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Investing In Islamic Funds: A Practitioner's Perspective



Investing In Islamic Funds: A Practitioner's Perspective

Noripah Kamso

ISBN: 978-1-118-63888-0 May 2013 256 Pages

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A guide to Islamic investment opportunities from the CEO of the world's leading Islamic finance bank

Offering an insider's perspective on a rapidly growing sector of the financial industry, Investing in Islamic Funds details the basic principles of Islamic investing for Muslims and non-Muslims alike. It explains how Islamic equity and fixed-income products differ from traditional funds, and how they deliver excellent results while still conforming to Sharia principles. Using hard data from the last six years, the book also reveals how Islamic funds have offered predictable, reliable returns in volatile markets and turbulent financial times. For institutional investors as well as sophisticated individual investors, the book serves as an excellent introduction to the subject and surveys the full range of products available. Additionally, the book will arm financial services professionals with the knowledge they need to explain this new investment opportunity to clients.

  • One of the few books available that offers comprehensive data on the performance of Islamic funds in addition to the underlying theory that governs them
  • Written by the CEO of CIMB-Principal Islamic Asset Management, the world's leading Islamic finance bank
  • Features charts, case studies, comparative analysis, and a tabular data format
  • Debunks the misconceptions traditional investors may have about the profitability Islamic funds

For professional and institutional investors, as well as private investors looking for new opportunities, Investing in Islamic Funds offers a much-needed primer on this fast-growing market.

List of Tables and Charts xvii

Foreword xxi
by Larry Zimpleman

Preface xxv
by Tan Sri Zarinah Anwar

Preface xxix
by Mohammad Faiz Azmi

Acknowledgments xxxi

Introduction 1

CHAPTER 1 The Growth of Shariah Investments: Preparing the Next Generation 13

Introduction 15

The Global Islamic Funds Industry: Where Is It Now? 16

Global Product Innovation of Islamic Investment Products 21

Prognosis for Islamic Financial Markets: Where Are They Going? 23

Conclusion 27

Notes 28

Helpful Hints 29

CHAPTER 2 Fund Management within Shariah-Compliant Investment Guidelines: Is There More Reward? 31

Introduction 33

The Application of Islamic Ethics to Asset Management 35

Benefits of Shariah vis-à-vis Conventional Investing 38

Conclusion 44

Notes 44

Helpful Hints 46

CHAPTER 3 Uncovering the Driving Principles of Islamic Finance: A Journey to Accumulate Wealth Responsibly 47

Introduction 49

The Five Basic Principles of Islamic Finance 50

Conclusion 59

Notes 60

Helpful Hints 62

CHAPTER 4 Investing Responsibly: The Search for Similar Benefits for Ethical and Shariah Forms of Investing 63

Introduction 65

Screening Criteria 68

Screening Process for Ethical Form of Investing 72

Socially Responsible Investment versus Shariah-Compliant Investment 74

A Similar Approach to Your Investment? 77

Availability of Choice for Investors 79

Broader Portfolio Diversification 80

Conclusion 81

Notes 82

Helpful Hints 83

Appendix: Ethical Investment Screening Based on Negative Screening 85

CHAPTER 5 Broad Choices of Islamic Investment Funds: Can They Become Mainstream? 89

Introduction 91

Equity Funds 93

Sukuk Funds 94

Exchange-Traded Funds (ETFs) 95

Money Market Funds 96

Alternative Funds 97

Real Estate Investment Trust Funds (REITs) 97

Private Equity Funds 98

Hedge Funds 99

Lease Funds 100

Conclusion 101

Notes 102

Helpful Hints 104

CHAPTER 6 Mitigating the Myths: The Benefits of Islamic Funds for the Broader Investor Base 105

Introduction 107

Islamic Principles Come with Built-in Financial Ethics 108

The Myths of Shariah Investing 109

Benefits of Shariah Investing 116

Conclusion 119

Notes 120

Helpful Hints 122

CHAPTER 7 Comparative Analysis with Conventional Investing: Shariah-Compliant Investing is Resilient, while Conventional Investing Has to Recover from Financial Crisis 125

Introduction 127

Islamic Indices Outperformed Conventional Indices 128

Qualitative Comparison of Islamic Index Screening Processes 129

Performance Analysis of Three Dow Jones Shariah Indices and Their Counterparts 131

Value-Added Optimization for Shariah Performance 139

Conclusion 140

Notes 140

Helpful Hints 142

CHAPTER 8 Using Performance Characteristics to Build Wealth: Empirical Evidence, Proven and Tested 143

Introduction 145

The Impact of Black Swan Events 146

Why Shariah Investing Is Resilient 147

Conclusion 152

Notes 152

Helpful Hints 154

CHAPTER 9 The Sukuk Portfolio: A Broader Investment Universe for Mainstream Investors 155

Introduction 157

Emergence of Different Sukuk Structures 158

Examining Sukuk Investment Results 161

Case Study: Sukuk Investing as a Diversification Strategy 166

Conclusion 167

Notes 168

Helpful Hints 170

CHAPTER 10 Shariah-Compliant UCITS Funds: Satisfying the Appetite of International Investors 173

Introduction 175

Solution at Your Doorstep 176

Providing Ease of Transaction to International Investors 177

Bringing Shariah Investment to a Global Audience 178

Notes 181

Helpful Hints 183

CHAPTER 11 Legal, Regulatory, Risk, and Operational Framework: Building Investors’ Confidence 185

Introduction 187

The Islamic Financial Institutions’ Regulatory Framework 188

Country Examples 192

Conclusion 198

Notes 199

Helpful Hints 200

Epilogue 203

About the Author 205

About the Contributors 207

Glossary to the Quotations 209

Glossary of Islamic Finance 215

Global Islamic Finance Education Centers 235

Global Islamic Finance Conferences/Summits/Seminars 239

Islamic Investment and Finance Readings: Guide to Research Materials 243

Recommended Reading 245

Index 249