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Improving Shari’ah Compliant Investing in a Concentrated Investment Universe

Consider your options for optimising portfolios in a concentrated environment
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Executive Summary

To create a more optimal portfolio in a concentrated environment, methods such as Risk Parity and the Kalman Filtering approach can be used to re-weight the Shariah ALSI index. The Risk Parity approach involves re-weighting the index based on constituent risk, whilst the Kalman Filtering approach uses algorithms to estimate the optimum weight of each constituent.

While the objective of both approaches is to increase diversification, the Kalman Filtering approach offers additional benefits of increased, smoother returns, as well as reduced risk.

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