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This study aims to comparatively analyze the systematic, idiosyncratic and downside risk exposure of both Islamic and conventional funds in Pakistan to see which of the funds has higher risk exposure.

The study analyzes different types of risks involved in both Islamic and conventional funds for the period from 2009 to 2016 by using different risk measures. For systematic and idiosyncratic risk single factor CAPM and multifactor models such as Fama French three factors model and Carhart four factors model are used. For downside risk analysis different measures such as downside beta, relative beta, value at risk and expected short fall are used.

The study finds that Islamic funds have lower risk exposure (including total, systematic, idiosyncratic and downside risk) compared with their conventional counterparts in most of the sample years, and hence, making them appear more attractive for investment especially for Sharīʿah-compliant investors preferring low risk preferences.

As this study shows, Islamic mutual funds exhibit lower risk exposure than their conventional counterparts so investors with lower risk preferences can invest in these kinds of funds. In this way, this research provides the input to the individual investors (especially Sharīʿah-compliant investors who want to avoid interest based investment) to help them with their investment decisions as they can make a more diversified portfolio by considering Islamic funds as a mean for reducing the risk exposure.

To the best of the author’s knowledge, this study is the first attempt at world level in looking at the comparative risk analysis of various types of the risks as follows: systematic, idiosyncratic and downside risk, for both Islamic and conventional funds, and thus, provides significant contribution in the literature of mutual funds.

The purpose of this paper is to investigate the impact of investor confidence on mutual fund performance in two relatively vulnerable but leading emerging markets, India and Pakistan.

A pooled ordinary least squared (OLS) model is used to look at two alternative measures of investor confidence and test for the relationship between investor confidence and mutual fund returns. To check the robustness of the findings, the authors also implement two-stage least squares and generalized method of moments techniques to control for unobserved heterogeneity, simultaneity and dynamic endogeneity problems in the regressors.

The paper finds that the returns of mutual funds are positively associated with investor confidence and an interaction effect exists between investor confidence and persistence in performance. The paper also confirms that returns from mutual funds are associated with different fund characteristics such as fund size, turnover, expense, liquidity, performance persistence and the fund’s age. These findings remain robust to alternative model specifications and measures of investor confidence.

While the previous literature mainly focuses on mutual fund characteristics and the macroeconomic determinants of mutual fund returns, this paper demonstrates that investor confidence plays an important role in determining mutual fund performance. The authors attribute this finding to two relatively unique features of the emerging markets in the study. A lack of awareness of mutual funds as being a low-cost investment vehicle and the interplay of cultural and behavioral changes have prevented investor’s savings from being channeled into investment products, away from gold or property.

This case serves as a useful backdrop for discussing a few important conceptual frameworks in the field of finance. The dilemmas are still evolving for Sharīʿah-compliant asset management company (AMC); i.e. Al Meezan, and may seem complex to the students – particularly in the Pakistan’s financial structure – but framing the discussion from a market perspective ought to help the students of finance.

This case study focuses on Al Meezan Investment Management Limited (Al Meezan) journey since inception. Al Meezan is a full-fledged Sharīʿah-compliant AMC and one of the major players in the mutual funds industry of Pakistan. Al Meezan offers a comprehensive range of Sharīʿah-compliant investment solutions especially designed to meet the financial goals of their existing and potential clients. The case study covers all the key events before the inception of Al Meezan, from late 1990s till March 2020. The case is based on interview with chief executive officer (CEO) (the protagonist) of Al Meezan. The case also covers various challenges faced by Mohammad Shoaib, CEO and his senior team, to make Al Meezan a vibrant institution offering Islamic financial services.

This case is aimed at undergraduate students in their final year (i.e. taking electives in the field of Finance/Islamic Finance) or graduate students majoring in Finance/Islamic Finance.

Teaching notes are available for educators only.

CSS1: Accounting and Finance.

This paper aims to fill a gap in the literature of marketing communication by exploring the role of different nudges implemented through advertising and personal selling in enhancing purchase intention and sales of mutual funds in Pakistan.

Data collected by 20 semi-structured individual qualitative interviews in Pakistan were subjected to thematic analysis.

This study reveals the way managers apply different nudges in the form of Islamic beliefs and values in advertising and personal selling to enhance purchase intention and sales of mutual fund products among Muslim customers. Nudges that can be used in marketing communication may include religious cues, religious beliefs, religious values, spiritual elements, halal aspects of investment plans, religious icons and symbols, cultural music and images, appropriateness and correctness of sales messages and communicating halal aspects of mutual funds.

The conclusions are based on findings from a relatively small number of respondents from one investment firm, but they offer an empirical basis for future research on the effect of advertising and personal selling on the sales and purchase intention of mutual fund products in an Islamic society.

This study offers practitioners a better understanding of the marketing communication tools likely to influence consumers’ purchase intention of mutual fund products, with positive implications in creating advertising and sales management in Pakistan.

Despite the prevalence of promoting mutual fund products, little research-based analysis has been available to academics or practitioners.

The learning outcomes are as follows: to teach the concept of mutual fund as whole, how mutual fund works and who are the investors; discuss how any asset management company can work and what is their investment process; discuss how mutual funds are affected by changes in economic outlook/macro-economic variables; discuss the alternative risk-adjusted measures of performance evaluation, such as the Sharpe ratio, Treynor, Jensen’s alpha and measure of risk-adjusted performance; and discuss which index to use as a benchmark and how to improve funds’ performance.

In April 2019, Khaldoon Bin latif, Chief Executive Officer (CEO) of Faysal Asset Management, reflected on the changes that had occurred during his two and a half years at Faysal. He was quite pleased with the recent performance of Faysal Funds and the company’s relationship-oriented approach to money management for individuals with high net worth. Yet, he wanted to ensure that both the investment-process and performance-evaluation measures that he had implemented at Faysal would continue to provide superior returns. Latif also wanted Faysal to outperform the relevant indices, not only on an absolute basis, but also on a risk-adjusted basis. He pondered which indices and models Faysal should use in the future based on their performance.

Undergraduate/graduate

Teaching Notes are available for educators only.

CSS 1: Accounting and Finance.

This study aims to analyze the impact of different governance characteristics on the ratings of both Islamic and conventional mutual funds.

This study used panel data ordered probit regression model. Furthermore, to capture the mutual funds rating persistence effect and address the issue of endogeneity dynamic panel model is used and the results are estimated using the generalized method of the moment (GMM) technique.

The results indicated that amongst the corporate governance characteristics, board size, the board independence, directors and institutional ownership, and overall governance quality positively affect the ratings of both Islamic and conventional funds. However, chief executive officer (CEO) duality and board gender diversity did not show a significant impact on the ratings of these funds.

The current research provides input to the asset management firms as to how they can increase the fund ratings by implementing strong governance practises. Furthermore, the study also provides input to the rating agencies to account for governance characteristics along with financial indicators, when issuing the rating of any fund.

To the best of the author’s knowledge, this study is the first attempt to analyze the impact of corporate governance characteristics on the rating of both Islamic and conventional mutual funds and hence provides a significant contribution to the literature.

This paper evaluates the performance of actively managed conventional and Islamic equity funds in a developing economy with a focus to assess the performance-growth puzzle posited by Gruber (1993) (a.k.a Gruber’s puzzle). Under the context of an emerging market of Pakistan, this study explores if actively managed equity fund (AMEF) managers have been able to add value by outperforming the market in terms of stock-selection and market-timing abilities; and the comparative performance analysis of Islamic versus conventional AMEFs is also carried out.

We employ Sharpe and Treynor ratios, Capital asset pricing model, Fama–French three factors model (1993), Carhart four-factor model (1997) and Hendrickson (1981) market timing models on 45 equity funds comprising of 23 conventional and 22 Islamic equity funds operating in Pakistan for a period of 10 years. The overall sample period (2008–2018) is divided into two 5 years sub-periods (i.e. 2009–2013 and 2014–2018) and three 3 years sub-periods (2009–2011, 2012–2014 and 2015–2017) to be viewed in conjunction with the country's macro-economic condition.

We report that the actively managed equity funds (AMEFs) were unable to beat the market index with their stock selection or market timing capabilities. However, AMEFs depicted improved performance in the post-global financial crisis period where both conventional and Islamic AMEFs generated substantial rewards for the given amount of risk. Also, conventional AMEFs outperformed Islamic AMEFs potentially due to their holdings in highly leveraged value and large-cap stocks, while Islamic AMEFS invest more cautiously in small-cap and value firms. Analysis of market timing skills revealed that the funds have not been able to select the undervalued stocks and adopted a defensive strategy in the post-global financial crisis recovery period.

Our findings shed some interesting insights and raise some pertinent questions for research, policy, and practice – specifically for developing countries’ context. The no ‘return-growth’ configuration defies its fit with the ‘Gruber puzzle’ and somewhat presents a case of what we call the ‘Inverse Grubber puzzle’. This novel notion of the ‘Inverse Grubber puzzle’ should inform policy and practice to reflect on their practices, institutional arrangement, regulatory framework and policy design in developing economies characterized by lacklustre performance and growth of AMEFs. For example, the regulatory design may consider focusing on stimulating financial inclusion and deepening by motivating low-cost Index tracker funds (ITFs) – with lower fund management costs, while allocating the avoided cost to flow towards effective marketing campaigns driving greater awareness, financial deepening, and investor base diversification. For future research, financial development researchers may explore the implications and appropriateness of AMEFs versus ITFs in other developing economies.

The work reported in this paper is original and constitutes a valuable asset for ethno-religious-sensitive investors. The research has not been published in any capacity and is not under consideration for publication elsewhere.

This study is about the determinants of cash holding and impact of cash holding on mutual funds’ performance. In addition, the study analyzes the impact of performance-related determinants of cash holding on funds' performance.

Panel data of ten years of 190 open-end mutual funds are analyzed through fixed effect regression technique. The risk-adjusted funds' performance of cash based portfolios is computed through capital asset pricing model (CAPM) (1964), Fama and French (1993) and Carhart (1997) models.

The results indicate that small size funds, high charging front-end load funds, high turnover ratio funds, high 12-month fund returns run up, high dividend paying funds and high redemption level funds hold more cash for precautionary purpose to avoid costs of cash short-falls. Further, monthly average raw returns and risk-adjusted performance of funds with the lowest raw and residual cash holding are found higher than the funds with the highest cash holding. An increase in cash is found to dilute performance.

This is a pioneer study in a corporate environment with shallow capital market, reliance of businesses on bank credit, firms exposed to agency issues, wealth expropriations and existence of business groups with political linkages but with opportunities of investments due to expected favorable geo-socio-political situation. The study generates outcomes relevant for other similar economies.

This study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods.

The authors comparatively analyze the performance of mutual funds using measures, such as tracking error, Sharpe ratio (1966), Treynor ratio (1965), M-square measure by Modigliani and Modigliani (1997) and information ratio. The authors also use market timing and selection measures, such as Treynor and Mazuy model (1966), Henriksson and Merton (1981) model and Fama’s decomposition approach (1973).

The authors find that Islamic equity funds are as much competitive as conventional equity funds. All Islamic equity funds have positive Sharpe ratio, Treynor ratio and net selectivity measure. Islamic equity funds are slightly less risky in general. Islamic equity and income funds generally have positive Jensen's Alpha and a positive market timing ability. However, the authors find that Islamic income funds generally underperform the market due to less Shari’ah-compliant investment class assets in the market.

It will help the industry players to assess their strategic positioning with regard to the commercial competitiveness of Islamic investments.

The authors take considerably large sample of 60 funds in Pakistan as compared to previous studies and also cover recent period (2006-16). For income funds, the authors construct an original benchmark index based on price and dividend data and use that in performance assessment.

This paper aims to analyse a current theme of international interest regarding the increasing role of institutional investors in corporate governance. The role of institutional investors is getting elevated in world’s corporate market day by day due to their large shareholdings and having expertise in investment matters. However, their role and importance has not yet been accepted and explored in Pakistan. Therefore, this paper fills this gap and explores their role in Pakistan’s corporate governance by using a comparative study as to the role of institutional investors in the UK’s corporate governance. This paper identifies the failures of corporate governance in Pakistan and explores how institutional investors can help to overcome these issues.

This research paper uses a comparative approach based on documentary analysis. It conducts a comparative study of the role of institutional investors and the related code of corporate governance in Pakistan with that of the UK. It analyses the existing studies and the data relating to the role of institutional investors in Pakistan’s corporate governance and formulate recommendations to enhance the role of institutional investors for the betterment of corporate governance practices in Pakistan.

This paper finds that the role of institutional investors in Pakistan’s corporate governance is under-developed and the fund industry is immature. Though there is a considerable scope for them to work in Pakistan’s business market and play their role in the development of corporate governance in the listed companies of Pakistan. For this purpose, the guidance can be taken form the “Combined Code of the UK”. A number of recommendations have been formulated through which the role of institutional investors can be enhanced for the development of corporate governance practices in the business market of Pakistan.

This paper analyses the role of institutional investors in Pakistan to formulate recommendations through which this role may be enhanced for the development of corporate governance principles and practices in Pakistan. This paper fills a gap in the existing literature relating to the role of institutional investors in Pakistan, as there is a dearth of research in Pakistan concerning this issue. Further, it contributes to the on-going debate on the increasing role of institutional investors in corporate governance more widely.