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Investing In Islamic Funds: A Practitioner's Perspective


Praise for Investing in Islamic Funds

"This is a valuable contribution to Islamic finance literature. Written by one of the most successful practitioners in the field, the book makes accessible to market participants Islamic finance concepts. The hands-on experience of its author, combined with the ease with which she demystifies Islamic finance and its investment strategies and portfolio formation, recommends this book to students of finance in general and international investors in particular. The book should be of interest also to students of capital markets, fund managers and scholars in that it describes in familiar language a new, stable and dynamic asset class that no international investor strategist could afford to ignore."
—Dr. Abbas Mirakhor, INCEIF Chair in Islamic Finance

"Overall, a book providing critical knowledge about Shari'ah-compliant funds combined with high levels of analytical skills and indeed the application experience of a world-class practitioner. A book to be read from the beginning to the end or in selective steps — both ways intellectually stimulating and pure fun."
—Dr. Manfred Dirrheimer, Founding Chairman of the board of directors, FWU AG

"A fulsome guide to Shari'ah financial services from a practitioner at the heart of the industry."
—Rory Tapner, CEO, Coutts

"Datuk Noripah's perspectives on Islamic funds provide insights into the opportunity that exists for their growth within the global market. The practical approach that her book describes, alongside the vast experience, is a helpful contribution to understanding a sector that is evolving and developing at a constantly rapid pace. The development of UCITS and other fund platforms is an important step in the globalization process."
—Neil Ryan, Assistant Secretary General, Department of Finance, Ireland

NORIPAH KAMSO is currently an Advisor to CIMB Islamic. She was previously the CEO of CIMB Principal Islamic Asset Management Sdn Bhd. Since 2008, she has successfully established a platform for the firm to extend its reach across the globe. Previously she served as the CEO of CIMB-Principal Asset Management Berhad, where she pioneered the listing of the world's first Regional ASEAN Exchange Traded Fund, "CIMB ASEAN 40 ETF" on the Singapore Exchange in 2007. She is a two-time winner of the Marketing Personality of the Year Award (2005 & 2006) by Asia Asset Management for the Asia Pacific region, CEO of the Year for Malaysia (2007) and Personal Achievement Award for contribution to Islamic Asset Management by International Takaful Summit, London (2012). Besides serving as a council member of the Federation of Investment Managers Malaysia (FIMM), she was the past president of the Malaysia Futures Brokers Association (MFBA).

List of Tables and Charts xvii

Foreword xxi
by Larry Zimpleman

Preface xxv
by Tan Sri Zarinah Anwar

Preface xxix
by Mohammad Faiz Azmi

Acknowledgments xxxi

Introduction 1

CHAPTER 1 The Growth of Shariah Investments: Preparing the Next Generation 13

Introduction 15

The Global Islamic Funds Industry: Where Is It Now? 16

Global Product Innovation of Islamic Investment Products 21

Prognosis for Islamic Financial Markets: Where Are They Going? 23

Conclusion 27

Notes 28

Helpful Hints 29

CHAPTER 2 Fund Management within Shariah-Compliant Investment Guidelines: Is There More Reward? 31

Introduction 33

The Application of Islamic Ethics to Asset Management 35

Benefits of Shariah vis-à-vis Conventional Investing 38

Conclusion 44

Notes 44

Helpful Hints 46

CHAPTER 3 Uncovering the Driving Principles of Islamic Finance: A Journey to Accumulate Wealth Responsibly 47

Introduction 49

The Five Basic Principles of Islamic Finance 50

Conclusion 59

Notes 60

Helpful Hints 62

CHAPTER 4 Investing Responsibly: The Search for Similar Benefits for Ethical and Shariah Forms of Investing 63

Introduction 65

Screening Criteria 68

Screening Process for Ethical Form of Investing 72

Socially Responsible Investment versus Shariah-Compliant Investment 74

A Similar Approach to Your Investment? 77

Availability of Choice for Investors 79

Broader Portfolio Diversification 80

Conclusion 81

Notes 82

Helpful Hints 83

Appendix: Ethical Investment Screening Based on Negative Screening 85

CHAPTER 5 Broad Choices of Islamic Investment Funds: Can They Become Mainstream? 89

Introduction 91

Equity Funds 93

Sukuk Funds 94

Exchange-Traded Funds (ETFs) 95

Money Market Funds 96

Alternative Funds 97

Real Estate Investment Trust Funds (REITs) 97

Private Equity Funds 98

Hedge Funds 99

Lease Funds 100

Conclusion 101

Notes 102

Helpful Hints 104

CHAPTER 6 Mitigating the Myths: The Benefits of Islamic Funds for the Broader Investor Base 105

Introduction 107

Islamic Principles Come with Built-in Financial Ethics 108

The Myths of Shariah Investing 109

Benefits of Shariah Investing 116

Conclusion 119

Notes 120

Helpful Hints 122

CHAPTER 7 Comparative Analysis with Conventional Investing: Shariah-Compliant Investing is Resilient, while Conventional Investing Has to Recover from Financial Crisis 125

Introduction 127

Islamic Indices Outperformed Conventional Indices 128

Qualitative Comparison of Islamic Index Screening Processes 129

Performance Analysis of Three Dow Jones Shariah Indices and Their Counterparts 131

Value-Added Optimization for Shariah Performance 139

Conclusion 140

Notes 140

Helpful Hints 142

CHAPTER 8 Using Performance Characteristics to Build Wealth: Empirical Evidence, Proven and Tested 143

Introduction 145

The Impact of Black Swan Events 146

Why Shariah Investing Is Resilient 147

Conclusion 152

Notes 152

Helpful Hints 154

CHAPTER 9 The Sukuk Portfolio: A Broader Investment Universe for Mainstream Investors 155

Introduction 157

Emergence of Different Sukuk Structures 158

Examining Sukuk Investment Results 161

Case Study: Sukuk Investing as a Diversification Strategy 166

Conclusion 167

Notes 168

Helpful Hints 170

CHAPTER 10 Shariah-Compliant UCITS Funds: Satisfying the Appetite of International Investors 173

Introduction 175

Solution at Your Doorstep 176

Providing Ease of Transaction to International Investors 177

Bringing Shariah Investment to a Global Audience 178

Notes 181

Helpful Hints 183

CHAPTER 11 Legal, Regulatory, Risk, and Operational Framework: Building Investors’ Confidence 185

Introduction 187

The Islamic Financial Institutions’ Regulatory Framework 188

Country Examples 192

Conclusion 198

Notes 199

Helpful Hints 200

Epilogue 203

About the Author 205

About the Contributors 207

Glossary to the Quotations 209

Glossary of Islamic Finance 215

Global Islamic Finance Education Centers 235

Global Islamic Finance Conferences/Summits/Seminars 239

Islamic Investment and Finance Readings: Guide to Research Materials 243

Recommended Reading 245

Index 249