Islamic finance: a low risk, value-adding alternative
Master Thesis
2019
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Abstract
In this thesis conventional indices were compared to Shariah compliant indices within the respective regions and asset classes. Within the equity asset class, on the global side, the MSCI World Index was compared to the Dow Jones Islamic Index, within the United States the S&P 500 Index was compared to the S&P Shariah Index and for South Africa the FSTE All Share Index was compared to the FTSE Shariah All Share Index. Within the fixed income asset class, the Barclays Global Aggregate Bond Index and the Merrill Lynch Global Bond Index were compared to the Dow Jones Sukuk Index. In respect of the global and South African equity and the global fixed income, a sample set of Shariah compliant funds were compared to the respective conventional indices. What was found was that overall for the global equity and the United States comparisons, the Dow Jones Islamic Index and the S&P Shariah Index created higher value than the MSCI World Index and the S&P 500 Index respectively and at a much lower level of debt and therefore risk, over the timeframe analysed. Within the South African equity market, the FTSE All Share Index added more value than the FTSE Shariah All Share Index over the time period reviewed, however these are highly concentrated indices, with the FTSE Shariah All Share Index having an over-exposure to commodities. On the fixed income side, the Barclays Global Aggregate Bond Index and the Merrill Lynch Global Bond Index created more value than the Dow Jones Sukuk Index over the years investigated, however the data and time horizon analysed were limited. When looking at the funds, definitive conclusions regarding the relative performance between the conventional index and the Shariah compliant fund proxy could not be drawn, however there were certain funds that outperformed the conventional index during specific time periods.
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Ebrahim, B. 2019. Islamic finance: a low risk, value-adding alternative.