A comparative performance of conventional and Islamic unit trusts: market timing and persistence evidence

Mutual funds have been a convenient way for investors to gain the benefit of a diversified portfolio. Mutual fund managers collect funds from a large number of small investors and create a portfolio of assets, and each investor owns a small part of this portfolio in proportion to his investments. The difference between mutual funds and unit trusts lies in their legal structure, but the end result for investors is similar (Investment Company Institute (ICI), 2009). The very obvious potential risk for unit trusts is the volatility of market activities, which will affect the value of a security, bonds or any other security (Lau, 2007). Islamic mutual funds are different from conventional mutual funds as they invest only in Shariah-compliant assets such as stocks and sukuks (Fikriyah et al, 2007; Elfakhani et al, 2005). Conventional unit trust funds managers do not solely invest in equity markets compared with Islamic unit trusts; rather the fund may also comprise all types of risk-free investment (Low and Ghazali, 2007).