A number of shariah-compliant equity indices of S&P Dow Jones Indices (S&P DJI) have outperformed their conventional counterparts in the first quarter of 2015, boosting the performance and demand of structured products linked to these indices, according to Michael Orzano (pictured), director of global equity indices at S&P DJI.

“[The outperformance of shariah-compliant equity indices] was largely driven by underperformance of financial sector related stocks, which are very underweight in Islamic indices, and outperformance of healthcare and information technology stocks, which tend to be overweight in Islamic Indices,” said Orzano. “Structured product issuance continues to be centred around a few blue-chip indices like the Dow Jones Islamic Market Titans 100 and S&P 500 Shariah Indices.”

According to Orzano, adoption of Islamic index-linked investment products remains relatively slow as the investment culture in markets with large Islamic populations remains focused on actively managed products.

“However, Islamic ETFs and structured products have seen some growth in recent times,” he said. “Over time I expect to see usage of Islamic index-linked products to grow substantially as investors in these markets better understand the investment opportunities and recognise the potential benefits of index-based investment.”

The fixed income segment, said Orzano, has also driven the growth of corresponding indices linked to sukuk products. “Sukuk issuance and investors’ interest in sukuks have also grown substantially, which has driven interest in sukuk indices, as well as blended indices that include Islamic equity and sukuk in varying proportions,” he said.

According to a report released by S&P Dow Jones, shariah-compliant equity indices such as the S&P Global BMI Shariah and Dow Jones Islamic Market World have beaten their conventional counterparts for the first quarter 2015.

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