A Performance Analysis between Conventional and Shariah Private Retirement Scheme in Malaysia (S/O 14551)

• Main Author: Sofi, Mohd Fikri
• Format: Monograph
• Language: English
• Published: UUM 2021
• Subjects: HB Economic Theory
• Online Access: https://repo.uum.edu.my/id/eprint/31533/1/14551_.pdf; https://repo.uum.edu.my/id/eprint/31533/

This study measures the performance of private retirement schemes in Malaysia between conventional and Islamic funds. Further, it observes the trend of performance over the period between 2012 and 2019, especially considering into account, against the Malaysian stock market return. The mean comparison is examined across different measures such as gross return and cumulative return along different set of time period; 3-year, 4-year, and 5-year respectively. Moreover, the adoption of different models, namely Jensen Alpha risk-adjusted return or single factor model, Sharpe ratio, and four-factor Carhart model ascertains the robustness of the result’s analysis. The results obtained have taken into account both gross return unadjusted for risk and risk-adjusted return based on appropriate models. The empirical findings generally display an insignificant difference in return performance between both funds. More interestingly, the superior performance of both conventional and Islamic funds is equally distributed along the period, where both funds outperform its counterparts. In comparison, both funds perform significantly better than the market benchmark as proxy by the Kuala Lumpur Composite Index and EMAS Shariah index. Our contribution perspicuously highlights that Islamic funds or the alternative funds are demonstrated to be of greatly competitive in this new market of retirement savings since their inception in 2012. They do not only beat the market over the period, but also strive against the peers ferociously to attain the objective and the interest of fund holders for a better protection of future retirement. However, the difference in return performance can be found significant in long term cumulative return within 4 years of conventional fund operating since inception. Consequently, this finding is very much similar to the difference in return adopting Jensen Alpha risk-adjusted return. Both funds are strong in the selection of assets during portfolio establishment, but poor market timing is prevalent among fund managers that lead to no difference in both funds. The findings suggest a notable evidence documentation of a competitive performance illustrated by alternative funds to protect the retirement interest of fund holders, as this would be the first study to provide such analysis of return since their inception. It implies a good prelude to indicate the pushing factor in the private pension market, especially when they need to rationalize their presence in parallel to the national prominent pension fund. In light of the government effort to establish sound framework of a private pension management system for private sector employees predominantly, the performance could be the primary feature to appeal to those with improper and inadequate financial retirement planning. While there is a good initiative to promote this retirement scheme by Malaysian government offering additional investment to youths, more efforts are necessary toward making this scheme reliable and sustainable in the long run. The same incentive could be widened to all stages of life in accordance to different focus of funds, namely conservative, moderate, and growth categories