Islamic Mutual Funds as Faith-Based Funds in a Socially Responsible Context

Abstract

Defining social investing and its boundaries is a challenging task. Since the religious beginning of ethical investments, many overlapping investment styles have been grouped into the bucket of socially responsible investments, or SRI. This includes, for instance, faith-based investments. In this paper we study the underlying principles of SRI and Islamic funds as investment classes, and try to determine whether Islamic mutual funds, as faith-based investments, can be included into the category of socially responsible mutual funds, or if they exhibit distinguishing characteristics that indicate that they would be more fittingly grouped in a separate investment family. We address the question from both a qualitative and quantitative point of view. Comparing ideas, ratios and investment styles underlying SRI and comparing them to Islamic portfolios, we identify the potential inconsistencies related to some of the investment decisions. Together with a qualitative assessment of the differences and similarities, we discuss, in the quantitative section of our study, the different sector and country composition of two generic portfolios, SRI and Islamic (proxied by relevant European indices), derived from the application of the investment screens. In addition, through a cointegration analysis on FTSE indices, we show that FTSE Islamic, exhibits peculiar and interesting portfolios' differences in terms of econometric profile, compared to conventional and SRI indices. This paper attempts to unify the studies regarding SRI, with the available studies on Islamic investments. To the best of authors' knowledge, this is the first time that SRI and Islamic indices are analysed and compared. JEL Classification : G12, G14

Do ethics imply persistence? The case of Islamic and socially responsible funds

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Heads we win, tails you lose: Is there equity in Islamic equity funds?

“…It is noteworthy that while there are some common grounds between socially responsible investing and faith-based investing, there is little justification to argue that the latter is a sub-category of the former, much less to equate the two. Forte and Miglietta (2007) offered qualitative and quantitative evidence that Islamic funds were characteristically different from SRI funds in terms of asset allocation and econometric profile.…”

Should Islamic investors consider SRI criteria in their investment strategies?

“…Many justifications in previous works support mixing Islamic and SRI strategies. Forte and Miglietta (2007) show that Islamic investment and SRI have different characteristics in terms of asset allocations, econometric profiles and sector exposure. Despite empirical evidence that both Islamic and SRI funds are more oriented toward growth and small-cap stocks (Walkshaeusl and Lobe, 2012), in very developed SRI markets, SRI funds are more oriented toward large caps .…”