Global equities continued to rise during Q1 2021, gaining 2.5%, as measured by the S&P Global BMI. Shariah-compliant benchmarks, including the S&P Global BMI Shariah and Dow Jones Islamic Market (DJIM) World Index, underperformed their conventional counterparts in Q1, in part due to the strong performance of the Financials sector, which gained nearly 12% during the period. Apart from Asia Pacific, all regional Shariah and conventional benchmarks returned positive performance during the quarter.
Sector Drivers Led to Quarterly Underperformance
While global equities largely recovered from the global market sell-off of 2020, sector performance continued to vary widely into the first quarter of 2021. Although Energy led Q1 sector performance, its small weight had little impact on overall returns. Meanwhile, Financials—which is nearly absent from Islamic indices—heavily outperformed the broader market, and Information Technology—which tends to be overweight in compliant indices—underperformed on a relative basis. These two sectors, along with Health Care, accounted for a large majority of the Shariah underperformance during the quarter.
Exhibit 2 displays sector returns along with the effect of over- and under-weight sector allocations of the S&P Global BMI Shariah compared to its conventional counterpart. Over half of the S&P Global BMI Shariah underperformance during the period—1.5%—is explained by differing sector allocations, while 1.2% is explained by the inclusion process of individual Shariah-compliant stocks.
MENA Equities in Recovery
MENA regional equities gained considerably during Q1, as the S&P Pan Arab Composite advanced 12.4%. The S&P Saudi Arabia BMI led the way in the region, gaining 16.1%, followed by the S&P UAE, up 14.14%. Notably, the S&P Pan Arab Composite Shariah surpassed its conventional counterpart by 2.3% during the quarter, in large part due to significant representation of Saudi Arabia, which outshone regional peers.
For more information on how Shariah-compliant benchmarks performed in Q1 2021, read our latest Shariah Scorecard.
This article was first published in IFN Volume 18 Issue 15 dated the 14th April 2021The posts on this blog are opinions, not advice. Please read our Disclaimers.