Using a sample of Islamic and conventional mutual funds managed by HSBC, the fourth largest fund manager in Saudi Arabia, from January 2003 to January 2010, we examine their risk-return behavior by employing a number of performance measures such as Sharpe, Treynor, Jensen Alpha and their variants. We divide the sample period in four segments such as full period, bull period, bearish period and financial crisis period to analyze further if these two funds performance differ from each other. We also examine the market timing and selectivity of HSBC managers of their portfolio performance. We find that Islamic funds underperform Conventional funds during full period and bullish period, but they overperform conventional funds during bearish and financial crisis period. Such results are consistent with prior studies with other Islamic and conventional mutual funds. HSBC managers are good at showing timing and selectivity for Islamic funds during bearish period, and for conventional funds during bullish period. One important portfolio lesson from this case study is that Islamic mutual funds do offer hedging opportunity for investors during economic downturns because of the restrictions that Islamic law imposes on portfolio selection.

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to study whether Islamic investors lose portfolio efficiency due to a limited asset universe. Design/methodology/approach -The paper contributes to prior literature by using non-parametrical measurements of efficiency instead of regular (parametrical) methods. Data envelopment analysis (DEA) was used in order to better characterize the risk and return relationship, as well as estimating a single performance index to rank different funds and compare them to one another. Findings -Overall, the results are congruent with prior findings. That is, there is strong evidence suggesting that Islamic funds are highly efficient and that they outperform their international counterparts. Also, results are robust to different estimation of DEA, the specification of the asset universe, and the inclusion of financial crisis period in analysis. Research limitations/implications -Though the paper's findings are robust to different specifications of the DEA model and time periods, the authors caution readers due to the limited sample. Practical implications -Having defined a performance index, one can therefore isolate the funds which are the most efficient and thus drive trading activities towards said funds. Social implications -Since the paper's findings suggest that Islamic investors do not lose efficiency, investing into a limited asset universe which follows social and ethical constraints (given by Shariah law) is recommended. Originality/value -The paper is able to confirm prior literature, even by using a non-parametrical measurement of efficiency. In this way, the authors have accounted for an extra penalty on the risk-return relationship: skewness.

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