A comparative analysis of the performance of socially screened and Islamic screened portfolios at the Nairobi securities exchange
Currently in Kenya, there’s been a great move towards both Socially Responsible Investing and Islamic investment even though SRI has gained more fame in the recent years. This study seeks to form both a Social and Islamic portfolio from the NSE and determine whether there exists a significant difference between the performance of the two portfolios. The study used descriptive correlation design. Out of the population of the 65 listed companies as at end of December 2015, 30 companies were selected as the sample for this study since they were the only companies which had met the screening criteria. Islamic screened and Socially screened portfolios were composed from this sample. Weekly risks (measured using the standard deviation) and returns were computed on the two portfolios. The standard deviations of the returns were selected to be the average of the risk measures of weekly raw returns for the five year period 2011-2015. T-tests were also conducted to ascertain whether there exists a significant difference between the risk and returns of the Social and Islamic portfolio. Results showed that, Socially screened portfolio attracted higher returns than the Islamic screened portfolio. Based on the Sharpe’s performance ratio, the Socially screened portfolios outperformed the Islamic screened portfolios. The Islamic screened portfolios had a higher standard deviation than the socially screened portfolios thus proving to be riskier. Although the socially screened portfolios outperformed the Islamic portfolios, the one sample t-test clearly showed that there was no significant difference between the two portfolios. Based on the findings of the study, the study concluded that there exists no significant difference between the risk and returns of the Islamic portfolio and socially screened portfolio. The study recommends construction of a Sharia’h compliant portfolio at the NSE so as to ensure constant results on the performance of portfolios are available to fund managers and investors. Similar studies should also be carried out in other countries and the results compared.