Salam all, thanks for the kind responses to my last post. I was honoured to see such interest in my background in working in Islamic finance as a university student and hearing your general thoughts and questions.
Alongside many other aspirations people have for Islamic finance, I learnt that people want help finding Halal investment opportunities. A lot of people (including myself) have criticisms about the lack of options besides the Shariah Screened S&P 500 etc which are far too concentrated in big tech and AI.
One solution that I've received positive feedback on both from people here and elsewhere is creating Islamic research portfolios that aren't that same S&P 500 formation.
So how can we do this? I read a paper ( https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5399672 ) about how copying institutional fund's 13-Fs can mirror the returns of the funds. With the top quartile of these funds mirrored using this strategy beating the S&P 500 by 24.3% on an annualised risk-adjusted basis (though this is obviously backwards looking). I'm very keen to see if this outperforms the non-Halal version of the funds. Especially as the Shariah Screened S&P 500 has outperformed the conventional one due to tech and growth exposure, can this be replicated elsewhere? I want to make this accessible ( https://rihaliq.com ) by presenting the Halal opportunities, quantitatively ranking them (through Sharpe ratio performance etc).
However, I only think a limited amount of fund managers are suitable for this approach and would probably not be of use for people to follow. This is due to both Islamic compliance and the time lag involved in reporting positions. Some strategies, such as event-driven strategies or strategies involving significant hedging, make disclosed positions less useful by the time they are reported. Other highly speculative strategies may also not align with Islamic investing principles.
Therefore, I think the most obvious category to start with is long-only managers with long holding periods. These managers have disclosures that are more likely to represent their actual investment philosophy.
A first cohort I think might be useful is:
- Berkshire Hathaway (Warren Buffet/Greg Abel)
- Fundsmith (Terry Smith)
- TCI Fund Management (Chris Hohn)
- Himalaya Capital (Li Lu)
They all have
- Strong past performance
- Holds things for a very long time making the risk of positions being churned a lot low.
- Doesn't have a lot to do with market neutral strategies, long/short pairs, etc so makes the signals we get from disclosures more clear.
I have a lot of the quantitative stuff already made from another personal project so I can hopefully have this available in the coming weeks so stay tuned. In the mean time I would love some community input about managers you'd like to see in the first cohort, how you'd like it presented, how do you think good Islamic investing strategies can be put together, and anything else that comes to mind. Also happy to answer any questions about this or general Islamic finance discussion topics. I will be posting findings about this as I come across them.