Shariah-compliant funds and strategies have been the key growth drivers of Malaysia's asset management industry and will continue to drive the industry's growth going forward, the research firm said.
From a relatively small base, Shariah wholesale funds' assets under management grew by 35% year-on-year to 31.7bn Malaysian ringgit ($7.8bn) in 2015, largely driven by institutions and corporations.
In Indonesia, in 2015, the number of Shariah-compliant funds increased to 91 from 73 a year earlier, according to the firm's data.
However, a 3.4% fall in total assets in 2015 reduced the local marketshare of Shariah funds to 3.9%. In 2014, the figure was 4.5%
Nonetheless, in 2015, Indonesia's Shariah bond fund assets grew 92% year-on-year to 700bn Indonesian rupiah ($52.7m), the firm said.
“For Southeast Asian managers, penetrating the Shariah distribution landscape requires significant amounts of patience and resources, and promoting Shariah-compliant funds as socially-responsible funds has had limited success so far.”
Globally, a lack of standardisation in Islamic investment principles and a limited understanding and awareness among investors and distributors have also hindered growth in the broader Shariah product space, the firm said.
“With global sukuk largely dominated by a few countries, there is also limited geographical diversification for global fixed-income strategies.”
Other analysts, such as Franklin Templeton, expect strong momentum in sukuk, or Shariah-compliant assets, to continue. The firm sees the strong development of Islamic finance "a reflection of genuine retail demand".
Aberdeen in April launched a Shariah equity fund in Indonesia.
Hong Kong is also attempting to attract Islamic financial products. In June 2015, Hong Kong launched its second Islamic bond, which attracted $2bn in orders. In September 2014, the government said it raised $1bn for its first Islamic bond.
The Emirates Global Sukuk fund and the Franklin Global Sukuk fund have mostly been underperforming the MSCI World Index over the past three years.
The CIMB Islamic Enhanced Sukuk fund and the Templeton Shariah Asian Growth fund have also been faring worse than the MSCI Asia ex-Japan Index during the same period, according to FE Analytics.