The growth rate in assets of Islamic funds has exceeded that of the broader mutual fund industry, according to estimates by Fitch Ratings.

The firm noted that assets under management in Islamic mutual funds have increased "substantially", peaking at the end of Q2 last year at around $130bn, before falling to around $120bn by the end of the year.

Nevertheless, the growth rate for Islamic funds was estimated at 84% nominal and 13% annualised, exceeding the broader global mutual fund industry which saw nominal and annualised growth of 68% and 11% respectively.

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According to the report, authored by Alastair Sewell and Bashar Al Natoor, Saudi Arabia and Malaysia remain the pre-eminent Islamic fund domiciles in the world, as they already have firmly established markets.

Sewell and Al Natoor said: "Offshore markets, such as Jersey and Luxembourg, also have nascent Islamic fund markets. Jersey is an Islamic exchange-traded fund (ETF) hub, where multiple commodity ETFs (notably gold ETFs) claim Sharia status, whilst Luxembourg has a broader Islamic mutual fund base," the ratings agency said.

In terms of Islamic fund type, money market funds dominated, primarily because Saudi Arabia is the largest Islamic fund domicile and MMFs are the predominant fund type in the country.

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By the end of Q4 last year, over 80% of Saudi Arabia's Islamic fund AUM was invested in MMFs, while in Malaysia, equity funds represented the largest segment accounting for 44% of total AUM.

The report noted: "Structural and legal characteristics of the assets held by Islamic funds can cause additional rating complexities, notably in the case of defaults in portfolio holdings."