An empirical analysis of shariah compliant unit trust funds in Singapore:Does persistence in perfomance exist?

Abstract

Islamic finance has been developing significantly over the years and the demand for Shariah compliant investment instruments has increased. While certain economies including Malaysia and several Middle East countries are leading this growth, interest from other countries have gained as it is seen as a business opportunity. Singapore, a major international financial hub does not want to be left out of this buzzing sector and have taken steps to introduce Islamic finance in the country. One of the earliest Shariah compliant financial offerings in the city-state is through unit trusts. Wnile unit trusts, also known as mutual funds, have been introduced in Singapore since 1959, the first unit trust that meets the investment tenets guided by Shariah was launched in 1995. Since then more of these Shariah compliant mutual funds have sprung in Singapore. Singapore`s laggard nature in Islamic finance as compared to Malaysia has resulted in the lack of studies capturing the performance of Shariah compliant unit trusts in Singapore. This study aims to analyse the performance of Shariah compliant unit trusts in Singapore on an annual basis over a five year period and over different time intervals of one year to five years. The findings suggest that the performance of the Shariah compliant unit trusts against their respective benchmarks and the local Straits Tims Index are dismal are have failed to indicate persistent performance results. However, some of the individual funds showed consistent results throughout the study. This can help investors better choose which funds to select.