Islamic Unit Trust in Malaysia

CHAPTER I

INTRODUCTION

1.1 Research Background

A considerable attention in academics and policy making has recently been received

by Islamic finance. It started in the form of commercial banking three decades before where

the financial activities compliant to Islamic Sharia and which have spread to project finance,

investment banking, capital markets, insurance and micro-finance and wealth management

(Mansur and Bhatti, 2011). From the view of growth, 15-20% per annum has currently been

the growth of the market for Islamic investment product (Financial Times and Stock

Exchange International Limited, FTSE, 2009). The capability of the Islamic banking and

finance has been focused by current research effort as an alternative to the conventional

banking and finance. Compared to conventional counterpart the Islamic banking and finance

industry is in really early stages of development. Preparing the industry-players and

policymakers with the needed information to participate in the industry is in need of the

significant investigation (Abdullah, 2008). The Islamic unit trust fund is one of the products

of the Islamic banking and finance industry that has really focused the significant attention as

reflected by its very rapid growth is the Islamic unit trust industry. In the Malaysian capital

market, unit trust also plays an important role. They are really the major players in the capital

market that they are attracting small investors to capital market (Elfakhani, 2005).

On 31 Dec 2014, the asset allocation inside and outside of Malaysia was rm629.93

billion overall (including Shariah) but rm110.6 billion was only for Shariah (Abdul Rashid,

2005). The positive growth of the unit trust industry in Malaysia has been introduced in

Amanah Saham Nasional and Amanah Saham Bumiputra in 1980 and 1990

respectively .Mutual fund or so called unit trust fund in Malaysia is an investment system. It

pools money from many investors who want to share the same financial objectives,

investment strategy and risk tolerance. The pooled money is invested in a diversified

portfolio and that is called authorized investments approved by the Securities Commission

(Kabir Hasan et al, 2010). The authority promises to investors that investors will gain various

benefits of investing in a unit trust fund such as diversification, liquidity, professional

management, and risk minimization. However, tremendous expansion was shown by the

Malaysian unit trust industry. Over the last few years, the Malaysian Capital Market is going

to be experienced with a very encouraging growth. Based on the needs of Malaysian

investors, there were various financial investment products introduced to supply. However,

1

the interesting thing is that the majority of Malaysians are Muslim that’s why Islamic

financial products are highly demanded (Anwar and Tahir, 1995). The capital market does

not conform to the Islamic principles which are not prescribed by the Holy Qur’an and Al-

Sunnah because the capital market is functioning based on interest. For this reason, Muslim

investors are not willing to come into the capital market openings (Yahya, 2004). Reacting to

the requirements, in 1983, the government has taken the initiative to develop the first Islamic

bank, namely Bank Islam Malaysia Berhad (BIMB), followed by the Kuala Lumpur

ShariahIndex (KLSI) in 1999. Malaysia has witnessed the active involvement of Islamic

Capital Market (ICM) through the result of an emerging of Islamic banking and financial

sector. The objective of ICM is that they need to fulfil the investment needs of Muslim

investors (Low, 2007).

Nowadays, in the market, Islamic unit trust fund has established as an Islamic

financial products. These funds are operated in compliance with the Shariah(Islamic law)

principles. On the 1st March 1993, the Securities Commission (SC) was established and that

was the introduction of unit trust funds to the ICM. In the establishment of SC, they need to

promote and to maintain blond, competent, secure and transparent securities and future

markets and also they need to facilitate the orderly development of an innovative and

competitive capital market (Hayat, 2011). Based on the responsibility of the SC, they must

supervise and regulate all issues related to unit trust schemes as well as the trust fund

companies and the investors. Based on the recent market performance, if we compare both

Islamic and Conventional Unit Trusts in Malaysia, we can find out that investing in Islamic

unit trusts is up to the contractual relationship between a unit trust company and the

respective investors (Ferdian, 2007). There is an Islamic unit trust component, which is

required to have their own Shariahboards consisting Islam law scholars and experts to advise,

monitor and ensure that the investment operations and portfolios are managed in compliance

with Shariahprinciples in all investment companies (Ismaila, 2003). The growing statistical

figure year by year is generated by the remarkable expansion of this industry. Increasing

demand for units, tremendous growth of the NAV of the unit trust funds owes and launches

of new products and optimistic market conditions. In the most recent statistics, we can find

the relationship of collective investment scheme with the total amount of unit trust funds

(Nathie, 2008).

Now, we would like to analyze about the comparison between year to year to

maintain each 6 base years like 2004 to 2009 and 2010 to 2015. Now we are going to

describe about the data from January 2004 to January 2009, we got the number of

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management companies were 37 and 39 accordingly. We found the number of approved

funds was increased from 243 to 550 respectively. In 2004, unit in circulation was 99.651

billion, whereas 241.384 billion was in 2009 and the number of accounts was improved from

10,303,586 to 13,075,655. The total NAV of the fund in 2004 was rm72. The total NAV on,

the fund rm136.614 billion was in 2009 and most importantly, the capitalization was 10.96%

shifted to 20.46% in 2004 & 2009 consequently. If we discuss about the data from February

2010 to February 2015, there were some fluctuations in the number of management

companies, which was from 39 to 36. Although management companies were decreased from

2010 to by 2015, the number of approved funds was increased from 572 to 629 where

conventional unit trust jumped from 417 to 440 and Islamic unit trust was shifted from 155 to

189. Now, we would like to highlight the launched funds from approved funds, it was 553 in

the year of 2010 whereas in 2015, it was 613. In launching funds, there was 403 of

conventional and 150 of Islamic unit trust fund in 2010 while in 2015 there was 427 of

conventional and 186 of Islamic unit trust fund. If we see unit in circulation, there was

438.378 billion units in 2015 where 342.550 was in conventional and 95.828 was in Islamic

based compared to the data of February 2010, there was 280.880 billion units where 223.293

was in conventional and only 57.587 was in Islamic unit trust fund. Now we would like to

talk about no. of account of unit trust fund, it was almost 14,206,151 where conventional was

12,412,129 and Islamic based was 1,794,022 in the February of 2010 compared to data of

2015, it was almost 17,506,913 whereas conventional was 15,089,764 and Islamic based was

2,417,149. Total NAV was RM363.300 billion where convention was 314.715 and Islamic

was 48.585 billion and NAV to Bursa Malaysia Market Capitalism was 20.96% in 2015. But

in 2010, total NAV was RM198.217 billion where convention was 175.767 and Islamic based

was 22.450 and NAV to Bursa Malaysia Capitalism was 19.52% ( Yosof, 2007 ).

This paper aims to evaluate the overall perception of investors to Islamic and

conventional unit trust funds in the context of Malaysia with the measurement challenges, in

case of investment in a unit trust fund. This paper is organized as steps follow: i) begins with

literature review that provides a brief review of prior studies relevant. ii) Outlines the

methodology and measurement employed in this study. iii) Discusses the findings from the

empirical analysis. Section D concludes with the implication and suggestion.

1.2 Problem Statement

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Unit trust in Malaysia shows its growth consistently both in terms of size as well as

the number of fund categories. Some researchers have done studies related to the unit trust,

for instance, Abdullah, Hassan &Mohamad (2007) studied on the performance of Islamic unit

trust. In the same year, Taib and Isa also conducted a research on unit trust with focused on

aggregate funds’ performance. In 2010, Saad did a comparative study on the performance of

Islamic and Conventional unit trust, while Hafizz found out the significance of Islamic and

conventional unit trust. Recently, Baharun, Hasim and Sulong (2013) studied on unit trust’s

customer satisfaction. Fasha (2013) compared the performance between conventional and

Islamic unit trust performance. In addition, Norman (2013) analyzed the performance of unit

trust during a crisis. All those mentioned researches mostly conducted on the performance

side of unit trust itself. The mentioned researcher mostly measured the practical side of unit

trust. There is no research, conducting on the sensitivity of costumer’s perception on unit

trust. Hence, there is still a gap in the research related to unit trust. Therefore, this research

aims at fulfilling the gap.

1.3 Research Objectives

Unit trust in Malaysia plays an important role in its economy as its NAV of Mutual

Funds invested on March 2015 was at RM 362.58 billion. This study will focus on the

investigation of current issues in Islamic unit trust. In line with this, there are three specific

objectives have been developed in this paper. These objectives of this study are:

1. To estimate the sensitivity of customers towards Islamic and conventional unit trust

investment.

2. To investigate the market performance of Islamic and conventional unit trust.

3. To evaluate the important factors influencing demand for Islamic and conventional unit

trust fund.

1.4 Research Questions

To achieve the objective of this study, the following research questions have been

developed:

Are the investors compassionate towards Islamic and conventional unit trust

investment?

4

Does the market performance of Islamic and conventional unit trust funds?

Are there factors influencing investors to invest towards of Islamic and

conventional unit trust fund?

1.5 Significance of the Study

The unit trust fund has become one of the important investment schemes for the

development of the world’s economy. It has been contributed to growing up Malaysian’s

financial conditions. Malaysian people are now being more progressive and stable in case of

financial conditions. Although, we certainly can’t say that all Malaysian people are

financially stable. Lunching unit trust investment mechanism, Malaysian government

confirms their efforts to increase the living situations of the lower income people, with the

minimizing cost and risk. The unit trust product is the important component to mobilize the

saving fund to the investment of the government development work in the Malaysian

economy. All investor’s perception is to earn a good return from their investment. This Study

on the factors influencing the intention to invest in unit trust fund and the investor investment

decisions will help the industry formulate business strategies to stimulate financial growth of

this industry, and eventually it helps in the healthy lung run growth of the country’s

economy.

5

CHAPTER 2

LITERATURE REVIEW

2.1 Previous Studies

Saadet al. (2010) found that on average, the Islamic funds failed to outperform the

performance of conventional fund. However, the Islamic funds seemed to have lower risks

than the conventional funds. The performance of both funds was analyzed over a period of 36

months commencing from February 2000 to January 2003 and evaluated based on the

standard performance measures for funds known as Adjusted Sharpe, Trey nor and Adjusted

Jensen Alpha Indices. The composite index of the Kuala Lumpur Stock Exchange (KLSE)

represented the market benchmark for the conventional funds while the Islamic funds used

Syariah index as proxy for the market. Rasiet al. examined that Islamic unit trusts produce

lower returns than the market portfolio.

The performance of Islamic unit trust with Conventional unit trust is towards FTSE

Bursa Malaysia KLCI (KLCI) to know whether the funds outperform KLCI. The trey nor

Index relates the excess return over the risk-free rate to the additional risk taken, where the

higher the ratio indicates the better the performance of the portfolio under analysis. Jensen

Alpha is used to determine the abnormal return of a security or portfolio of securities over the

theoretical expected return. The Islamic unit trusts funds studied were ranked based on

average return, standard deviation, coefficient of variation and beta (systematic risk).

Azrul Hafizz (2010) found that the differences between Islamic funds and

conventional funds are not significant based on t-tests and the locations of both type of funds

according to Mann-Whitney tests in performance between Islamic and conventional funds in

the context of Malaysian capital market. The use of either KLCI Index or EMAS as a market

benchmark does not influence the result. This study uses 94 funds as the sample, which is

made up of 44 Islamic funds and 50 conventional funds. To achieve the major objectives of

this paper, Sharpe ratio, Trey nor index and Jensen alpha are used to evaluate the mutual

funds’ performance.

According to Kassim and Kamil (2012) during the non-crisis period, the performance

of the Islamic unit trusts is comparable to that of the market benchmark, while during the

crisis period, the Islamic unit trusts perform better compared to the non-crisis period. The

adjusted Sharpe index, adjusted Jensen Alpha index, and Trey nor index is adopted to

compare the performance of the Islamic unit trusts against the market benchmark and risk-

6

free return. In measuring risk and diversification, the study relies on the standard deviation

and R coefficient of determination, respectively. Norman et al. (2013) examined that

conventional unit trust funds perform better during non-crisis and after the crisis period while

shariah-based unit trust funds have better performance during financial crisis period.

Conventional funds also have a higher standard deviation than shariah-based funds

which implied that conventional funds are more risky than shariah-based funds. The result

also found that risk, return profile is related to the return performance of funds. This study

focuses on seven conventional equity funds and seven hariah-based equity funds of Public

Mutual Berhad. The data are computed for ten year period from January 2003 to December

2012 and divided into three sub-periods which are before the financial crisis, during the

financial crisis and after financial crisis. Benchmarks used in this study are FTSE Bursa

Malaysia KLCI (FBM KLCI) for conventional funds, FTSE Bursa Malaysia EMAS Shariah

Index (FBMS) for shariah-based funds and three-month Treasury-bill as risk-free rate

benchmark. Three standard methods of Sharpe index, Trey nor index and Jensen index are

used in this study to evaluate the performance of unit trust funds (Muhammad, 2010).

Abdullah et al. (2007) found that Islamic funds performed well than the conventional

funds during bearish economic trends while, conventional funds showed better performance

than Islamic funds during bullish economic conditions. In addition to that finding, both

conventional and Islamic funds were unable to achieve at least 50 per cent market

diversification levels, though conventional funds are found to have a marginally better

diversification level than the Islamic funds.

According to Sandha (2013) examined that the performance of both funds Islamic

and conventional unit trust both was well. The performance was evaluated based on standard

performance measures known as Adjusted Sharpe Indices. As to conduct the study, the

collected data were from January 2002 to December 2012 by using quarterly basis which

retrieve from secondary data of Islamic and Conventional Unit Trust funds. Bashir and

Nawang (2011) pertaining to the return for both conventional and Islamic funds and the

market indices, it is found that conventional funds outperform the market and on the

contrary, Islamic funds underperform the market. It is also found that fund managers

have poor timing ability and they are unable to correctly identify good bargain stocks

and to forecast price movements of the general market. Their main objective was to

evaluate the overall performance of Islamic and conventional unit trust funds in the context of

Malaysia’s capital market, in terms of risk, return and diversification of selected unit trust in

7

Malaysia for the 5-year period from 2002 to 2006. They applied the most popular

measures of performance such as Sharpe index, Trey nor index, and Jensen index.

According to Choong et al. (2012) the development and the performance trends of

unit trust investment schemes in Malaysia both conventional as well as Islamic unit trust

schemes (UTSs). The rapid growth of the investment management industry over the last 10

years was largely driven by the unit trust industry, in which the net asset value (NAV) grew

annually by 18.0% from RM43.3 billion in 2000 to RM226.8 billion in 2010. The penetration

rate of the unit trust industry rose from 10.0% in 2000 to 17.8% in 2010.

2.2 Formulated Hypotheses

The hypotheses of this research as the followings:

1. There is no significant perceptual difference between Islamic and conventional unit

trust in Malaysia.

2. There is no significant difference in investing to unit trust fund selection criteria as

perceived by the investor.

8

CHAPTER 3

RESEARCH METHODOLOGY

We collected data from primary sources by conducting surveys among80 respondents,

but some data were missing and we finally adapted 78 data to estimate the result. Our

respondents were Malaysian citizens who are somehow informed about the unit trust fund

operation if different forms. We also collected data from secondary sources like the FTSE

Bursa Malaysia EMAS Shariah Index and FTSE Bursa Malaysia KLCI (KLCI).This

research compares the customer perception on conventional and Islamic unit trust fund after

that we try to identify the relevant factors which associated with unit trust fund management.

3.1 Instrument

This research paper reports part of a larger study on investment in a unit trust fund in

Malaysia. To measure the performance of unit trust fund we used Sharpe’s,Treynor’s, and

Jensen index and to know about customer perception about unit trust a primary data survey

had conducted. In the survey form , Section A talked about our respondent demographic

profile. In section B, all questions are about investor perception of that particular

product.Consequently, section C and D, by focusing on investment in Islamic and

conventional unit trust and the respondent ware asked to indicate on a five pointLikert type

scale that range from “Strongly disagree to “Strongly agree”. We have conducted several

tests, namely, regression analysis, repeated measure ANOVA, correlation and so on.

3.2 Sampling and Data collection

This research used primary data that were collected by accompanying surveys in

different cultural people. The target respondents in the research were an employer,

employee,academics and professionals who are concerned about the unit trust investment.

The main reason for choosing them as the sample was because the respondents contributed

their income to the unit trust fund. We have given the effort to provide the latest update of the

unit trust industry, the study considers the data from April 2010 to March 2015. We have

collected data from secondary market like the FTSE Bursa Malaysia EMAS Shariah Index

and FTSE Bursa Malaysia KLCI (KLCI).

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3.3 Statistical Analysis

Primary data involved to carry out the analysis of funds, according to designed

variables. For the Islamic and conventional unit trust, regression, repeated measures one way

ANOVA test and correlation test did to measure the degree of perception of the customer

about unit trust in Malaysia. Designed Hypothesis testing of fund characteristics was mainly

carried out using two-tail ANOVA test for differences in the means. Other than that, we

collect secondary data from Bloomberg to measure performance of conventional and Islamic

unit trust by using Sharpe’s,Treynor’s, and Jensen index.

3.4 Measurement of performance

Income and capital gain measures the return of unit trust funds. The calculation for

unit trust fund as follows:

Rp , t=¿

NAV t−NAV t−1+D t

NAV t−1

¿`

In the above equation, RI, indicates the rate of return of the unit trust (i) at the time of

t, NAVt refer to net asset value at time t,, NAVt-1consider as net asset value single period

before time t, D refers dividend/cash disbursement at time t.

In this paper, three standard methods, namely the Sharpe's index, Treynor's index, and

Jensen's Alpha index are employed to evaluate the performance of Islamic unit trust funds.

3.4.1 Sharpe and Adjusted Sharpe Performance Model

The Sharpe's index is calculated by subtracting the risk-free rate from the rate of

return for a portfolio and dividing the result by the standard deviation of the portfolio returns,

which can be calculated as follows:

Sharpe Index = (Portfolio Return – Risk-Free Returns) / Std Deviation

SI=Kr−Kfσ p

Contrary, Sharpe index was found to have some biases and Jobson and Korkie (1981) have

modified the Sharpe index to the adjusted Sharpe's index. Therefore, this study adopts the

Adjusted Sharpe Index which is formulated as followed:

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Where, ASi is adjusted Sharpe measure for fund i, Si is Sharpe Index measure for fund i, and

N is the number of observations.

ASI= Si x NN+0.75

3.4.2 Treynor Performance Model

Treynor (1965) developed the first measured on portfolio performance that included

risk. The Treynor Index focuses on the portfolio's undiversifiable risk known as the

systematic risk and measured by beta. The Treynor measure can be explained by

Treynor Index = (Portfolio Return – Risk Free Return) / Beta

TI=RI−RFRβ

Where, Ti is Treynor measure to fund I, RI is the average return for a fund i, RFRis average

return on a risk free investment, and βi is the systematic risk or beta for fund i.

3.4.3 Jensen and Adjusted Jensen Performance Model

The Jensen Index or alpha was developed by Jensen (1968) based on the capital asset

pricing model (CAPM). Alpha is used to determine by how much the realized return of the

portfolio varies from the required return, as determined by CAPM, which can be expressed as

follows:

JI= (Rj - Rf) – βj (Rm – Rf)

Where Rp is the realised return of portfolio, Rmis the market return, and the Rf is th e risk-

free rate.

Again, this measurement was modified by Jobson and Korkie (1984) due to biasness and was

named the Adjusted Jensen Index which is also applied in this study:

AJI= JIβ

Where, αi is alpha or the Jensen measure for fund i, and βi is the systematic risk or beta for

fund.

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3.4.4 Measurement of Risk and Diversification Model

The formula of measurement of risk and diversification model would be as

followings:

α = ( ∑ (Ri,t – Ri)2/ (N – 1))1/2

β= COV(RiRm)/ VarRm

3.5 Summary of Performance Model Measurement

The summary of performance model measurement using the above mentioned tools

would be as followings:

Table 3.5

Summary of Performance Model Measurement

Measurement Formula Symbolization

Return Rp , t=¿

NAV t−NAV t−1+D t

NAV t−1

¿ Rp,t is rate of return of

the unit trust p for the

month of t

NAV t is net asset value

for the month t

• NAVt-1is net asset

value one period before

for the month t

Dt is indicates dividend

at time t

Sharpe Index SI=Kp−Kfσ p

Kr = average monthly return

of portfolio ‘p’ over the

evaluation period

Kf= average monthly risk-

free rate of return, the return

of government bonds with

the same duration under

study.

12

σ = standard deviation of

the portfolio’s returns

Adjusted Sharp Index ASI= Si x NN+0.75

Si is Sharpe Index measure

for fund i

N is the number of

observations

Jensen Index JI= (Rj - Rf) – βj (Rm – Rf) JI = intercept of Capital

Asset Pricing Model after

allowing for risk free rate of

return

Rm = average return on the

market index for the period

under study

Rj= is the realized return of

portfolio

βj = systematic risk of

portfolio ‘j’

Adjusted Jensen Index AJI= JIβ

βj = systematic risk of

portfolio ‘j’

Treynor Index TI=RI−RFRβ j

RI = the average return of

portfolio ‘j’ over the

evaluation period

RRF= average risk free

interest rate of a government

bond with the same duration

under the study

βj = a measure of the

sensitivity / volatility of a

portfolio ‘j’s return

13

compared to the market

index.

Standard

Deviation

α = ( ∑ (Ri,t – Ri)2/ (N – 1))1/2 Ri,t = is rate of return of the I

unit trust at time t

Ri= is average return for

fund i Nis number of

observations

Beta β= COV(RiRm)/ VarRm β = is systematic risk or beta

for fund i

Cov (Ri, Rm ) is covariance

between fund returns Riand

market returns RM

Var (RM) is a variation of

market returns RM

3.6 Theoretical Framework of the Research

This research is a quantitative research that aims to explore the preference of

Malaysian in choosing whether Islamic or conventional unit trust. By getting the date of the

comparison between Islamic and conventional unit trust in Malaysia from the previous

research, then we would like to conduct the questionnaire to the sample of our research. Our

population would be Malaysian citizens. We also would determine the factors that influence

the preference of choosing Islamic or conventional unit trust.

Independent Variable Dependent Variable

Unit Trust Investor perception = Performance

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Conventional Unit Trust

Islamic Unit Trust

3.7 Demand of Unit Trust 

Unit trust is a growing investment that can be alternative for people to invest and gain

income. As a growing investment sector, people still not aware of unit trust and hence the

demand of unit trust is not as that high compared to other investment sectors. However, unit

trust shows its consistency to keep growing, for instance, in Malaysia the total percentage of

net asset value (NAV) of unit trust in February 2015 contributes almost 21% to Bursa

Malaysia market capitalization (Securities Commission, 2015).

3.8 Impact of Unit Trust

Unit trust is a durable investment to the crisis. For instance, according to Kasim and

Kamil (2012) found that Islamic unit trust performed better than the market during a down

market, while in a non-crisis period, the performance of the Islamic unit trusts are comparable

to that of the market.In addition, they stated that the changing beta value of the Islamic unit

trusts over the various sample periods suggests that the Islamic unit trusts are sensitive to the

changes in the market, particularly during the up-market, but relatively less sensitive in the

down market period. Consistently throughout the analysis, the Islamic unit trusts are shown

to be well-managed as they are shown to have a commendable diversification level in all sub-

periods.

Based on the above statement, unit trust would give a better impact to the economy as

well as the investor since it performed well during crisis.

3.9 Advance in Technology

Technology eases everything, including unit trust investment. There are some benefits

from the advance of technology for a unit trust. For example, nowadays invest in unit trust

can be done personally from home without should come to the bank. There are many online

products of unit trusts, such as HSBC Singapore unit trust product and many others.

Additionally, the advance of technology also could ease to get the information about unit

trust for all participants.

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CHAPTER 4

ANALYSIS AND DISCUSSION

The objective of this section to analyze the performance of the Islamic and convention

unit trusts from April 2010 to March 2015, the study compares the performance between

Islamic and conventional unit trusts, and the customer perception to invest in this product.

4.1 Primary Data Analysis

Below are the tables as the evidence of primary data analysis:

Table 4.1

Primary Data Analysis to Estimate the Investor Perception toward Islamic and

Conventional Unit Trust

Factors N F t. Mean Std.

Deviation

Std. Error

Mean

P-Value

74-11.639 -1.307 .972 .112

.000

-10.069 -1.213 1.044 .120

-10.485 -1.093 .903 .104

-2.767 -.400 1.252 .145

-4.795 -.533 .963 .111

-4.102 -.547 1.154 .133

-7.355 -.907 1.068 .123

-6.736 -.747 .960 .111

If we see the overall performance mentioned above, the significance of Islamic unit

trust is higher than a conventional unit trust fund. So, the public perception should go to that

side based on their high return. Focusing the significance is the way to make a decision to

invest. Therefore, Islamic unit trust is more productive compared to conventional unit trust.

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Table 4.2

Selection Criteria as Perceived by the Investor to the Unit Trust Fund

Mean N

Std.

Deviation

Std.

Error

Mean

Correlatio

n Sig.

Conventional

3.47 75 0.905 0.105 -0.057 0.624

3.33 75 0.875 0.101 0.111 0.341

3.43 75 0.903 0.104 -0.109 0.353

3.33 75 0.991 0.114 0.049 0.675

3.52 75 0.777 0.09 -0.002 0.989

3.57 75 0.825 0.095 0.119 0.309

3.6 75 0.822 0.095 0.032 0.788

3.44 75 1.043 0.12 -0.027 0.815

3.23 75 0.981 0.113 0.046 0.697

3.73 75 0.759 0.088 0.094 0.421

3.6 75 0.822 0.095 0.012 0.92

Islamic

3.87 75 0.859 0.099 0.023 0.847

4.373 75 4.7385 0.5472 -0.182 0.117

3.95 75 0.751 0.087 -0.068 0.565

3.76 75 0.898 0.104 -0.2 0.086

3.87 75 0.844 0.097 0.158 0.176

3.89 75 0.815 0.094 0.055 0.639

3.91 75 0.738 0.085 -0.053 0.651

3.65 75 0.862 0.1 -0.153 0.189

3.87 75 0.794 0.092 -0.062 0.598

3.87 75 0.704 0.081 -0.016 0.889

4.2 Performance Measurement

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Table 4.2.1, 4.2.2 and 4.2.3 below show the summary of Sharpe’s Index, Treynor’s

Index, and Jensen’s index. The measured performance of Conventional and Islamic unit trust

funds is measured by portfolio performance measurement consists of Sharpe, Treynor, and

Jensen method.

Table 4.2.1

Average Return on Unit Trust Investments

Index Total Return Differences

FBMS Index 70.01 % 7.20%

FBMKLCI Index 38.64 %

FBM 100 Index 40.94 % 1.92%

The performance of the Islamic unit trusts during our research period is shown the

highest compared to conventional unit trust even the top 100 combined unit trusts in

Malaysia, which is 70.01%. However, in the conventional unit trust, there is shown only

38.64% return which is almost half of the return of Islamic unit trust. Moreover, there is a

shock if we focus on the result of best 100 combined unit trust fund with 40.94% return,

which is just above of the return of conventional unit trust. Therefore, based on the overall

performance of unit trust fund, I can assure that Islamic unit trust will be the best choice for

investors in future to invest for high return compared to others. Finally, it can be

recommended that if the Malaysian government takes care of Islamic unit trust fund, it will

be grown to be the most popular.

Table 4.2.2

Conventional Unit Trust Fund Performance Measured by Sharpe’s, Treynor’s, and

Jensen’s Index.

Conventional

Unit Trust

Sharpe’s

Index

Sharpe’s

Adjusted

Treynor’s

Index

Jensen’s

Index

Jensen’s

Adjusted

FBMKLCI Index .1129 .1115 .5273 .3656 .3339

SD 3.15 3.15 3.15 3.15 3.15

Note: FTSE Bursa Malaysia KLCI

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Based on the measurement for Conventional unit trust funds, the ranking of Treynor

Index shows the highest return that was .5273. On the other hand, FBMKLCI Index result

indicates the lowest ranking for the Sharpe index that is .1129.

Table 4.2.3

Islamic Unit Trust Fund Performance Measured by Sharpe’s, Treynor’s, and Jensen’s

Index.

Islamic Unit

Trust

Sharpe’s

Index

Sharpe’s

Adjusted

Treynor’s

Index

Jensen’s

Index

Jensen’s

Adjusted

FBMS index .2042 0.2016 .63714 .6263 .6904

SD 4.64 4.64 4.64 4.64 4.64

Note: FBMS is FTSE Bursa Malaysia EMAS Shariah Index.

From the above table, the result for Islamic unit trust funds shows that the overall

performance indicates all funds are performing very well. As we seen in the table, the highest

return of FBMS index by Treynor’s that was .6371. On the contrary, the lowest return

is .2041 that is shown by the Sharpe index.

The synopsis of the fund performance measurement for both Conventional and

Islamic unit trust funds using Sharpe, Jemsen and Treynor index shows all had the positive

result. Overall performance for Sharpe and Treynor Index for both unit trust funds indicates

good market performance. Finally, the funds are having a profitable return and it indicates to

take a good decision making for the investors to get a profitale investment. Besides, it can be

said that Islamic unit trust are performing better than conventional unit trust in the market.

4.3 Implication

The findings of the paper lead important concrete implications to the unit trust

investors along with unit trust players. The finding of this study associated the investors and

players to set strategies their portfolio during the changes in the economic conditions. The

results of this study recommends that the Islamic unit trust fund yet to be an effective hedging

tool during weak market and deliver impressive portfolio divergence facilities for the

investors. Through the findings of this study, investors able to employ strategies and diversify

their range consequently in the period of different market conditions.

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The results of this paper, recommend that the Islamic unit trusts industry should be upgraded

widely with more opportunities such as products range spreading, broadening of investing

opportunities, flexibilities and expulsions. The central banks, Shariah board or other

regulatory authorities should reinforce the Islamic unit trust funds as it provides possibilities

for diversification for the investors and also advancing market efficiency.

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CHAPTER 5

CONCLUSION AND RECOMMENDATION

5.1 Conclusion

The primary focus of this study is to determine the comparative performance of

Islamic and conventional unit trust fund across the Malaysian economic condition in last five

years. The results show that the performances of the unit trusts funds are slightly below than

that of the market. A comparative measure of variability designates that Islamic unit trust

funds are less uncertain than conventional funds. Both unit trust funds found poor selection

and market timing abilities.

Our findings refers that Islamic unit trust funds accomplish better than conventional

unit trust funds for the last five years, which a positive sign for the growth of Islamic unit

trust fund industry. Therefore, Islamic unit trust funds can be used as hedging tools during

any financial breakdown economic collapse. The Islamic unit trusts are found to be glowing

accomplished as they are exposed to have a creditable expansive level in aspects of economic

conditions. The results proved that the Islamic unit trusts are able to outstrip the market

during the critical situation.

5.2 Recommendation

This study recommended that the Islamic unit trust funds able to become a feasible

substitute to the conventional investment opportunities predominantly throughout market

uncertainties.

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