This paper assesses the impact of bonds issued according to Islamic principles (Sukuk), on the cost and risk structure of investment portfolios by using the Value-at-Risk (VaR) framework. The market for Sukuk has grown tremendously in recent years at about 45 percent a year. Sukuk provides sovereign governments and corporations with access to the huge and growing Islamic liquidity pool, in addition to the conventional investor base. The paper analyzes whether the secondary market behavior of Eurobonds and Sukuk issued by the same issuer are significantly different to provide gains from diversification. The analysis, employing the delta-normal as well as Monte-Carlo simulation methods, implies such gains are present and in certain cases very significant. The market for Sukuk2 has grown tremendously in recent years, from less than $8 billion in 2003 to $50 billion by mid-2007. Sukuk provide sovereign governments and corporations with access to the huge and growing Islamic liquidity pool, in addition to the conventional investor base. The structure of Sukuk is now well established in several corporate and sovereign/supranational issues in the international bond markets. Malaysia and the Gulf region are the main hubs for Sukuk issuance; however, Sukuk issuance is not limited to Islamic countries. There are a growing number of issuers from the United States, Europe, and Asia. Such bonds have been issued by such sovereign borrowers as the State of Qatar, the Bahrain Monetary Agency, the Government of Pakistan, the Government of Malaysia, and the State of Saxony-Germany, in addition to international agencies such as the Islamic Development Bank and companies including Nestle, several oil companies, companies in Dubai, and the Standard Chartered Bank.