Mutual Fund Performance in MENA Countries: Environmental Conditions and Fund Characteristics

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Islamic funds are an upcoming alternative to conventional funds, aided by the increasing prominence of Islamic finance. This paper contributes to the extant literature by comparing the performance of Islamic and conventional funds during crisis and recovery periods. In contrast to most previous literature, we focus on the countries of the Middle East and North African region (MENA), which represent an appealing context to study both from a financial and socioeconomic point of view due to recent events in the area. To this end, we consider a linear model control- ling for the bias of omitting relevant benchmarks. Although this methodology is now widely accepted in the financial literature, it is less common when evaluating Islamic mutual funds, but it is particularly appropriate when the aim is to focus on markets where Shari’ah-compliant investments are in home territory. Our results show that the relative performance of Islamic and conventional funds must be tempered by several factors such as the (geographical) context in which the investment is made. Considering all the MENA region, Islamic funds perform, on average, slightly worse than conventional funds. However, if the analysis is restricted to GCC countries, the result is the opposite. This evidence holds for both crisis and recovery periods. In addition, the performance gap between the two types of funds either widens or shrinks when considering recovery or crisis times, reinforcing the views that Islamic funds are more stable in hazardous times.