Investment styles of islamic equity funds

We investigate the dynamics of investment styles of Islamic equity funds (IEFs), mainly through portfolio holdings. We rely on an unbiased survivorship sample of 224 active portfolios domiciled in 22 countries from 2004 to 2018 to shed new light on style concentration. IEFs are over-whelmingly skewed initially to value stocks in Islamic countries and growth stocks in non-Islamic countries. We find a subsequent shift from these styles to a more blended approach. Investments in Islamic countries shift from mid-cap to large-cap stocks, while those in non-Islamic countries remain in extremely large-cap stocks. The propensity of style shift is larger in asset type than in asset size. The style drift analyses show that most IEFs drift in style, with a more aggressive drift in Islamic countries than in their non-Islamic counterparts. They are more likely to alter their portfolio exposure in the sight of adverse outcomes. Implications of our results for faith-based investors and regulators are identified in the study.