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Unlike active management, there is no reason to expect passive conventional investment to outperform passive Shariah compliant investment.
Posted 26 June 2026
There are logical reasons why conventional investors should outperform Shariah compliant investors. However while writing my October 2025 column for the magazine "Islamic Finance News" I realised that my logic only applies to active investors.
For passive investors tracking broad market capitalisation weighted share indices, there is no reason to expect either conventional or Shariah compliant investors to do better. You can read my article below.
I only occasionally make New Year resolutions but did so for 2025. My resolution was to make more use of AI. I had previously tried it out but hadn’t really used it for anything serious.
Accordingly in January I signed up to pay US$ 20 per month for Perplexity.AI. I chose to pay for two reasons:
I picked Perplexity.AI because it always gives links to its sources. I confirm having no connection with the company!
I last compared the performance of conventional and Shariah compliant share indices in my 1 August 2018 column “Do Shariah compliant share indices really perform worse?” The comparison covered the years 2008-2017 for the FTSE All-World Index and FTSE Shariah All-World Index, while going back as far as 2004 for the equivalent MSCI indices.
I have now extended the FTSE data up to calendar 2024. Perplexity.AI made finding the data very easy, However the column has been written solely by me!
Year |
FTSE Shariah All-World Index (USD) |
FTSE All-World Index (USD) |
Conventional minus Shariah |
2008 |
-37.60% |
-38.90% |
-1.30% |
2009 |
34.80% |
30.60% |
-4.20% |
2010 |
16.50% |
13.20% |
-3.30% |
2011 |
-6.80% |
-7.60% |
-0.80% |
2012 |
13.90% |
17.10% |
3.20% |
2013 |
21.50% |
23.30% |
1.80% |
2014 |
2.80% |
4.80% |
2.00% |
2015 |
-4.20% |
-1.70% |
2.50% |
2016 |
8.60% |
8.60% |
0.00% |
2017 |
23.30% |
24.60% |
1.30% |
2018 |
-8.20% |
-9.10% |
-0.90% |
2019 |
26.30% |
27.20% |
0.90% |
2020 |
17.90% |
16.60% |
-1.30% |
2021 |
21.40% |
18.90% |
-2.50% |
2022 |
-16.10% |
-17.70% |
-1.60% |
2023 |
20.80% |
22.60% |
1.80% |
2024 |
14.20% |
17.70% |
3.50% |
|
|
Aggregate |
1.10% |
Source: Author’s own
As with the previous period 2008-2017, the conventional index outperforms slightly, although during the aftermath of the global financial crisis the conventional index performed worse.
The current 2025 composition of the FTSE All-World Index has a 17.66% representation of financial services, covering banks, insurance companies, and other financial services. Conversely for the FTSE Shariah All-World Index they are only about 1%, comprising primarily real estate and some asset managers, since banks and insurers are excluded.
In my 6 June 2018 column “Does having principles make you poorer or richer?” I wrote:
“A conventional investor who is selecting shares from the complete universe of shares will, on average, outperform a Shariah compliant investor who selects shares only from the Shariah compliant subset of the universe.
If the Shariah compliant subset has characteristics that make them better than the average share in the universe, the conventional investor is always free to buy such high-quality Shariah compliant shares, since he selects from the whole universe.
However, the Shariah compliant investor can never buy high-quality non-Shariah compliant shares.”
While I consider this remains true for actively managed investment portfolios, while writing this column I have realised that I was wrong to expect the same outcome with market capitalisation weighted share indices. The whole point is that such indices do not undertake any active share selection decisions.
Instead, any performance differences between conventional share indices and Shariah compliant share indices will be due entirely to industry effects. For example, if the financial services industry has a rough period, the conventional index will perform worse.
Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.
