What can you say about the stock market in 2012? It was a great year. If you sat on the sidelines thinking that 2012 would be a down year then you definitely missed out. 2011 was a “nothing year” because the stock market largely did nothing. With the uncertainty of an election, inept Congress, and slow economic recovery you’d be forgiven for being pessimistic last January. But you would be wrong.
Hopefully most of you readers just invest in index funds and didn’t have to worry about 2012. It was a good year for you no matter what you felt about the economy. You know enough to know you can’t predict what the market will do. If you’re in the crowd then as you should know you had a good year.
But your 2012 wouldn’t have been so great if you were compliant with Shariah law. Shariah law is the set of guidelines and principles many Muslims follow to be in compliance with the expectations for the religion. Shariah covers many aspects of live from hygiene to business. A few years ago investment companies recognized the desire of many Muslim investors to want to only invest in companies that are compliant with Shariah law. As a part of this Standard & Poor’s created many indexes based on their existing offerings which exclude companies not in compliance.
As you can see in the chart, the S&P 500 did considerably better in 2012 than the Shariah compliant version. Shariah law removes companies involved in the following:
- Advertising except news channels, newspapers, and sports channels, as well as others meeting certain criteria Alcohol
- Financials excluding Islamic ones
- and companies not compliant with certain cash and debt financial ratios.
There are a couple of other restrictions as well but you get the point. It seems like being out of compliance with Islamic law was good for the wallet last year. Without further analysis I can’t speak to exactly what industries excelled, but I know banks had a great year and that may account for most of the extra returns.
In all likelihood if you’re concerned with Shariah law you probably care less about beating a standard market index. But there’s something to be said when we look at all types of lifestyle related investing. Whether it be religious, moral, or something like ecological. There are sacrifices to be made in returns. If you want to either send a message or just sleep better at night, you are giving up on a portion of the economy that may increase your returns.