Attributes and performance of fund management companies: Evidence from the largest Shariah-compliant fund markets
Abstract
Background and Purpose: The study examines the effect of fund management companies’ (FMCs) attributes on FMC performance in the four countries with the largest number of Islamic funds from 2007 to 2018.
Methodology: The study uses pooled regression analysis on 70 FMCs, comprising Saudi Arabia (25), Malaysia (20), Indonesia (14) and Pakistan (11). The sample is further divided into FMC with Islamic funds focused (IFFMC) and conventional funds focused (CFFMC).
Findings: Only past flows are insignificantly related to performance. Both proxies for size positively relate to returns, but only in the case of Saudi Arabia. In Pakistan, performance improves with assets under management (AUM), while in Malaysia and Indonesia, an increasing number of funds negatively relate to performance. A relatively high number of better performing funds positively affect FMC and vice versa. Additionally, there are significant differences in the factors determining IFFMC and CFFMC performance, with the number of funds and AUM positively affecting the performance of IFFMC but not CFFMC. Poorly performing funds adversely affect CFFMC but not IFFMC.
Contributions: This study provides useful information for investors using a top-down approach to FMC then fund selection, and for managers in evaluating the impact of factors like FMC scale and scope on performance. The impact of these attributes differs between CFFMCs and IFFMCs which lies in the performance differences commonly observed, at the FMC and fund level.
Keywords: Islamic funds management industries, Islamic mutual fund, fund performance, Islamic finance.
References
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Abdul Rahman, A., Azlan Yahya, M., & Herry Mohd Nasir, M. (2010). Islamic norms for stock screening: A comparison between the Kuala Lumpur stock exchange Islamic index and the dow jones Islamic market index. International Journal of Islamic and Middle Eastern Finance and Management, 3(3), 228–240.
Adrianto, F., Chen, E.-T., & How, J. C. Y. (2018). Cross-subsidization in SRI fund families. SSRN Electronic Journal 3243002, 1(1), 1-41.
Adrianto, F., Chen, E.-T., & How, J. C. Y. (2019). Spillover effects in SRI fund families. SSRN Electronic Journal 3311876, 1(1), 1-40.
Agnesens, J. (2013). A statistically robust decomposition of mutual fund performance. Journal of Banking and Finance, 37(10), 3867–3877.
Ahmad, Y., Sun, G., & Khidmat, W. B. (2017). Fund-specific determinants of performance: An empirical study of Islamic and conventional mutual funds of Pakistan. International Journal of Economics and Financial Issues, 7(5), 359-370.
Bani Atta, A., & Marzuki, A. (2019a). The determinants of Islamic mutual fund flows: Evidence from Malaysia. International Journal of Advanced Research in Economics and Finance, 1(1), 10–21.
Bani Atta, A., & Marzuki, A. (2019b). The impact of funds and fund family characteristics on fund performance: Evidence from Malaysia. Journal of Wealth Management & Financial Planning, 6(1), 3–23.
Bani Atta, A., & Marzuki, A. (2020). Islamic vs. conventional funds within the family: Selectivity skills and market timing ability. Journal of Islamic Monetary Economics and Finance, 6(2), 439-462.
Benjelloun, H., & Abdullah, A. M. (2009). Index funds and diversification in Saudi Arabia. International Journal of Islamic and Middle Eastern Finance and Management, 2(3), 201–212.
Berk, J. B., & Green, R. C. (2004). Mutual fund flows and performance in rational markets. Journal of Political Economy, 112(6), 1269-1295.
Bessler, W., Kryzanowski, L., Kurmann, P., & Luckoff, P. (2016). Capacity effects and winner fund performance: The relevance and interactions of fund size and family characteristics. The European Journal of Finance, 22(1), 1-27.
Bhojraj, S., Jun Cho, Y., & Yehuda, N. (2011). Mutual fund family size and mutual fund performance: The role of regulatory changes. Journal of Accounting Research, 50(3), 647–684.
Brown, S. J., & Goetzmann, W. N. (1995). Performance persistence. The Journal of Finance, 50(2), 679–698.
Brown, D. P., & Wu, Y. (2012). Mutual fund families and performance evaluation. https://pdfs.semanticscholar.org/
Capgemani. (2016). World wealth report. https://worldwealthreport.com/login/
Chen, J., Hong, H., Huang, M., Kubik, J. D., American, T., Review, E., & Dec, N. (2004). Does fund size erode mutual fund performance? The role of liquidity and organization. American Economic Review, 94(5), 1276–1302.
Chen, J., Hong, H., Jiang, W., & Kubik, J. D. (2013). Outsourcing mutual fund management: Firm boundaries, incentives and performance. The Journal of Finance, 68(2), 523-558.
Cici, G., Dahm, L. K., & Kempf, A. (2018). Trading efficiency of fund families: Impact on fund performance and investment behavior. Journal of Banking and Finance, 88(1), 1–14.
COMCEC. (2018). Islamic fund management. Standing. http://www.comcec.org/en/wp-content/uploads/2018/11/11-FIN-AN.pdf.
Elton, E. J., Gruber, M. J., & Blake, C. R. (1996). Survivor bias and mutual fund performance. Review of Financial Studies, 9(4), 1097–1120.
Elton, E. J., Gruber, M. J., & Green, T. C. (2007). The impact of mutual fund family membership on investor risk. Journal of Financial and Quantitative Analysis, 42(2), 257–277.
Ferreira, M. A., Keswani, A., Miguel, A. F., & Ramos, S. B. (2012). The determinants of mutual fund performance: A cross-country study. Review of Finance, 17(2), 483–525.
Fikri, S. M., & Yahya, M. H. (2019). The fund characteristics, fees ad expenses structure between conventional and Islamic mutual fund. Asian Academy of Management Journal of Accounting and Finance, 5(1), 157-190.
Filip, A. M., & Pochea, M. M. (2015). Romanian mutual funds flows-performance relationship. Procedia Economics and Finance, 32(15), 1377–1383.
Gaspar, J. M., Massa, M., & Matos, P. (2006). Favoritism in mutual fund families? Evidence on strategic cross‐fund subsidization. The Journal of Finance, 61(1), 73-104.
GIFR. (2012). Global Islamic finance report. http://www.gifr.net/home_ifci.htm.
Göricke, M. (2016). Do generalists profit from the fund families' specialists? Evidence from mutual fund families offering sector funds. (CFR Working Paper, No. 16-09). University of Cologne, Centre for Financial Research (CFR), Cologne.
Greve, H. R. (2003). A behavioral theory of R&D expenditures and innovations: Evidence from shipbuilding. The Academy of Management Journal, 46(6), 685–702.
Grinblatt, M., Titman, S., & Wermers, R. (1995). Momentum investment strategies, portfolio performance, and herding: A study of mutual fund behavior. American Economic Review, 85(5), 1088–1105.
Gruber, M. J. (1996). Another puzzle: The growth in actively managed mutual funds. The Journal of Finance, 51(3), 783–810.
Guedj, I., & Papastaikoudi, J. (2004). Can mutual fund families affect the performance of their funds? https://ssrn.com/abstract=467282
Hammami, Y., & Oueslati, A. (2017). Measuring skill in the Islamic mutual fund industry: Evidence from GCC countries. Journal of International Financial Markets, Institutions and Money, 49(1), 15–31.
Hunter, D., Sun, Z., & Benson, K. (2020). The exclusive role of centralized fund family management. Journal of Financial Services Research, 58(2), 199-236.
Ivkovićh, Z. (2002). Essays in financial economics. (Unpublished doctoral dissertation). Yale University.
Jamali, D., Karam, C., Yin, J., & Soundararajan, V. (2017). CSR logics in developing countries: Translation, adaptation and stalled development. Journal of World Business, 52(3), 343-359.
Kapur, S., & Timmermann, A. (2005). Relative performance evaluation contracts and asset market equilibrium. The Economic Journal, 115(506), 1077–1102.
Keswani, A., & Stolin, D. (2012). Investor reaction to mutual fund performance: Evidence from UK distribution channels. The Journal of Financial Research, 35(3), 425-450.
Khorana, A., & Servaes, H. (1999). The determinants of mutual fund starts. The Review of Financial Studies, 12(5), 1043–1074.
Khorana, A., Servaes, H., & Tufano, P. (2005). Explaining the size of the mutual fund industry around the world. Journal of Financial Economics, 78(1), 145–185.
Kraatz, M. S., & Zajac, E. J. (2001). How organizational resources affect strategic change and performance in turbulent environments: Theory and evidence. Organization Science. 12(5), 632–657.
Makni, R., Benouda, O., & Delhoumi, E. (2016). International evidence on Islamic equity fund characteristics and performance persistence. Review of Financial Economics, 31(1), 75-82.
Malaysia International Islamic Finance Centre (MIFC). (2020). Islamic funds in Southeast Asia. http://www.mifc.com/index.
Malaysia International Islamic Finance Marketplace (MIFC). (2017). Islamic funds: Gearing up. http://www.mifc.com/index.
Malhotra, D. K., & McLeod, R. W. (1997). An empirical analysis of mutual fund expenses. Journal of Financial Research, 20(2), 175–190.
Massa, M. (2003). How do family strategies affect fund performance? When performance-maximization is not the only game in town? Journal of Financial
Economics, 67(2), 249–304.
Massa, M., & Patgiri, R. (2009). Incentives and mutual fund performance: Higher performance or just higher risk taking? The Society for Financial Studies, 22(5), 1777–1815.
McCourt, M., & Ramos, B. (2019). Persistence and skill in the performance of mutual fund families. https://www.amundi.com/
Miralles‐Quirós, M. M., Miralles‐Quirós, J. L., & Redondo‐Hernández, J. (2019). The impact of environmental, social, and governance performance on stock prices: Evidence from the banking industry. Corporate Social Responsibility and Environmental Management, 26(6), 1446-1456.
Mohammad, W. M. W., & Wasiuzzaman, S. (2021). Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia. Cleaner Environmental Systems, 2(1), 1-11.
Nanda, V., Wang, Z. J., & Zheng, L. (2004). Family values and the star phenomenon: Strategies of mutual fund families. Review of Financial Studies, 17(3), 667–698.
Premachandra, I. M., Zhu, J., Watson, J., & Galagedera, D. U. A. (2012). Best-performing US mutual fund families from 1993 to 2008: Evidence from a novel two-stage DEA model for efficiency decomposition. Journal of Banking and Finance, 36(12), 3302–3317.
Stephen, P. B., Mehra, A., Brass, D. J., & Labianca, G. (2009). Network analysis in the social sciences. Sciences Review, 323(5916), 892–895.
Tenk, T. T. (2012). The impact of unit trust management company fund investment on investors' risk. Asian Journal of business and Accounting, 5(1), 27-54.
Tower, E., & Zheng, W. (2008). Ranking mutual fund families: Minimum expenses and maximum loads as markers for moral turpitude. SSRN Electronic Journal, 8(1), 1-44.
Wermers, R. (2000). Mutual fund performance: An empirical decomposition into stock picking talent, style, transactions costs, and expenses. The Journal of Finance, 55(4), 1655–1695.
Wilson, J. W., & Jones, C. P. (2002). An analysis of the S&P 500 index and Cowles’s extensions: Price indexes and stock returns, 1870-1999. The Journal of Business, 75(3), 505–533.
Abdul Rahman, A., Azlan Yahya, M., & Herry Mohd Nasir, M. (2010). Islamic norms for stock screening: A comparison between the Kuala Lumpur stock exchange Islamic index and the dow jones Islamic market index. International Journal of Islamic and Middle Eastern Finance and Management, 3(3), 228–240.
Adrianto, F., Chen, E.-T., & How, J. C. Y. (2018). Cross-subsidization in SRI fund families. SSRN Electronic Journal 3243002, 1(1), 1-41.
Adrianto, F., Chen, E.-T., & How, J. C. Y. (2019). Spillover effects in SRI fund families. SSRN Electronic Journal 3311876, 1(1), 1-40.
Agnesens, J. (2013). A statistically robust decomposition of mutual fund performance. Journal of Banking and Finance, 37(10), 3867–3877.
Ahmad, Y., Sun, G., & Khidmat, W. B. (2017). Fund-specific determinants of performance: An empirical study of Islamic and conventional mutual funds of Pakistan. International Journal of Economics and Financial Issues, 7(5), 359-370.
Bani Atta, A., & Marzuki, A. (2019a). The determinants of Islamic mutual fund flows: Evidence from Malaysia. International Journal of Advanced Research in Economics and Finance, 1(1), 10–21.
Bani Atta, A., & Marzuki, A. (2019b). The impact of funds and fund family characteristics on fund performance: Evidence from Malaysia. Journal of Wealth Management & Financial Planning, 6(1), 3–23.
Bani Atta, A., & Marzuki, A. (2020). Islamic vs. conventional funds within the family: Selectivity skills and market timing ability. Journal of Islamic Monetary Economics and Finance, 6(2), 439-462.
Benjelloun, H., & Abdullah, A. M. (2009). Index funds and diversification in Saudi Arabia. International Journal of Islamic and Middle Eastern Finance and Management, 2(3), 201–212.
Berk, J. B., & Green, R. C. (2004). Mutual fund flows and performance in rational markets. Journal of Political Economy, 112(6), 1269-1295.
Bessler, W., Kryzanowski, L., Kurmann, P., & Luckoff, P. (2016). Capacity effects and winner fund performance: The relevance and interactions of fund size and family characteristics. The European Journal of Finance, 22(1), 1-27.
Bhojraj, S., Jun Cho, Y., & Yehuda, N. (2011). Mutual fund family size and mutual fund performance: The role of regulatory changes. Journal of Accounting Research, 50(3), 647–684.
Brown, S. J., & Goetzmann, W. N. (1995). Performance persistence. The Journal of Finance, 50(2), 679–698.
Brown, D. P., & Wu, Y. (2012). Mutual fund families and performance evaluation. https://pdfs.semanticscholar.org/
Capgemani. (2016). World wealth report. https://worldwealthreport.com/login/
Chen, J., Hong, H., Huang, M., Kubik, J. D., American, T., Review, E., & Dec, N. (2004). Does fund size erode mutual fund performance? The role of liquidity and organization. American Economic Review, 94(5), 1276–1302.
Chen, J., Hong, H., Jiang, W., & Kubik, J. D. (2013). Outsourcing mutual fund management: Firm boundaries, incentives and performance. The Journal of Finance, 68(2), 523-558.
Cici, G., Dahm, L. K., & Kempf, A. (2018). Trading efficiency of fund families: Impact on fund performance and investment behavior. Journal of Banking and Finance, 88(1), 1–14.
COMCEC. (2018). Islamic fund management. Standing. http://www.comcec.org/en/wp-content/uploads/2018/11/11-FIN-AN.pdf.
Elton, E. J., Gruber, M. J., & Blake, C. R. (1996). Survivor bias and mutual fund performance. Review of Financial Studies, 9(4), 1097–1120.
Elton, E. J., Gruber, M. J., & Green, T. C. (2007). The impact of mutual fund family membership on investor risk. Journal of Financial and Quantitative Analysis, 42(2), 257–277.
Ferreira, M. A., Keswani, A., Miguel, A. F., & Ramos, S. B. (2012). The determinants of mutual fund performance: A cross-country study. Review of Finance, 17(2), 483–525.
Fikri, S. M., & Yahya, M. H. (2019). The fund characteristics, fees ad expenses structure between conventional and Islamic mutual fund. Asian Academy of Management Journal of Accounting and Finance, 5(1), 157-190.
Filip, A. M., & Pochea, M. M. (2015). Romanian mutual funds flows-performance relationship. Procedia Economics and Finance, 32(15), 1377–1383.
Gaspar, J. M., Massa, M., & Matos, P. (2006). Favoritism in mutual fund families? Evidence on strategic cross‐fund subsidization. The Journal of Finance, 61(1), 73-104.
GIFR. (2012). Global Islamic finance report. http://www.gifr.net/home_ifci.htm.
Göricke, M. (2016). Do generalists profit from the fund families' specialists? Evidence from mutual fund families offering sector funds. (CFR Working Paper, No. 16-09). University of Cologne, Centre for Financial Research (CFR), Cologne.
Greve, H. R. (2003). A behavioral theory of R&D expenditures and innovations: Evidence from shipbuilding. The Academy of Management Journal, 46(6), 685–702.
Grinblatt, M., Titman, S., & Wermers, R. (1995). Momentum investment strategies, portfolio performance, and herding: A study of mutual fund behavior. American Economic Review, 85(5), 1088–1105.
Gruber, M. J. (1996). Another puzzle: The growth in actively managed mutual funds. The Journal of Finance, 51(3), 783–810.
Guedj, I., & Papastaikoudi, J. (2004). Can mutual fund families affect the performance of their funds? https://ssrn.com/abstract=467282
Hammami, Y., & Oueslati, A. (2017). Measuring skill in the Islamic mutual fund industry: Evidence from GCC countries. Journal of International Financial Markets, Institutions and Money, 49(1), 15–31.
Hunter, D., Sun, Z., & Benson, K. (2020). The exclusive role of centralized fund family management. Journal of Financial Services Research, 58(2), 199-236.
Ivkovićh, Z. (2002). Essays in financial economics. (Unpublished doctoral dissertation). Yale University.
Jamali, D., Karam, C., Yin, J., & Soundararajan, V. (2017). CSR logics in developing countries: Translation, adaptation and stalled development. Journal of World Business, 52(3), 343-359.
Kapur, S., & Timmermann, A. (2005). Relative performance evaluation contracts and asset market equilibrium. The Economic Journal, 115(506), 1077–1102.
Keswani, A., & Stolin, D. (2012). Investor reaction to mutual fund performance: Evidence from UK distribution channels. The Journal of Financial Research, 35(3), 425-450.
Khorana, A., & Servaes, H. (1999). The determinants of mutual fund starts. The Review of Financial Studies, 12(5), 1043–1074.
Khorana, A., Servaes, H., & Tufano, P. (2005). Explaining the size of the mutual fund industry around the world. Journal of Financial Economics, 78(1), 145–185.
Kraatz, M. S., & Zajac, E. J. (2001). How organizational resources affect strategic change and performance in turbulent environments: Theory and evidence. Organization Science. 12(5), 632–657.
Makni, R., Benouda, O., & Delhoumi, E. (2016). International evidence on Islamic equity fund characteristics and performance persistence. Review of Financial Economics, 31(1), 75-82.
Malaysia International Islamic Finance Centre (MIFC). (2020). Islamic funds in Southeast Asia. http://www.mifc.com/index.
Malaysia International Islamic Finance Marketplace (MIFC). (2017). Islamic funds: Gearing up. http://www.mifc.com/index.
Malhotra, D. K., & McLeod, R. W. (1997). An empirical analysis of mutual fund expenses. Journal of Financial Research, 20(2), 175–190.
Massa, M. (2003). How do family strategies affect fund performance? When performance-maximization is not the only game in town? Journal of Financial
Economics, 67(2), 249–304.
Massa, M., & Patgiri, R. (2009). Incentives and mutual fund performance: Higher performance or just higher risk taking? The Society for Financial Studies, 22(5), 1777–1815.
McCourt, M., & Ramos, B. (2019). Persistence and skill in the performance of mutual fund families. https://www.amundi.com/
Miralles‐Quirós, M. M., Miralles‐Quirós, J. L., & Redondo‐Hernández, J. (2019). The impact of environmental, social, and governance performance on stock prices: Evidence from the banking industry. Corporate Social Responsibility and Environmental Management, 26(6), 1446-1456.
Mohammad, W. M. W., & Wasiuzzaman, S. (2021). Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia. Cleaner Environmental Systems, 2(1), 1-11.
Nanda, V., Wang, Z. J., & Zheng, L. (2004). Family values and the star phenomenon: Strategies of mutual fund families. Review of Financial Studies, 17(3), 667–698.
Premachandra, I. M., Zhu, J., Watson, J., & Galagedera, D. U. A. (2012). Best-performing US mutual fund families from 1993 to 2008: Evidence from a novel two-stage DEA model for efficiency decomposition. Journal of Banking and Finance, 36(12), 3302–3317.
Stephen, P. B., Mehra, A., Brass, D. J., & Labianca, G. (2009). Network analysis in the social sciences. Sciences Review, 323(5916), 892–895.
Tenk, T. T. (2012). The impact of unit trust management company fund investment on investors' risk. Asian Journal of business and Accounting, 5(1), 27-54.
Tower, E., & Zheng, W. (2008). Ranking mutual fund families: Minimum expenses and maximum loads as markers for moral turpitude. SSRN Electronic Journal, 8(1), 1-44.
Wermers, R. (2000). Mutual fund performance: An empirical decomposition into stock picking talent, style, transactions costs, and expenses. The Journal of Finance, 55(4), 1655–1695.
Wilson, J. W., & Jones, C. P. (2002). An analysis of the S&P 500 index and Cowles’s extensions: Price indexes and stock returns, 1870-1999. The Journal of Business, 75(3), 505–533.
Published
2022-01-13
How to Cite
Marzuki, A., Bani Atta, A. A., & Worthington, A. (2022). Attributes and performance of fund management companies: Evidence from the largest Shariah-compliant fund markets. Journal of Nusantara Studies (JONUS), 7(1), 114-141. https://doi.org/10.24200/jonus.vol7iss1pp114-141
Section
Articles
