Does the Application of Smart Beta Strategies Enhance Portfolio Performance? The Case of Islamic Equity Investments

36 Pages Posted: 28 Jul 2017 Last revised: 20 Aug 2017

See all articles by Muhammad Wajid Raza

Muhammad Wajid Raza

Shadeed Benazir Bhutto University, Dir, Pakistan

Dawood Ashraf

Islamic Development Bank Institute

Multiple version iconThere are 2 versions of this paper

Date Written: July 27, 2017

Abstract

Smart beta strategies (SBs) are quite popular in passive investing due to their ability to outperform conventional market capitalization-weighted (MCW) portfolios. This paper investigates the impact of SBs in the case of constrained portfolios such as Shariah-compliant equity portfolios (SCEPs) by adopting three SBs: fundamental, equal weighting and low risk. The sample consists of equities from broader geographic markets including the USA, Canada, Australia, Europe, Middle East, Indonesia, and Malaysia for the period January 2003 to December 2016. The empirical findings suggest smart beta SCEPs not only outperform traditional MCW portfolios but also SCEPs following a MCW strategy. Low-risk SBs yield the highest risk-adjusted returns and reduction in the probability of fund redemption across all regions. The supremacy of the SBs clearly indicates the value proposition for investors and fund managers alike.

Keywords: Shariah Investments, Fundamental Weighted, Equal Weighted, Low Risk Portfolio, Smart Beta

JEL Classification: G01, G11, G12

Suggested Citation

Raza, Muhammad Wajid and Ashraf, Dawood, Does the Application of Smart Beta Strategies Enhance Portfolio Performance? The Case of Islamic Equity Investments (July 27, 2017). Available at SSRN: https://ssrn.com/abstract=3009640 or http://dx.doi.org/10.2139/ssrn.3009640

Muhammad Wajid Raza (Contact Author)

Shadeed Benazir Bhutto University, Dir, Pakistan ( email )

http://www.sbbu.edu.pk/
http://www.sbbu.edu.pk/
Sheringal, Khyber Pakhtunkhwa 18000
Pakistan

Dawood Ashraf

Islamic Development Bank Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

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