Abstract
•Based on alphas, we find evidence for neutral performance of Islamic mutual funds.•Using the value-added measure, we find evidence that skilled managers exist.•The bootstrap method shows that the performance of Islamic funds is not due to chance.•The results confirm that Islamic mutual funds are a means of hedging against crises.
We examine the performance of Islamic mutual funds in GCC countries using the Berk and Van Binsbergen (2015) value-added measure. We find compelling evidence that skilled managers exist in the Islamic mutual fund industry. The average mutual fund has used this skill to generate approximately $198,000 per month. The bootstrap methodology highlights that this performance is not obtained by chance. Finally, we document that in bad economic times, Islamic mutual funds have lower value-at-risk and higher Sharpe ratios than conventional benchmarks, supporting the claim that they are a means of hedging against international financial crises.