Islamic Portfolio Management
Abstract
When it comes to Islamic Portfolio Management there are a number of investing policies and procedures that have to be aware of before to get started. In most cases, before one would begin an Islamic portfolio that would need to be managed, one would consult with a portfolio manager. This person is dedicated to ensuring that the investments of the clients are as profitable as possible. When we are looking for a portfolio manager we are going to be looking for someone with a specific set of skills. A great Islamic portfolio manager is going to be able to show the professional experience that he or she has, demonstrate that he or she is knowledgeable about compliance and industry standards, he or she will he able to show you the risks versus the gains, and connect you with the right systems and research to help make educated decisions in regards to your investments. These are just a few of the most important elements to finding the right company or individual to help you with Islamic portfolio management.
If one were to be looking for a portfolio manager for monetary investments, one would be searching for an individual who is able to show that his or her experience will give you the advantage when it comes to growing our investments. The point of having a portfolio manager is to ensure that the investments are traded in the most logical and educated methods. When investing time in a relationship with an Islamic portfolio manager, we are going to need to feel confident that the goals of both parties are in alignment. One of the most important elements of portfolio management includes the idea of knowing the compliance regulations and the policies inside and out. This way the management team, or individual will be able to keep legal through out the course of the year while the investments grow.
Introduction
In February 1995,Dow Jones introduced first Islamic market index. Firms of tobacco,alcoholic drinks,pork,gambling and conventional financial service are excluded from Islamic index
The debt of the firm must not exceed 33% of its market value.Accounts receivable must be less than 45% of its total asset.
The overall goal is to produce a business model that follows the prudent-man rules of full liquidity from a transparent asset base through defined risk and reward profiles across income, balanced, and growth strategies that are feasible using the existing universe of Islamic funds. Modern portfolio theory can be applied to Islamic investing to achieve the same levels of sophistication and returns as conventional allocations. There is no need to introduce exotic or illiquid securities to achieve the standard investment objectives shariah-compliant investors. Banks and asset managers everywhere can offer shariah-compliant investment management now.
Asset Allocation for an Islamic Model Portfolio
Money Market (Cash) Funds
The subset of qualified shariah-compliant mutual funds constituted funds from all asset categories. In the cash (money market) segment is one of many available murabahah funds, such funds being invested according to shariah in short-term, low-risk trade finance transactions with very high-quality counterparty guarantees and producing returns equal to their conventional cousins.
Equity Funds
In the equities section , the funds with a clear bias and overweight on emerging markets. Looking back at other allocations prior to the financial crisis, we see that many managers were also overweight in emerging markets or some other form of equity investing that had equivalent performance (and risk). Here the selection of funds was relatively easy, as qualified Islamic equity funds by far out number the funds available in any other asset category. Shariah-compliant equity funds are no mystery: fund managers simply take the shares traded on one or many exchanges, filter them through conventional services and then choose among the qualifying equities for their trading positions. Exclude the typical haram (forbidden) companies (alcohol, gaming, financials, etc.) and overleveraged companies (typically where debt comprises 33% or more of the balance sheet, or similar formula).
Alternative Investment Fund
Hedge funds, forex funds, real estate funds, and the like in conventional allocations,we can buying them pre-leveraged—i.e. where the fund manager has taken leveraged positions, sometimes to the extreme, in order to amplify his or her results (and greatly increase risks). However, in shariah-compliant investing such leverage is forbidden. That makes conventional-style hedge funds pretty much out of the question. It also makes most real estate funds far from acceptable, as well as nearly all foreign exchange trading, an asset category that is often heavily leveraged
Sukuk
It is an alternative to debt obligation as it represent a certificate of ownership on an asset usufruct. It has two type which is sale based sukuk and partnership based sukuk.
