Shariah investors show preference for short-term strategies

SAUDI ARABIA: Investor flows for Shariah funds tracked by the IFN Investor Funds Database in Q4 2025 saw an increasing preference for short-term, liquidity-focused strategies. Money market funds, the largest of such an asset class, recorded a 10.8% rise in AuM to US$24.44 billion from US$22.06 billion in Q3 2025, indicating a clear preference for capital preservation and flexibility during the last quarter.

In contrast, longer-duration and risk-sensitive segments saw pullbacks. Equity funds declined 12% to US$12.96 billion in Q4 2025 from US$14.73 billion previously, while fixed income instruments fell 10.93% to US$3.86 billion from US$4.34 billion before, reflecting reduced appetite for longer-term exposure amid market uncertainty. Mixed-asset funds also edged lower by 1.71% to US$4.66 billion from US$4.74 billion in Q3 2025.

Elsewhere, real estate funds were broadly stable at US$8.15 billion, while Sukuk funds posted a modest 1.69% increase to US$452.72 million from US$445.19 million in Q3 2025.

Percentage-wise, commodity funds recorded the strongest percentage gain on the surge in precious metal global prices, rising 43.32% to US$42.27 million from US$29.49 million in Q3 2025, albeit from a small base.

Overall, Q4 2025 marked a clear rotation within Saudi Arabia’s Islamic fund market, with investors reallocating toward short-term liquidity instruments while trimming exposure to longer-term equity and fixed-income strategies – trends which were not fully captured by the total AuM inching up 0.17% to US$54.57 billion from US$54.48 billion in Q3 2025.