Risk Management in
Islamic Financial Instruments
7
(a) Developed Market Indices: EU Islamic, World Islamic, North America Islamic, etc.
(b) Emerging Market Indices: BRIC Islamic, EM Asia Islamic, EM Eastern Europe
Islamic, etc.
(c) Frontier Market Indices: FM Africa Islamic, FM CEEC Islamic, etc.
(d) GCC and Arabian Market Indices: Arabian Markets Islamic, GCC Countries
Domestic Islamic, etc.
FTSE Global
Islamic Indices
FTSE introduced its Sharī`ah indices in 2006, starting with the FTSE Global Sharī`ah
Index Series, screened by Yasaar Sharī`ah scholars. Later, three Islamic indices were
launched in August 2006.
(a) Country Indices
- Austria Islamic, Germany Islamic, Singapore Islamic, etc.
(b) Global/Regional indices
- Global Islamic, Europe Islamic, Americas Islamic, Pacific Basin Islamic, etc.
(c) Industry Indices
- Physical Industrial Metals, etc.
1.3.2 Islamic Funds
While Islamic Funds provide important diversification benefits to Sharī`ah-compliant
investors, they have been slow to develop sophistication and market depth. One important
reason is that Islamic Funds are dependent on the availability of other Sharī`ah compliant
solutions. Until the Islamic equity and fixed income (sukuk) markets develop in volume and
depth, Islamic fund growth will be restricted. Despite such challenges, Islamic Funds have
evolved as a significant niche segment and have experienced stable growth since 2004,
because of the rising wealth in emerging Muslim economies and oil-rich countries. The number
of Islamic funds has grown from 285 in 2004 to 1,029 at the end 2012. By the end of 2011,
assets under management of Islamic funds grew to USD60 billion from USD29.2 billion in
2004, representing a CAGR of 10.8%. This increased to USD64 billion by the end of October
2012.
1.3.2.1 Investment Focus of Islamic Funds
Despite the global financial crisis and the prolonged sovereign debt crisis in Europe, Islamic
funds have managed to grow in their asset volume and numbers. As the global equity indices
have been underperforming, investors continue to search for alternative asset classes. Islamic
equity funds witnessed steep declines in 2008 before rebounding in 2009 and 2010. However,
the asset class lost 5.01% in 2011 in line with global equity market performance.
Commodity funds have become an attractive safe haven, and they account for the best net
performing asset class for Islamic investors between 2007 and 2011, growing by 41.81%.
Mixed asset allocations and equity funds returned 33.05% and 32.31%, respectively, over the
same period. Additionally, a growing proportion of funds have been allocated to money
markets and Sukūk by investors with a lower risk appetite arising from concerns about the
global economy. In terms of asset allocation, equities still continue to be the main asset class
for Sharī`ah-compliant funds worldwide, worth over half of all assets.