2. Expert Insights

The motivation to examine flow-performance relationship of Shariah compliant funds (SCFs) and Socially responsible funds (SRFs) is that investors investing in these two funds have certain non-financial motives such as religious, ethical, environmental etc. Renneboog et al., (2011) explained that more the investor is averse to certain non-ethical or non-religious corporate behavior the more satisfaction he/she gets by investing in the funds that are in line with his/her ethical or religious position. The above conjecture that the SRF and SCF investors chose funds based on a dual objective of socially responsible/religious investing and financial gains is in line with the way generally these funds advertise their funds emphasizing the importance of socially responsible/religious investing.

We assess the managerial skills of globally invested 686 ethical funds taking into consideration the macroeconomic efficiency and fund inflows/outflows. It was observed that managers exhibit negative selection and market timing skills but no consistent pattern for style timing. A cursory glance at the literature indicates little support for superior managerial abilities, especially in terms of timing skills. Notwithstanding, some have highlighted the importance of including fund flows in the traditional models and argue that excluding it can lead to spurious timing skills (Bollen and Busse, 2001). The findings indicate that the investors increase their exposure to funds during a bullish period and reduce it during a bearish period.

Have commodities and equity become a "financialized market of one"? Is such oneness persistent? Do diversification benefits still exist? Evidence behind these enquiries offers important insights for policymakers, governments, traders and investors, and constitutes the main motivation for this paper. To assess the viability of commodities as an alternative asset class for Islamic equity investors, we present evidence on the extent to which returns in commodities and Islamic equity markets move in sync in both time and frequency domains. Our findings reveal that, throughout the January 1999 - April 2015 period, correlations between commodities and Islamic equity were highly volatile and time sensitive. While there had been minimal correlation between commodities and Islamic equity prior to 2008, the relationship has strengthened since 2008, possibly attributed to the anomaly arising from the global financial crisis. Trends in the recent two years, however, suggest that the links between commodities and Islamic equity are heading towards their pre-crisis equilibrium, offering again potential diversification opportunities for investors. Divergence in correlations reveals that the behaviour of commodities is heterogeneous with varying potentials for diversification. Overall, gold, natural gas, soft commodities, grains and livestock are better portfolio diversifiers than oil and other metals. Relative to medium to long term investors, short-term investors gained better diversification benefits in most commodities during bullish, bearish and market recovery periods.

The mutual fund industry observed a remarkable growth of two distinct types of mutual funds during the last two decades, namely, Shariah-compliant funds (SCFs) and Socially responsible funds (SRFs). These alternative investment avenues were created for investors who are keen on investments that are Shariah-compliant and have better ethical standards than conventional funds. To fulfil these needs, the funds' investment strategies incorporate specific non-financial screening criteria based on ethical and religious guidelines, besides the typical risk-return financial screening.