The Malaysian Unit Trust Funds Performance Evaluation: A Comparison Of Islamic And Conventional Mutual Funds

Abstract

The issues of unit trust performance has gained considerable attention due to its strategic implication for investment position. A number of studies have been conducted on performance evaluation of unit trust but without comparison between Islamic and conventional unit trusts. The main objective of this study is to evaluate the overall performance of Islamic and conventional unit trust funds in Malaysia. This study provides some insights on the risk, return, diversification, market timing and selection ability of selected unit trusts in Malaysia for the period of 2002 to 2006. It is found that conventional funds outperform the market and on the contrary, Islamic funds underperform the market. In terms of risk, both conventional and Islamic funds are less risky than the market. This indicates that both unit trust funds are safer investments compared to the market funds. Based on the results of R-square the overall diversification was low. This shows that managers are conservatives in selecting securities to be included in the investment portfolio. From results of the selection abilities and timing performance, the overall fund managers have positive timing and selection abilities irrespective of the fund objective. However, further analysis shows that managers have negatives timing abilities during 2004-2006, which implied that managers failed to shift their portfolio beta in the same direction to the market portfolio. It is clear that the managers are lacking of stock maintaining skills. The poor market timing capabilities of fund mangers is not peculiar to Malaysia's fund mangers as the literature similar results in developed market.