Kenanga Syariah Growth Fund Sharpe Ratio

3 Funds Stand Out in Malaysia Islamic Equity Space	August 22, 2011
We take a look at the Malaysia Islamic equity funds on our platform and sieve through the best among the lot.
Author : iFAST Content Team
KEYPOINTS: Kenanga Syariah Growth Fund, Prudential Dana Al-Ilham And InterPac Dana Safi Beat The FTSE Bursa Malaysia EMAS Shariah Index In Terms Of 3-Year Annualised Returns All Three Malaysia Islamic Equity Funds Showed Their Defensive Side By Losing Less Than The Index’s Return Of -40.51% In 2008 Kenanga Syariah Growth Fund Has The Highest Sharpe Ratio We’ve written several articles in the past about the Shariah principles that govern Islamic funds. In fact, Fundsupermart.com (FSM) Research Team wrote an article “The ABCs of Islamic Funds” recently focusing on the Shariah-compliant securities screening process as well as comparisons between Islamic funds and conventional non-Islamic funds. With the basics covered, we’ve decided to take a look at some of the Islamic equity funds that investors can consider to invest. In this article, we take a look at the Malaysia Islamic equity funds on our platform to examine what they have to offer from an investing perspective. The two areas which we explore include the funds’ performance and Sharpe ratio. COMPARISON OF MALAYSIA ISLAMIC EQUITY FUNDS ON FUNDSUPERMART.COM A quick search using the Fundsupermart.com Funds Selector provides us with fifteen Malaysia Islamic equity funds. All fifteen Malaysia Islamic equity funds have at least three years of performance history and fourteen of these funds use the FTSE Bursa Malaysia EMAS Shariah Index as their benchmark while AmIttikal is the only equity fund which uses a fixed income benchmark. Table 1 below shows the fifteen Malaysia Islamic equity funds and the FTSE Bursa Malaysia EMAS Shariah Index with their 3-year annualised returns and calendar year returns. Table 1: Malaysia Islamic Equity Fund Returns Funds / Index 3-Year Annualised Returns Calendar Year Returns 1H 2011 2010 2009 2008 2007 Kenanga Syariah Growth Fund 19.33% 12.29% 29.70% 30.42% -26.02% 40.83% Prudential Dana Al-Ilham 13.96% 8.09% 21.28% 42.14% -36.89% 46.04% InterPac Dana Safi 13.75% 6.59% 27.18% 27.63% -23.91% N.A. FTSE Bursa Malaysia EMAS Shariah Index 12.60% 6.12% 22.25% 47.63% -40.51% 46.33% ASM Syariah Dividend Fund 12.42% 7.07% 16.48% 23.02% N.A. N.A. AmIttikal 11.00% 6.15% 15.98% 33.68% -33.41% 40.41% AmIslamic Growth 10.74% 7.66% 19.30% 30.46% -34.29% 38.91% OSK-UOB Dana Islam 8.81% 7.83% 16.97% 22.57% -31.95% 44.24% BIMB i Growth 8.55% 4.38% 17.73% 19.62% -23.46% 23.62% Affin Islamic Equity Fund 7.80% 4.01% 10.99% 43.97% -36.40% N.A. Dana Al-Aiman 6.96% 5.13% 14.70% 20.90% -25.89% 30.61% Alliance Dana Adib 6.56% 4.37% 15.49% 28.92% -34.37% 44.61% MIDF Amanah Islamic Fund 4.51% 4.14% 14.07% 17.94% -31.10% 18.70% Dana Bestari 2.91% 3.13% 15.18% 12.99% -29.71% 24.14% ASM Dana Mutiara 1.97% -2.97% 25.15% 20.94% -39.16% 24.41% ASM Syariah Aggressive Fund -4.88% 2.89% 2.93% 18.28% -45.10% 20.67% Sorted according to 3-year annualised returns Source: iFAST compilations, as at 29 July 2011. Performance figures in the table are in RM terms, calculated using NAV prices, with any income or dividend reinvested In terms of 3-year annualised returns, Kenanga Syariah Growth Fund emerged as the top fund, followed by Prudential Dana Al-ilham and InterPac Dana Safi with returns of 19.33%, 13.96% and 13.75% respectively, beating the FTSE Bursa Malaysia EMAS Shariah Index (benchmark index) of 12.60%. If we put aside the performance for 1H 2011 and concentrate on calendar year returns, both Kenanga Syariah Growth Fund and InterPac Dana Safioutperformed the benchmark index in two out of four calendar years. Although Prudential Dana Al-ilham only beat the index in 2008, the fund was just a few percentage points short from beating the index in 2007 and 2009 which was not the case for Kenanga Syariah Growth Fund and InterPac Dana Safi. We would like to point out that although ASM Dana Mutiara managed to stand out in 2008 and 2010, we choose to disregard this fund in our analysis as its 3-year annualised returns was just way off the benchmark index. Another point we would like to highlight is although all fifteen Malaysia Islamic equity funds posted negative returns in 2008 global financial crisis, they (exceptASM Syariah Aggressive Fund and ASM Syariah Dividend Fund) showed their defensive side by outperforming the index’s return of -40.51%. In 2009, none of these fifteen funds managed to beat the index due to the funds’ strategy of adopting a more defensive approach in view of the global financial crisis in 2008. However, this underperformance against the benchmark is not limited to Shariah-compliant funds as non-Islamic Malaysia equity funds also lagged behind the broad-based FTSE Bursa Malaysia KLCI, bringing in an average return of 35.88% versus the 49.95% return of the broad-based index (data from Bloomberg, calendar year total return for 2009). Since Kenanga Syariah Growth Fund, Prudential Dana Al-ilham and InterPac Dana Safi outperformed the benchmark index in several periods, we take a closer look at the funds’ Sharpe ratio. SHARPE RATIO Sharpe ratio measures how much extra return an investor is expected to receive for every unit of risk that the investment undertakes. The extra return is calculated by subtracting the risk-free rate from the return of the investment. Meanwhile, risk which is represented by the volatility of the investment’s return is measured by its standard deviation. The formula for Sharpe ratio is as below: Sharpe ratio = (return - risk-free rate) / σ (volatility) A higher Sharpe ratio is preferred as it signifies that the investment provided a higher return per unit of risk as compared to its peers. Also, a lower volatility of an investment’s return is preferred as it shows that the investment's return tend to be more consistent. For our calculation of the Sharpe ratio, we used the Maybank 12 Months Fixed Deposit Rate of 3.15% (as at 16 August 2011) as the risk-free rate. Below are the 3-year Sharpe Ratios and volatility of the three Malaysia Islamic Equity Funds and benchmark index. Table 2: Sharpe Ratios and Volatility Funds / Index Volatility (σ) Sharpe Ratio Kenanga Syariah Growth Fund 9.67% 1.56 InterPac Dana Safi 10.36% 1.00 Prudential Dana Al-ilham 15.22% 0.73 FTSE Bursa Malaysia EMAS Shariah Index 16.40% 0.62 Risk-free rate used is Maybank 12 Months Fixed Deposit Rate, 3.15% as at 16 August 2011 Source: iFAST compilations From Table 2, all three Malaysia Islamic equity funds have lower volatility and higher Sharpe ratio as compared to the index. However, Kenanga Syariah Growth Fund once again stole the spotlight by achieving the highest Sharpe ratio and lowest volatility. This goes to show that for the past 3 years (from 29 July 2011),Kenanga Syariah Growth Fund provided investors with higher returns at lower risks. CONCLUSION Investors who are looking to invest in Malaysia Islamic equity funds can consider all these three funds; with Kenanga Syariah Growth Fund and Prudential Dana Al-ilham being our recommended funds for 2011/12 while InterPac Dana Safi is one of eight equity funds on our platform that has no sales charge. (See “8 Equity Funds with No Sales Charge”)