up for a number of Islamic fund launches this year, as the Shariah fever grips the regional financial services industry.
And innovation in the Islamic financial services industry will only spur investors and institutions alike.
“Islamic funds are not trying to replicate the conventional model and this is the best part of the industry’s development,” says Robert. “They are becoming mature enough to develop their own products.”
At the moment though, the performance of Islamic funds is not much different from that of their conventional counterparts. Six Islamic funds featured in the top 20 performing mutual funds in the region at the end of Q1, with Commercial Bank of Kuwait’s Tijari Islamic Fund emerging as the region’s second best performer in the first quarter at 14.71 percent, just a notch below the conventional Shuaa Capital’s Oman Gateway Fund — the standout performer for the first three months of the year, at 14.87 percent.
(Yadullah Ijtehadi is managing editor of Zawya.com, Dubai)