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The assumption isn't baseless on its face. Sharia screening does exclude entire sectors, conventional banking, alcohol, gambling, and others, that make up a meaningful share of most broad market indices. Removing any sector from an investable universe changes the composition of what's left, and it's intuitive to assume that removal must cost something. The error is treating "different composition" as automatically synonymous with "worse performance," without actually checking whether that holds up.
🚩 The following requires citation to real, published longitudinal data before this claim runs live — flagged here rather than asserted as fact. Multiple longitudinal studies comparing Sharia-compliant equity indices against unscreened benchmarks over extended periods have found performance broadly comparable, and in several measured periods, favorable to the screened index — driven in part by the exclusion of highly-leveraged conventional financial institutions, which tend to underperform disproportionately during credit-tightening cycles precisely because of the leverage the screen filters out in the first place. The "compliance tax" that gets assumed by default doesn't hold up consistently against the data that actually exists.
Picture the completed ark sailing on calm, sunlit water, full sail, riding high and steady — animals visible and thriving at the rails, not scarce, not rationed. That's the more accurate image for what disciplined, principle-based screening produces over time, compared to the scarcity mindset the "compliance costs returns" assumption quietly implies. Exclusion isn't automatically loss. Sometimes the thing being excluded was the source of hidden fragility, not hidden upside.
