Shariah-compliant funds are emerging as an “increasingly popular” investment instrument in markets across the region, and Qatar is playing an important role in this expansion, a new report has shown.
Shariah-compliant funds accounted for $224mn by end 2017; just over 50% of the assets placed in the Qatari mutual fund segment, Oxford Business Group said citing the Qatar Financial Centre.
The prominence of Shariah-compliant funds in the market means they are no longer viewed as a niche investment opportunity, with an increasingly broad range of investors taking the Shariah-compliant option as a result of financial, rather than religious, reasoning.
However, competition for liquidity in the regional fund universe is fierce, and as the Shariah fund concept is adopted in more financial centres around the world, the battle for clients is likely to further intensify, OBG said in its ‘The Report: Qatar 2019’.
In the early days of Islamic funds, the core customer base was made up of investors seeking a return from the market in a manner that did not contravene their religious, or ethical principles.
Clients continue to be attracted to Islamic funds by the fact that they do not profit from companies involved in activities contrary to Islamic principles. More recently, however, fund managers have started to report a broader interest in the instruments.
With Islamic funds rivalling, and in some cases beating, the returns offered by their conventional counterparts, some investors view them as a useful way to diversify their portfolio away from the types of asset more common in the fund universe.
When the Doha-based private investment group QInvest launched its Shariah-compliant SQN Income Fund in 2017, for example, investors were offered a 7% annual return on a monthly basis – an attractive enough prospect to ensure that the fund was oversubscribed at its commencement.
Much of Qatar’s reputation as a location for Shariah-compliant funds rests on a small number of prominent instruments.
Qatar is home to the world’s largest single country Shariah-compliant Exchange Traded Fund (ETF) and second largest Islamic fund: the Shariah-compliant Masraf Al Rayan Qatar ETF was launched in March 2018 with initial assets worth $120mn, and tracks the performance of the Al Rayan Islamic Price Index of Shariah-compliant stocks trading on the Qatar Stock Exchange (QSE). The fact that the index has outperformed the conventional QSE index between 2013 and 2018 by more than 1.6% per annum makes the new fund a tempting prospect for general investors, as well as those seeking a Shariah-compliant instrument.
The Qatari Islamic fund market is also one of the world’s most technically advanced.
Through the platform investors are granted access to a range of sukuk (Islamic bond) and equity funds, controlled in-house and by third parties.
The continued growth of Qatar’s Shariah-compliant fund universe may be spurred by the development of its supporting regulatory structure. The creation of a responsible finance regulatory framework to attract regional managers” forms part of the Islamic finance roadmap proposed by the QFC.
The strategy calls for the opening up of alternative investments such as Islamic funds to a larger market through the development of a more robust regulatory framework focusing on sustainable investment.
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