An Islamic hedge fund?

Investing based on the principles of Islam has gained a fair amount of notoriety of late. According to Amana Funds, the most prominent Islam-based mutual fund, Muslim investing consists of avoiding interest and investments in businesses such as liquor, pornography, gambling, and banks. Bonds and other fixed-income instruments are also off-limits.

In some cases, these policies can lead to superior performance. For instance, Amana Funds missed all of the turmoil that has taken place in the subprime lenders of late, and the fund has an extremely strong long-term track record. The Wall Street Journal reported today that Shariah Capital and Barclays have developed a trading platform to accommodate hedge fund operations based on the principles of Islam. Under Muslim law, it is not possible to short stocks because you can't sell what you don't own.

This marks the continuation of strong growth in Islam-based investing. Investors looking for an easy way to avoid exposure to the banking industry may do well to look at some of these funds.