The main objective of the thesis is to explore synergies between Islamic funds and SRIs as well as to evaluate and compare the financial performance of Islamic funds with SRIs, conventional funds, and the market benchmarks in light of SDGs. The analysis of the study was conducted based on a time series data of 41 Islamic funds selected from 11 countries distributed in four geographical areas. The performance evaluation was conducted using the methods of Absolute Performance Evaluation and Risk-Adjusted Performance Evaluation methods. We used the Paired mean difference method to measure the absolute performance of the funds and applied the Sharpe ratio, Treynor’s index, and Jensen’s CAPM-based Alpha for the risk-adjusted performance evaluation.
The results of both tests yielded mixed results. Islamic funds generally outperformed the SRI in the Americas, Asia Pacific, and the GCC regions. They also showed better performance compared to conventional funds in the GCC and Americas. However, none of the results were statistically significant to conclude that Islamic funds have inferior performance than their counterparts. The volatility (riskiness) test results also indicate that Islamic funds are the most stable funds compared to the other funds and the market benchmarks in all regions. The absolute performance comparison between Islamic funds across the regions indicates that Islamic funds in the Americas outperformed the Islamic funds in the other three regions. The outperformance of Americas Islamic funds against Islamic funds in the Asia Pacific and Europe regions is statistically significant.
The equivalent, even better in some regions, of Islamic funds’ performance with SRIs indicates that if Islamic funds integrate SRIs strategies to maximize their impact, it will not affect financial performance the funds. Accordingly, this study suggests developing a new asset class in the Islamic finance industry that is both Shariah-compliant and incorporates ESGs and SRIs principles to create a positive impact on the society and thereby promote the achievement of the SDGs. In our analysis, we named this new asset class ‘Islamic Sustainable Investment Fund (ISIF)’.