Are Shariah-compliant portfolios superior?

Islamic mutual funds and other Shariah-compliant investors are restricted to investing only in Shariah-compliant instruments. Thus, while the conventional fund manager allocates between stocks, bonds and cash or money market instruments, the Islamic mutual fund would be restricted to Shariah-compliant equities, Sukuk and Islamic interbank money market (IIMM) instruments. Where Islamic money market instruments are unavailable, Islamic bank deposits would hold the cash. Of interest to all investors and fund managers, in particular, is the question of the performance of Shariah-compliant or Islamic equity portfolios relative to conventional ones.

The emerging consensus from numerous academic studies appears to be that Shari...