Factors Affecting the Financial Performance of Investment Funds a Comparative Study : Islamic versus Conventional Funds

The Growth rate of investment in mutual funds has exceptionally increased over the last decade. Many studies have compared between the performances of conventional and Islamic mutual funds in the developed markets and only a few have studied emerging markets. The aim of this study is to focus on the investigation of the factors affecting and the performance of Islamic mutual funds in comparison with their conventional counterparts in Egypt as an emerging market in mutual funds generally and Islamic mutual funds specially. The main objective of this study is to investigate the factors affecting the financial performance of Islamic mutual funds (IMFs) in comparison with the conventional mutual funds (CMFs). Risk and return relationship is evaluated relative to market benchmark over an 8-year period from January 2006 to December 2013 divided into pre-financial crisis phase (27 months), during financial crisis phase (45 months) and post-financial crisis phase (24 months). The data covers 34 mutual funds from Egypt, consisting of 9 Islamic mutual funds (IMFs) and 25 Conventional mutual funds (CMFs) covering only open-end equity funds for the purpose of standardization and relativity of the comparison. The analysis focuses on risk and return performance, and the impact of funds attributes including age, size, objective, systematic risk and total risk. The study employs Sharpe, Treynor and Jensen models as risk-adjusted performance measures. The study concludes that the performance of IMFs is not significantly different from the CMFs counterparts in the pre-financial crisis phase, during the financial crisis phase, or the post-financial crisis phase. Both IMFs and CMFs outperformed the market index (EGX30) in the pre-Financial Crisis phase and the post-Financial Crisis phase but underperformed the market index during the Financial Crisis phase. Moreover, both IMFs and CMFs outperformed the T-bill rate in the pre-Financial Crisis phase but underperformed the T-bill rate during the Financial Crisis phase and the postFinancial Crisis phase. Total risk and systematic risk significantly affect the performance of mutual funds. Income & Growth objective is an important variable that is accompanied by an increase in the performance of the fund. Growth objective and Age also play significant roles in interpreting the performance of mutual funds