Malaysia is the region’s dominant centre of Islamic finance. Among the 713 mutual funds registered for sale, 215 or 30% are sharia-compliant, according to Morningstar data.
Their AUM accounted for $17.5bn or 38% of total mutual fund AUM in Malaysia. Assets in these vehicles have been growing. AUM was $15.2bn in December 2016, and $12.3bn in June 2015.
In a global context, Malaysia accounts for about one-third of assets. A recent report by Cerulli Associates estimated the total value of sharia-compliant mutual funds at $56.1bn globally at the end of 2016.
However, the growth of total mutual fund assets in Malaysia has ourtpaced the growth of sharia-compliant funds. Therefore, as the chart below shows, sharia fund assets as a percentage of total mutual fund assets has been shrinking since March 2016.
The levelling off of the decline, as show in the chart on the left below, is not due to particularly strong inflows into sharia-compliant funds, but rather a decline in net inflows into conventional funds.
Share of AUM in Islamic mutual funds and net flows into Malaysian mutual funds
Data: Morningstar, AUM in Malaysian ringgit
The two largest Islamic funds in Malaysia are the Public Ittikal Fund, a Malaysian large-cap equity fund and the Public Islamic Dividend Fund. Both are managed by Public Mutual, Malaysia’s largest mutual fund company by AUM and the country’s largest provider of Islamic mutual funds, which account for 47% of of the firm’s fund assets.
Among 33 firms offering mutual funds in Malaysia, 26 offer Islamic funds as part of their product portfolio and four focus on them exclusively.
Decline in equity funds
Equity mutual funds and money market funds together account for the bulk of sharia-compliant (Islamic) products in Malaysia.
The Islamic equity funds still continue to attract consistent inflows − around $300m in the second quarter, compared to $580m net inflows into conventional equity funds.
However, changes are taking place in terms of marketshare. Equity fund assets are declining as money market fund assets grow.
Islamic equity fund AUM as a percent of all Islamic funds, has shrunk to 58% from 64% in 2015. During the same period, Islamic money market funds have grown to 32% from 26%.
Money market products gained marketshare in mid-2017, compared to the year before, both among sharia-compliant and conventional funds, at the expense of equity funds.
Marketshare of Malaysian mutual funds by category