A comparative analysis of Islamic and conventional fund performance on the Johannesburg Stock Exchange.
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Date
2021
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Abstract
The study comparatively evaluated the performance of Islamic and Conventional funds
vis-à-vis selected market benchmark indices. This was carried out by the creation of
both Islamic and Conventional portfolios based on existing individual South African
funds listed on the Johannesburg Stock Exchange (JSE). Whilst the study utilised
descriptive statistical analysis for the non-risk adjusted performance analysis, several
investment performance models were used for the risk adjusted performance analysis.
Relevant statistical tests were performed to decipher relationships between the Islamic
fund and the Conventional fund vis-à-vis the selected market benchmarks. Based on
the non-risk adjusted performance analysis and absolute risk adjusted performance
analysis, the empirical evidence suggests that the Conventional fund performed better
than the Islamic fund. However, the relative risk adjusted performance analysis shows
a mixed overall result during the entire period of the study. While the Modigliani &
Modigliani measure and Jensen alpha showed that the Conventional fund performed
better than the Islamic fund from a risk adjusted return perspective, the Treynor ratio
showed that the Islamic fund performed better than the Conventional fund. Likewise,
from a relative risk perspective, the study found that the Conventional fund performed
better and is less risky than the Islamic fund when benchmarked against the JSE
Shariah Index, the Johannesburg Stock Exchange All Share Index (JSE ALSI) Index
and the Morgan Stanley Composite Index (MSCI) Emerging Markets in Europe, the
Middle East and Africa. More so, while the t-test analysis suggests that there is no
statistically significant evidence to support that the Islamic fund under or outperforms
the Conventional fund, the correlation analysis showed that both funds are more
positively correlated and statistically significant with the South African market indices.
The findings of the study imply that an investment in the Conventional fund would have
offered a superlative non-risk adjusted return than the Islamic fund. Also, the relative
risk adjusted performance imply that upon the diversification of unsystematic risks in
some market indices, the Islamic fund may perform better than the Conventional fund.
Finally, the positive correlation of both portfolios with the local market benchmarks,
imply that their performance is largely influenced by the performance of both the JSE
Shariah All Share Index and the JSE All Share Index
Description
Masters Degree. University of KwaZulu-Natal, Durban.