Selectivity and Market Timing Ability of Fund Managers: Comparative Analysis of Islamic and Conventional HSBC Saudi Mutual Funds

Abstract

This paper empirically compares the market timing, the stock selection and the performance persistence of Islamic and conventional HSBC Saudi mutual funds by using monthly returns from April 2011 to December 2018. The data was grouped into five portfolios based on geographical investment basis (locally, Arab, internationally) and Sharia compliance (Islamic and conventional). The empirical results indicate that Islamic funds underperformed conventional funds internationally but not locally. Findings suggest that the market selectivity skills of managers in the Islamic funds are better than the conventional funds. In addition, only the managers of Saudi conventional funds investing internationally have a good market timing skills, thus, they are able to beat the market index by predicting its movements and buying and selling accordingly. Furthermore, this study gives a brief idea about the performance persistence of HSBC Saudi funds. The results confirm existence of the persistence performance when the funds do not apply Sharia law and when they are instead focused internationally.

Selectivity and Market-Timing Performance of Mutual Funds Using Human-Capital Augmented Various Asset-Pricing Models: Evidence from Pakistan

“…The forecasted gamma demonstrates market timing ability of fund managers. Our results illustrate negative significant values which infer poor market timing abilities of managers in the market, similar to (Hasnaoui & Fatnassi, 2021;Nafees et al, 2018;Zouaoui, 2019). The results suggest that during 2005-2020, fund managers performed poor in terms of selectivity skills.…”

“…If the 𝛾 of quadratic term is positive, fund manager has superior market timing ability, if negative so vice versa (Ünal & Tan, The gamma coefficients of TM specification show insignificant and mix results as negative for small fund portfolios (SH and SM) while positive for all big fund portfolios. It shows that in terms of market timing abilities of fund managers, they are unable to manage which shows dissimilarity with (Hasnaoui & Fatnassi, 2021;Zeeshan et al, 2020;Zouaoui, 2019). Furthermore, the positive significant coefficients determine that for the time-span 2005-2020, fund managers proved good selectivity-skills in the market.…”

The Investment Performance of U.S. Islamic Mutual Funds

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The Impact of Stock Selection, Market Timing and Equity Fund Size on Equity Funds Performance during Covid-19

“…The optimal returns investors anticipate are influenced by the skill with which investment managers construct portfolios of capital market assets (Merti et al, 2019). This ability relates to the right decision when buying stocks at a low price and selling them when the price is high and has the potential to fall (Zouaoui, 2019). Mutual fund performance will look better when investment managers' mar-ket timing of stock portfolio updates is also good (Budiono & Azis, 2020).…”