May 19 (Reuters) - Islamic mutual funds are growing again after a slump that lasted years, but the sector still falls short of meeting demand for sharia-compliant investment products, a study by Thomson Reuters and its subsidiary Lipper showed on Tuesday.
Many firms pulled out of the sector around 2008 because of the global financial crisis and as sliding equity markets reduced investor interest.
Islamic mutual funds globally now hold $53.2 billion of assets under management, recovering from a low of $25.7 billion in 2008, the study found.
The total number of Islamic mutual funds reached 943 in 2014, up from 828 a year earlier and double the number in 2008.
Further growth is expected, with the study projecting the funds will grow 8 percent annually to reach $76.7 billion by 2019.
But the demand for such products is believed to be far greater. The ratio of Islamic mutual funds to total Islamic investable assets is estimated to be 8.7 percent, well below the 36 percent observed for conventional funds in the mature capital markets of Europe and North America.
The study estimates latent demand for Islamic investment funds is $126 billion and could rise to $185.1 billion by 2019, translating into a gap of $108.4 billion.
Islamic fund managers screen their portfolios according to religious guidelines such as bans on tobacco, alcohol and gambling, in much the same way as socially responsible funds.
But unlike their ethical counterparts, they have largely relied on retail investors for growth rather than institutional ones such as pension funds and insurance companies.
Part of that is due to a mismatch in distribution. A survey conducted in March for the study found that 44 percent of investors prefer investing in Islamic funds through banks, while 39 percent of asset managers prefer a direct sales approach.
The survey of 59 fund managers and 43 investment firms found growing appetite for funds investing in sukuk (Islamic bonds). An estimated 28 percent of investors want to tap the sukuk asset class via mutual funds, compared to 21 percent for equities and 15 percent for real estate.
The Islamic mutual funds sector is dominated by Malaysia and Saudi Arabia, which host a combined 69 percent of total assets under management. Luxembourg holds third spot; new Islamic mutual funds there saw inflows of $575 million in 2014. (Editing by Andrew Torchia)