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Malaysia’s Islamic funds struggle to attract new assets

Although Malaysia's sharia-compliant funds continue to attract assets, their share of net new flows into the country's mutual funds has been decreasing.

A look at the last three calendar years shows a declining percentage of capital flowing into sharia funds, according to Morningstar data.

In 2015, inflows into Islamic funds accounted for as much as 70.8% of total capital flows in Malaysia’s fund industry. In 2016, they constituted 56.3% of total inflows. In 2017, net inflows into Islamic funds amounted to even less — 35.6% of the country’s total fund flows.

In the first five months of 2018, only 8.9% of the total amount of net new inflows went into sharia-compliant funds.

Net inflows into Malaysia’s mutual funds

Data: Morningstar, flows in Malaysian ringgit, 2018 YTD as of 31 May.

The biggest asset gatherer in sharia-compliant funds in the first five months of 2018 was Public Mutual, Malaysia’s largest asset manager. Its Islamic products (which at RM 35.2bn constitute around 47% of the firm’s AUM) saw RM 963m of new flows so far in 2018, and RM 698m into conventional ones.

UOB Asset Management and CIMB Principal also attracted net flows into Islamic funds, RM 560m and RM 515.7m, respectively.

The shariah-compliant Public Asia Ittikal Fund, an Asia-Pacific equity product, was the most popular, not counting money market funds, with RM 405m of new inflows in 2018.

Turning to non-shariah funds, the biggest asset gatherer was Hong Leong Asset Management, with RM 2.04bn of net new inflows.

Assets in sharia-compliant funds relative to non-compliant products has been steadily declining since it peaked at 41.2% in October 2016. At the end of May it was 38%.

Share of AUM in Malaysia’s Islamic funds

Data: Morningstar, AUM in Malaysian ringgit, as of 31 May 2018. FSA identified sharia-compliant funds based on their classification by Morningstar. We also included funds carrying labels such as sukuk, ittikal, amanah or ehsan.

The high proportion of sharia-compliant funds, which use exclusion filters in investment process, makes Malaysia the largest sustainable investment market in Asia ex-Japan, noted Zainal Izlan Zainal Abidin, Securities Commission Malaysia’s managing director for development and Islamic markets, in an earlier interview.

While there are some sharia-compliant ETFs in Malaysia, the market remains small. Five of the nine ETFs in Malaysia are sharia-compliant.

Part of Mark Allen.