Shariah-compliant hedge funds could outperform their traditional hedge fund counterparts this year, predicts Aureliano Gentilini, global head of hedge fund research at Thomson Reuters Lipper.
Gentilini said that Shariah-compliant hedge funds stand to benefit from emerging trends in the investments industry and developments in the Gulf Cooperative Countries namely the Persian Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
"Although the economic slowdown across the world does not portray a very optimistic picture for oil prices, we believe plans by some emirates in the Gulf Cooperation Council (GCC) region to boost budget expenditure and run a budget deficit to better manage a scenario of global market recession may act as a catalyst for insulating, to some extent, stock markets in the GCC region from market disturbances."
Gentilini added that while Dubai and Saudi Arabia have adjusted their GDP growth estimates following the global financial crisis, both states still project a robust non-oil GDP growth this year.
But even with lower numbers after the GFC, statistics show that economic growth in the region is roughly three to four per cent, or as high as six per cent higher than in other developed markets, a trend that should continue for the next seven years, according to fund manager Schroders.
For example, Qatar is predicted to replace Luxembourg this year as the country with the highest GDP (nominal) per capita in the world.
Finally, Gentilini said the funds stand to benefit from the region's investment liquidity profile. The United Arab Emirates investment arms, including the Abu Dhabi Investment Authority, have more than US$900 billion in assets to invest and manage. The figure will keep rising as the region prepares to become less reliant on oil and gas-related revenues.
Shariah-compliant hedge funds are likely to ride on the back of "strong liquidity drivers existing in the GCC region and increasing demand from institutions for absolute return investment vehicles that could provide returns uncorrelated from major market trends," he said.