Islamic mutual funds' financial performance and international investment style: evidence from 20 countries

We pursue the first large-scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias-adjusted data set, we analyse the financial performance and investment style of 265 Islamic equity funds from 20 countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three-level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds’ investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.

Innovative approaches For enhancing the flow of funds into the Benefit Sharing Fund of the International Treaty on Plant Genetic Resources for Food and Agriculture: an evaluation of options

This report assesses the implications and revenue-generating potential of options for reform of the International Treaty on Plant Genetic Resources for Food and Agriculture in the context of the structure of the global seed industry and the emerging landscape of plant variety innovation for different crops. The implementation of these options would require modifications of Treaty and provisions of the Standard Material Transfer Agreements to alter the nature of payment obligations related to different categories of products, the payment rates under different options and the coverage of crops in Annex-I to the Treaty.

A review of Islamic mutual funds’ financial performance and investment style in Muslim and non-Muslim countries

Islamic finance has grown beyond its reputation of providing small-scale banking options and now provides investment and financing options for complex large-scale commercial transactions. Islamic investments are one area that has attracted the attention of investors due to its performance, especially during the economic downturn. The Shari’ah compliance nature of Islamic funds provides an opportunity for those Muslim investors to be part of the global investment sector who have previously been reluctant to invest in conventional mutual funds. The fact that the funds’ managers are prohibited from investing in activities such as weapons production, alcohol production and interest-bearing finance operations, makes Islamic mutual funds also attractive for those Non-Muslim investors who wish to invest ethically. Today there are hundreds of Islamic equity indices offered by Dow Jones, FTSE, MSCI and S&P. Despite the growing importance of Islamic funds, there have been limited studies exploring the performance of Islamic funds worldwide. Due to very limited data sets and not too rigorous analytical methods, these existent studies have neither investigated Islamic funds’ financial performance in noticeable detail nor analysed the investment style of more than six funds. For instance, relevant questions such as the financial performance of Islamic mutual funds’ beyond their investment styles or a difference in performance between funds from Muslim and non-Muslim countries have nearly not been investigated at all. Very recently, a study by Hoepner, Rammal and Rezec (2011) analysed the financial performance and investment style of 262 Islamic equity funds from 20 countries in five regions (Africa, Asia-Pacific, Europe, Gulf Cooperative Council-GCC, and North America). As comparison, previous studies did not even analyse 60 funds. Hoepner et al.’s study sampled a period of two decades and was therefore able to test the performance of the funds during economic booms as well as economic downturns. The findings of the study provide new insights into the performance of Islamic mutual funds in Muslim and Western markets and during financial crisis.

Essays on robust portfolio selection and pension finance

This thesis examines three different, but related problems in the broad area of portfolio management for long-term institutional investors, and focuses mainly on the case of pension funds. The first idea (Chapter 3) is the application of a novel numerical technique – robust optimization – to a real-world pension scheme (the Universities Superannuation Scheme, USS) for first time. The corresponding empirical results are supported by many robustness checks and several benchmarks such as the Bayes-Stein and Black-Litterman models that are also applied for first time in a pension ALM framework, the Sharpe and Tint model and the actual USS asset allocations. The second idea presented in Chapter 4 is the investigation of whether the selection of the portfolio construction strategy matters in the SRI industry, an issue of great importance for long term investors. This study applies a variety of optimal and naïve portfolio diversification techniques to the same SRI-screened universe, and gives some answers to the question of which portfolio strategies tend to create superior SRI portfolios. Finally, the third idea (Chapter 5) compares the performance of a real-world pension scheme (USS) before and after the recent major changes in the pension rules under different dynamic asset allocation strategies and the fixed-mix portfolio approach and quantifies the redistributive effects between various stakeholders. Although this study deals with a specific pension scheme, the methodology can be applied by other major pension schemes in countries such as the UK and USA that have changed their rules.

Super Blooper? Time to halt the superannuation juggernaut?

The superannuation industry has increased almost exponentially in Australia over the past decade. The main reason for this is because government  regulation compels employers to pay a fixed portion of employees’ salary  towards superannuation. In this article we suggest that the unremitting  government policy of coercing money towards superannuation is flawed. Superannuation is wrong at two levels. First, on an economic analysis, the evidence does not suggest that (i) individuals who invest in superannuation are necessarily better off than those who apply their income elsewhere; and (ii) there is no evidence that absent a coercive superannuation scheme the government will be unable to sustain people into their old age. Second, at the human and societal level, studies of human well-being show that coercing people to make spending decisions is inimical to human happiness. People flourish best when they are in control of their activities, including their finances. Left to their own devices, many people will not save for a rainy day; however, on balance it is probably better off to be a bit poorer in retirement than to have been deprived of the opportunity to spend 9% of one’s income over the period of one’s working life – when one’s needs are the greatest. Compulsory superannuation should be abolished. Money currently paid as a compulsory superannuation contribution should instead be paid to the employee as a salary.

Superannuation and the ageing myth

The ageing population rationale, which was the central plank underpinning compulsory superannuation, is flawed. The increase in individual wealth in the future more than compensates for the increasing number of older people. In addition to this, compulsory superannuation contributes to the ageing population problem because it provides less money to couples who wish to raise children and hence provides a disincentive for people to have children. The most appropriate method for dealing with the ageing problem is to encourage people to work longer - not because they need the money, but because it is good for their psyche and self-worth.

Identifying competency requirements for the financial planning industry in Australia: implications for educators

Compulsory superannuation was introduced in Australia in July 1992, and has led to significant growth in funds under management.  Reserve Bank of Australia data (2004) shows that in September 2004 Australians has AUD$ 767 billion invested in managed funds.  A large portion of this investment is based on the recommendation of financial planners.  This paper provides a brief history of the development of the financial services industry in Australia, with particular reference to the development of the role of the financial planner in investment decisions.

The paper focuses in detail on the set of professional skills required by financial planners given that the widely reported ASIC survey (2003), identified gaps between client expectation and competencies of financial planners.  Birkett (1996) described professional skills as the dominant individual attribute that describes a competent professional.  The individual attributes of a financial planner includes two categories: cognitive and behavioural skills.  The paper provides strong support for the view that financial planning educators should ensure adequate development of behavioural skills to enable financial planners to meet the needs of the investors they serve.

Raising the funds - spending the funds: a case study of the effectiveness of both roles of NGO's

Non-governmental organisations (NGOs) must be effective in both raising funds and using these funds to implement programs in order to improve the circumstances of the poor. This chapter presents a case study of World Vision Australia's (WVA) fundraising and programming responses to the Asian Tsunami. The initial stages of the fundraising campaign were largely unplanned and reactive. Yet WVA received over $110 million for its tsunami appeal in just a little over three months. This is incomparable with other recent large-scale disaster fundraising campaigns. The experiences of how the initial phases of the response were implemented arc gauged through a qualitative analysis of interviews conducted with twenty-one staff members who completed short-term secondments during the initial tsunami response. These interviews extract a number of reflections of WVA's programming and provide a number of lessons for WVA for future complex humanitarian emergencies. This chapter thus reviews the effectiveness of both roles of NGOs - raising funds and expending these funds to implement programs.

The macroeconomics of sovereign wealth funds

The dramatic growth in sovereign wealth funds (SWFs) has implications which are still emerging for national economies and globally. This paper considers why SWFs have become key international financial institutions for some countries, particularly developing ones. This adds to the literature on second best development strategies (Hausmann and Rodrik 2003), here applying it to SWFs. A macroeconomic approach is taken towards the phenomenon of reserves accumulation and motives for SWFs. These are evaluated in terms of the pattern of balance of payments and inferred trade and exchange policies. The role of SWFs in promoting country growth and international stability is considered in view of the global financial crisis (GFC).