Diversify investment portfolio, buy sukuk

CONVENTIONAL investors can also turn to Islamic investment products, like sukuk, to diversify their investment portfolios and reduce risk of losses, Islamic finance experts said.

Financial planners have always advised investors to diversify their investments as a strategy to reduce risk by spreading their money in different kinds of investments such as stocks, bonds, among others.

During the recently-held Islamic Finance News Roadshow held here, Dr Zeid Ayer, chief investment officer of CIMB-Principal Islamic Asset Management, said putting money in Islamic assets could be seen as a form of diversification, particularly for conventional investors. "If you look at it, it's not exactly a bond but it is structured very similarly to bonds, but it is the closest equivalent on the Islamic side to what a bond is," he said, referring to Islamic assets like sukuk.

"If you look at sukuk investors, more than 50 per cent are conventional investors and most of the sukuk being owned are by conventional players in the market, so I think that that is something that is for everybody," he said.

In terms of returns, he said, Islamic investments are not inferior to conventional investment, because in some cases they do better than conventional investments.

As for equities, Islamic investment firms are applying syariah principles to diversify the range of stocks they can invest in.

Hamel Shah, partner at UK-based syariah-compliant global investment management group Amiri Capital, said his firm had set up such a system. "If you used constituents from an index, you'll be limited to about 800 stocks globally, which is considered to be Islamic, but what we've created in Amiri, is that we have a syariah screening system which takes in about 38,000 stocks globally and depending on an individual's syariah criteria, you can invest in about 9,000 to 10,000 stocks globally, which will allow the equity managers to invest in a wide range of stocks."

He said that a wider range of stocks will allow the equity managers to use different types of strategies and it will allow them to do what they do best without restraint.

Experts have said that because of the screening process used for Islamic finance products, the global Islamic finance market was able to come out of the financial crisis relatively unscathed.

Ayer said, "I think that when you look at the equities side and investments in equities, it has to be screened for syariah compliance, and it has to be screened on whether they comply or not, which is part of the reason why it's come through this process better than its conventional counterpart and that's one of the things that can be learnt during the crisis," he said.

"The strongest attributes for it is that you can invest in a socially responsible way based on values. It has to confer with some kind of social benefit and some kind of economical benefit," he said.

"It's more a question of what is syariah-compliant and what is not complaint, but if you look at how the stocks are screened, you'll see that it is based on the activities that the companies are actually engaged in and the main thing is that you cannot engage in prohibited activities, like gaming, and so on."

The Brunei Times