Mutual Fund Performance in Saudi Arabia

Abstract

Purpose: Islamic funds play a significant role in the global funds market, and Saudi Arabia accounts for a quarter of these funds. However, comparative analysis of Saudi Arabian mutual funds' performance in emerging markets has been limited. The purpose of this thesis is to compare the performance of IMFs and CMFs in Saudi Arabia. The risk and return relationship for funds was evaluated relative to the market benchmark over a 22-year period from 2000 to 2022. Methods: This study analysed data from 200 funds (151 IMFs and 49 CMFs) in Saudi Arabia. The funds cover all asset classes in eight categories: equity, money market, bond and Sukuk, real estate traded (RETFs), multi-asset, balanced, and others. The study compared IMF and CMF, analysing risk and return through empirical methods, including graphical and descriptive analysis, risk-adjusted performance analysis, and time series analysis. Sharpe, Treynor, and Jensen's models, expanded to include a single CAPM in regression modelling were used in the study. The GARCH model addressed econometric issues, and the Spillover model tracked spillover effects between market and mutual fund performance. Results: The primary finding is that IMFs outperform CMFs significantly over the sample period, during financial crises like the GFC and Covid-19. CMFs closely track market benchmarks while IMFs perform independently. GARCH modelling shows spillover effects from market returns to mutual funds' returns in all time periods. The analysis also shows that there are spillover effects in terms of both return mean and volatility from the Tadawul All Share Index to both IMFs and CMFs. Conclusion: The present study demonstrates that: (1) the IMFs and CMFs outperform market benchmarks, but the performance of IMFs differs from that of the CMFs, and (2) IMFs outperformed CMFs significantly (especially during the global financial and Covid crises but broadly overall for the Saudi market). The study stresses the importance of fund type in investment decisions and has policy implications for investors and policymakers in Saudi Arabia and beyond. The revised version of the thesis provides practical insights for informed decisions, promoting Shariah-compliant investments, and enhancing market stability.