PREDICTING STOCKS MUTUAL FUND PRODUCT PERFORMANCE USING MODERN PORTFOLIO CHOICE THEOREM

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1 PREDICTING STOCKS MUTUAL FUND PRODUCT PERFORMANCE USING MODERN PORTFOLIO CHOICE THEOREM FINAL PROJECT By Alviga Andelisa Undergraduate Program School of Business and Management Institut Teknologi Bandung 1

2 ABSTRACT Stocks Mutual Fund as one of the risky investments used the basic strategy of diversification. Through its choice of stocks (80%-98%), Stocks Mutual Funds play with the combination of its stocks as well as its holdings in order to gain the most optimal return with a certain level of risk. Mean Variance Frontier graph provides each Stocks Mutual Fund a return and risk position, where it spreads mostly in the High Risk, Low Return area. This result is taking off as the expected performance of the Stocks Mutual Fund. Modern Portfolio Choice Theorem is one method of predicting the future performance of an asset portfolio, which in the end will be proven by the real (actual) performance. By using the portfolio return and standard deviation, the expected performance of the Stocks Mutual Fund is determined. When the result is compared with the actual performance, it transpires to be over expected. Linear Regression and Confidence Interval analysis strengthen the outcome that there are no significant correlations between expected and actual performance. This insignificance proved that it requires a holistic approach to predict the future performance of Stocks Mutual Fund. 3

3 ABSTRAK Sebagai salah satu jenis investasi yang beresiko tinggi, Reksadana Saham menggunakan sistem difersifikasi sebagai strategi dasar. Reksadana Saham memainkan produk sahamnya (80-98%) dengan berbagai kombinasi dari jenis saham itu sendiri maupun kombinasi dari proporsi masing-masing saham. Hal ini dilakukan untuk memperoleh pendapatan ataupun keuntungan dari investasi dengan tingkat resiko tertentu. Tingkat resiko dan pendapatan dari Reksadana Saham diposisikan dalam grafik Mean Variance Frontier dimana sebagian besar tersebar di daerah High Risk, Low Return. Posisi inilah yang menjadi dasar dari prediksi performa dari Reksadana Saham. Salah satu teori untuk memprediksi performa dari portfolio saham ialah dengan menggunakan Teori Modern Portfolio Choice serta dibuktikan dengan perform aril dari Reksadana Saham tersebut. Dengan melakukan perhitungan terhadap portfolio return dan standar deviasi, prediksi dari performa Reksadana Saham dapat ditentukan. Ketika dibandingkan dengan performa (hasil) yang sudah terjadi, ternyata hasil dari penghitungan menunjukkan bahwa tingkat ekspektasi terhadap performa Reksadana Saham lebih rendah (over expected) sehingga menghasilkan hasil yang berbeda. Analisa dengan menggunakan Linear Regression dan Confidence Interval membuktikan bahwa tidak ada hubungan yang signifikan antara ekspektasi performa dan performa ril pada Reksadana Saham. Hubungan yang tidak signifikan antara dua variabel ini menunjukkan bahwa perlu adanya pendekatan secara holistik untuk dapat memprediksi performa Reksadana Saham di masa yang akan datang. 5

4 PREDICTING STOCKS MUTUAL FUND PRODUCT PERFORMANCE USING MODERN PORTFOLIO CHOICE THEOREM By: ALVIGA ANDELISA Undergraduate Program School of Business and Management Institut Teknologi Bandung Validated By Deddy P. Koesrindartoto PhD NIP :

5 PREFACE I would like to express my gratefulness to Allah SWT for all the blessings of strength and health to finish my Final Project successfully. I also would like to express my sincere thanks and appreciation to my beloved family, my father, my mother, and my big brother for all their undying support, advices, and prayers through the short or long distance. Finally yet importantly, I would like to send my gratitude to Mr. Deddy Pri as my supervisor for his professional guidance and time dedication throughout the process of this project. I have arranged this Final Project research so that it is more understandable in the use of terms and concepts, which delivers a systematic way of thinking. 9

6 LIST OF CONTENTS ABSTRACT i ABSTRAK ii VALIDATION PAGE iii FOREWORD iv LIST OF CONTENTS v LIST OF FIGURES vii LIST OF TABLES viii CHAPTER I. INTRODUCTION Background What is Mutual Fund Types of Mutual Fund Problem Summary Research Scope Brief Methodology Research Objectives 4 CHAPTER II. THEORETICAL FOUNDATIONS Diversification Optimal Portfolio Calculation Return Calculation Risk Calculation Portfolio Return Portfolio Risk Mean Variance Frontier Graph Confidence Interval Single-Sided Confidence Intervals (Variance Unknown) 9 CHAPTER III. METHODOLOGY Research Methodology Portfolio Performance of the Stocks Mutual Fund 12 11

7 3.2 Hypothesis The Correlation between Expected and Actual Return Using Linear Regression The Correlation between Expected and Actual Return Using Confidence Interval 14 CHAPTER IV. DATA ANALYSIS Data Collection Data Analysis Portfolio Return & Risk Calculation Period (24 Months Base) Expected Return versus Actual Return Linear Regression Analysis Confidence Interval Analysis Period (12 Months Base) Expected Return versus Actual Return Linear Regression Analysis Confidence Interval Analysis 37 CHAPTER V. CONCLUSIONS 41 REFERENCES 43 12

8 LIST OF FIGURES Figure 2.1 Portfolio risk as a function of the number of stocks in the portfolio 5 Figure 2.2 Mean Variance Frontier Graph 7 Figure 2.3 Normal Distribution 9 Figure 3.1 Methodology Flowcharts 11 Figure 3.2 Hypothesis 13 Figure 3.3 Linear Graph 13 Figure 4.1 Mean Variance Frontier Graph ( ) 23 Figure 4.2 Expected versus Actual Return ( ) 26 Figure 4.3 Confidence Interval ( ) 29 Figure 4.4 Confidence Interval of Expected Return ( ) 31 Figure 4.5 Mean Variance Frontier Graph ( ) 32 Figure 4.6 Expected versus Actual Return ( ) 35 Figure 4.7 Confidence Interval of Actual Return ( ) 39 13

9 LIST OF TABLES Table 4.1 Detailed Stocks Mutual Fund (SMF) Data of Fortis Ekuitas 15 Table 4.2 Detailed SMF Data of Nikko Saham Nusantara 16 Table 4.3 Detailed SMF Data of First State Indoequity Sectoral Fund 16 Table 4.4 Detailed SMF Data of Danareksa Mawar 16 Table 4.5 Detailed SMF Data of Mahanusa Dana Ekuitas 17 Table 4.6 Detailed SMF Data of Panin Dana Maksima 17 Table 4.7 Detailed SMF Data of Mandiri Investa Atraktif 18 Table 4.8 Detailed SMF Data of Manulife Dana Saham 18 Table 4.9 Detailed SMF Data of Phinisi Dana Saham 19 Table 4.10 Detailed SMF Data of Makinta Mantap 19 Table 4.11 Example of the Expected Return Calculation 20 Table 4.12 Variance of Fortis Ekuitas Holding (January 2007) 21 Table 4.13 Covariance of Fortis Ekuitas Holding (January 2007) 21 Table 4.14 Expected Return and Portfolio Risk ( ) 22 Table 4.15 Actual Return versus Expected Return ( ) 24 Table 4.16 Mean and Standard Deviation ( ) 24 Table 4.17 Analysis of T-test for the 24-months-base 25 Table 4.18 Model Summary for period Table 4.19 Analysis of Coefficients for period Table 4.20 Sample-based T-test 28 Table 4.21 Confidence Interval ( ) 30 Table 4.22 Expected Return and Portfolio Risk ( ) 31 Table 4.23 Actual Return versus Expected Return ( ) 33 Table 4.24 Mean and Standard Deviation ( ) 34 Table 4.25 Analysis of T-test for the 12-months-base 34 Table 4.26 Model Summary for Period Table 4.27 Analysis of Coefficients for Period

10 Table 4.26 Confidence Interval ( ) 37 Table 5.1 Range of Return and Risk on Stocks Mutual Fund 39 Table 5.2 Hypothesis Test 39 Table 5.3 Summary of the Linear Regression 40 16