CONSISTENCY ANALYSIS OF MIXED MUTUAL FUND PERFORMANCE AND EQUITY MUTUAL FUNDS PERFORMANCE BETWEEN 2003-2014 USING SHARPE, TREYNOR, AND JENSEN METHODS

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A Summary of:CONSISTENCY ANALYSIS OF MIXED MUTUAL FUND

PERFORMANCE AND EQUITY MUTUAL FUNDS

PERFORMANCE BETWEEN 2003-2014 USING SHARPE,

TREYNOR, AND JENSEN METHODS

Supervisor : Prof. Dr Indra Wijaya Kusuma, M.B.A., CMA

Submitted by:

NUNIEK KARTIKARINI13/360530/PEK/19045

MAGISTER MANAGEMENT PROGRAMMEFAKULTAS EKONOMIKA DAN BISNIS

UNIVERSITAS GADJAH MADAYOGYAKARTA

2015

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Table of Contents

Title and Identification of the MM FEB UGM .........................................................................1

Approval from Thesis’ Supervisor.............................................................................................2

Table of Contents ...................................................................................................................... 3

Abstract...................................................................................................................................... 4

Introduction................................................................................................................................ 5

Literature Review.......................................................................................................................5

Research Methods...................................................................................................................... 6

Result & Discussion...................................................................................................................8

Conclusion & Suggestion ........................................................................................................11

Reference..................................................................................................................................12

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Abstract

Long-term investments is a fundamental and research-based approach that checks all risk investmentinstruments and focus on the purpose of seeking yield (return) positive in the long-term business cycle.Equity funds and balanced funds are the two types of investment instruments should be used in long-terminvestment. To select the appropriate mutual funds necessary consistency of fund performance informationthat has been circulating in the market within 12 years. In measuring the performance of mutual fundsusing risk-adjusted performance, there are three methods commonly used by the investment manager inmeasuring portfolio performance, the method of Sharpe, Treynor, and Jensen. This study examineswhether there is consistency in the measurement methods Sharpe, Treynor and Jensen on the performanceof equity funds and balanced funds the period January 2003 to December 2014. From the calculation byusing statistical test of Kendall's W, it can be seen that there is consistency weak on performance TreynorIndex and Sharpe index of equity funds and balanced funds, consistency of performance is rather weakagainst Jensen's Alpha index equity funds, and strong consistency of the performance of Jensen's Alphaindex mutual fund.

Keywords: yield, Sharpe index, Treynor index, Jensen Index, consistency, performance

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Consistency Analysis Of Mixed Mutual Fund Performance And Equity

Mutual Funds Performance Between 2003-2014

Using Sharpe, Treynor, And Jensen Methods

Introduction

Humans have a need that is not limited, but her ability is limited. Human needs can not

be met only by working and saving. He also must invest, in a number of investment

instruments. Equity funds and balanced funds are the two investment instruments based on

history able to provide a relatively high yields and stable in the long term (Bogle, 2007).

Between the period of 2003-2014 the total net asset value of the entire fund in

Indonesia rose an average of 24% annually. Number of mutual fund investors at the end of

2014 amounted to approximately 484 thousand people. These investors definitely need

information about a mutual fund that consistently give high yields above the market in the

long term, over 10 years. Whereas per February 2015 there were 787 mutual fund products

circulating in Indonesia, nearly half of which are equity funds. Of the hundreds of mutual

funds, fewer than 10% were older than 10 years.

Fund performance measurement can not directly compare the returns of mutual funds

with a market return, but must be adapted to the risks borne by each mutual fund. That's why

investors need some performance measurement method that includes factors of risk and

return. Fund performance measurement methods that are commonly used include: methods

Sharpe, Treynor, and Jensen.

Literature Review

Investing is a long-term activities undertaken to meet specific needs in the future.

Siegel (2014) and Bogle (2010) found that the ideal period of time to invest is more than 10

years. Both argued that the longer the investment period, the smaller the costs and risks borne

by investors. Bogle (2010) suggests investors choose mutual fund as an investment

instrument of choice. Siegel (2014) suggests stocks or mutual funds that invest in stocks

follow a particular index, such as the S & P 500 or Russell 5000.

Ang and Kjaer (2011) argues that there are three advantages of being a long-term

investor, namely: can avoid fluctuations in the market, get more profit in the event of

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mispricing in the market (elevated premiums), and are free to take advantage of the illiquidity

premium. But to get a third of the profits of an investor must have access to news affecting

the market, and can do research or have access to market research.

The performance of a mutual fund portfolio is strongly influenced by the amount of

funds under management and costs. According to Indro et al., (1999) and Busse et al., (2014),

the greater the size of mutual fund AUM (asset under management), the lower performance

of the portfolio of its mutual funds. Berk and Green (2014) found that the more active mutual

fund managers change the contents of the portfolio, the greater the cost to the fund, the lower

the returns of mutual funds, and the lower the performance of mutual funds.

Portfolio performance evaluation will be related to two main issues, i.e: to evaluate

whether the yield of the portfolio that has been formed is able to deliver returns in excess

(above) return other portfolio used as a reference, and to evaluate whether the returns

obtained in accordance with the level of risk assumed. Some measure of portfolio

performance that already incorporate risk factors is the Sharpe index, Treynor index and

Jensen index (Tandelilin, 2010). According to Chen and Knez (1996) the benefit of mutual

fund performance measurement is to know how big the added value of an investment

portfolio manager team, and how far they can develop the value of the investments they

manage.

Consistency of fund performance is difficult to survive more than 3 years, as shown by

Jan and Hung (2004). Mutual funds are performing well in one period, then the performance

in subsequent years could be good because it helped survivorship bias, which is the tendency

of investors choose mutual funds that historical performance proved to be good in the period

(Malkiel, 1995). Hendricks et al., (1992) confirm the survivorship bias. Vidal Garcia (2013)

and Malkiel (1995) both showed that in 10 years or more the performance of mutual funds

can not beat the market performance of the benchmark.

Research Method

The subjects of this study were 12 equity funds and five mutual fund. Twelfth equity

fund include: Trim Kapital, Schroeder Dana Prestasi, Panin Dana Maksima, Ciptadana

Rencana Cerdas, BNP Paribas Pesona, Danareksa Mawar, BNP Paribas Ekuitas, Bahana

Dana Infrastruktur, BNI Berkembang, and Batavia Dana Saham. Five mutual fund in

question was Satu, Sam Dana Berkembang, PNM Syariah, Danareksa Syariah Berimbang,

and Batavia Dana Dinamis. The sample selection was based on the following criteria: active

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since 2003, is still active (not closed) until December 31, 2014, not unitlink, rupiah-

denominated and have a minimum of 40% of the shares in the portfolio.

The period of the study conducted between January 2003 and December 2014.

Subperiode daily measurements. Net Asset Value (NAV) Daily each mutual fund, sought a

return daily, calculated fluctuation risk (standard deviation) and beta (risk of fluctuations in

mutual funds relative to the market), then calculate the risk-adjusted return. Methods of risk-

adjusted return that is used is the Sharpe index, Treynor index and Jensen index.

SRD =

RFRD ePerformancePerformanc

Description :SRD = value of Sharpe ratioPerformanceRD = average performance of certain mutual funds at subperiod.PerformanceRF = average risk-free investment performance of certain subperiodσ = standard deviation of funds for certain subperiod

TRD =

RFRD ePerformancePerformanc

Description:TRD = value Treynor ratioPerformanceRD = average performance of certain mutual funds subperiodPerformanceRF = average risk-free investment performance of certain subperiodβ = marker fluctuation risk relative to market risk

α = (PerformanceRD – PerformanceRF) - β. (PerformanceRD – PerformanceRF)

Description:α = the value of the intersection of JensenPerformanceRD = average subperiode performance of certain mutual funds.PerformanceRF = average risk-free investment performance of certain subperiodβ = marker fluctuation risk relative to market risk

Having obtained the value of Sharpe, Treynor, and Jensen from each fund and the

benchmark index (CSPI), ranking made annually. Tables of the ratings are created table

rankings to determine the consistency of mutual funds which are able to maintain a consistent

performance. Table consistency is then tested with Kendall's W rank correlation to find the

value of each index consistency of performance

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Results and Discussion

Table 4.1 Ranking of Equity Mutual Fund at January 2003 - December 2014 Based on SharpeIndex

Mutual Funds 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Trim Kapital 13 12 5 3 7 8 11 12 2 1 11 2Schroder DanaPrestasi Plus 5 11 9 10 8 3 4 6 3 7 2 4SchroderDanaPrestasi 2 9 7 6 6 2 2 7 6 12 7 8Panin DanaMaksima 1 13 3 1 12 1 1 1 1 8 4 11Ciptadana RencanaCerdas 4 4 2 7 11 4 9 3 8 10 12 1BNP ParibasPesona 6 3 6 2 3 9 6 5 7 4 9 6Danareksa Mawar 11 8 8 11 5 11 10 8 4 11 5 12BNP ParibasEkuitas 10 1 1 4 1 7 5 4 9 5 8 7Bahana DanaInfrastruktur 9 10 13 5 2 10 8 10 13 6 3 13BNI Berkembang 12 2 11 13 13 13 12 13 12 3 13 5Batavia DanaSaham 8 7 4 12 10 5 3 9 11 9 1 9Bahana Dana Prima 3 6 12 9 4 6 13 11 10 13 10 3IHSG 7 5 10 8 9 12 7 2 5 2 6 10

Tabel 4.2 Ranking of Equity Mutual Fund at January 2003 - December 2014 Based onTreynor Index

Mutual Funds 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Trim Kapital 13 3 2 3 6 8 12 4 2 1 11 2

Schroder DanaPrestasi Plus

6 8 10 12 8 3 6 7 3 7 2 4

SchroderDanaPrestasi

2 7 7 7 7 2 3 10 6 12 7 9

Panin DanaMaksima

1 5 1 1 12 1 1 1 1 8 4 10

Ciptadana RencanaCerdas

4 9 3 6 11 4 10 5 8 10 12 1

BNP ParibasPesona

7 10 6 2 3 7 7 8 7 4 9 6

Danareksa Mawar 8 4 8 11 5 9 9 9 4 11 6 13

BNP ParibasEkuitas

11 6 4 5 2 13 4 6 9 6 8 7

Bahana DanaInfrastruktur

3 2 13 4 1 10 5 12 12 5 3 12

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BNI Berkembang 12 1 11 13 13 12 11 3 13 3 13 5

Batavia DanaSaham

9 11 5 9 10 5 2 11 11 9 1 8

Bahana Dana Prima5 12 12 8 4 6 13 13 10 13 10 3

IHSG 10 13 9 10 9 11 8 2 5 2 5 11

Tabel 4.3 Ranking of Equity Mutual Fund at January 2003 - December 2014 Based on JensenIndex

Mutual Funds 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Trim Kapital 3 4 13 13 13 13 13 12 12 1 6 5

Schroder DanaPrestasi Plus

6 10 5 11 6 6 6 5 4 7 4 10

SchroderDanaPrestasi

11 7 9 7 4 3 5 7 7 12 10 11

Panin DanaMaksima

2 5 1 1 2 1 1 1 1 8 7 12

Ciptadana RencanaCerdas

7 8 6 4 11 9 10 8 9 10 2 2

BNP ParibasPesona

8 9 4 8 8 7 7 6 5 4 9 6

Danareksa Mawar 4 3 8 5 5 8 8 13 3 11 12 13

BNP ParibasEkuitas

13 6 10 6 3 12 11 10 10 6 11 7

Bahana DanaInfrastruktur

1 2 3 2 1 5 3 3 6 5 1 1

BNI Berkembang 5 1 7 12 9 11 12 2 2 3 8 4

Batavia DanaSaham

9 11 2 3 12 2 9 9 11 9 3 9

Bahana Dana Prima10 12 11 10 10 10 2 11 8 13 13 8

IHSG 12 13 12 9 7 4 4 4 13 2 5 3

Of the three tables above, Panin Dana Maksima ranks first in all three types of indexes

measuring the performance between the years 2008-2011. The rest rankings equity funds

studied none were able to show consistency in the same manner as Panin Dana Maksima.

Table 4.4 Ranking of Mixed Mutual Fund at January 2003 - December 2014 Based on SharpeIndex

Mutual Funds 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Simas Satu 4 6 3 6 2 6 6 5 2 1 1 2Sam DanaBerkembang

2 3 5 3 4 1 5 2 6 2 4 3

PNM Syariah 6 1 1 1 1 4 4 6 5 6 6 6Danareksa SyariahBerimbang

5 5 4 4 5 5 1 3 3 3 5 5

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Batavia DanaDinamis

3 2 6 5 6 2 3 4 4 5 2 4

IHSG 1 4 2 2 3 3 2 1 1 4 3 1Table 4.4 Ranking of Mixed Mutual Fund at January 2003 - December 2014 Based onTreynor Index

Mutual Funds 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Simas Satu 1 6 3 1 2 6 5 5 2 1 1 2Sam DanaBerkembang

3 3 5 4 3 1 4 1 6 2 4 3

PNM Syariah 2 1 1 2 1 4 6 6 5 6 6 6DanareksaSyariahBerimbang

4 5 4 5 4 5 1 3 3 3 5 5

Batavia DanaDinamis

5 2 6 6 6 3 2 4 4 5 2 4

IHSG 6 4 2 3 5 2 3 2 1 4 3 1

Table 4.6 Ranking of Mixed Mutual Fund at January 2003 - December 2014 Based on JensenIndex

Mutual Funds 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Simas Satu 1 3 3 1 1 2 1 5 3 2 1 1Sam DanaBerkembang

2 4 5 4 2 1 4 1 5 4 4 5

PNM Syariah 5 1 1 2 3 3 2 2 2 1 2 4DanareksaSyariahBerimbang

3 2 2 5 5 5 3 3 1 3 3 2

Batavia DanaDinamis

4 5 4 3 4 4 5 4 4 5 5 3

IHSG 6 6 6 6 6 6 6 6 6 6 6 6

Of the three above table shows that the PNM Syariah is a balanced fund that

consistently ranks first in 2004-2007 (Sharpe Index), 2012-2014 (Treynor Index), and 2009-

2011 (Jensen Index). Mutual fund which demonstrates the consistency closest to PNM

Syariah is Danareksa Syariah Berimbang. The rest rankings balanced fund the study did not

show the consistency of ratings

Tabel 4.37 Performance Consistency of Mutual Funds Measured by Kendall’s W

Performance Index Value of Kendall’s WReksa dana saham Reksa dana campuran

Sharpe 0,1645 0,123Treynor 0,1351 0,073Jensen’s Alpha 0,2608 0,5992

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From the table above shows that the strongest consistency shown by the value of

Kendall's W on mutual fund Jensen index (0.5992), and the weakest is the mutual fund

Treynor Index (0.073). In general, the consistency Jensen index is greater than the index of

Sharpe and Treynor Index. Consistency three indexes measuring the performance of mutual

fund shares lower than balanced funds. Kendall's W value greater than zero indicates

consistency, albeit weakly.

Of the seven table above shows that mixed mutual funds and equity mutual fund which

are researched very difficult to maintain the consistency of its performance more than 4 years.

Both PNM Syariah and Panin Dana Maksima only able to maintain its performance for a

maximum of four consecutive years. This confirms research done by Vidal-Garcia (2013) and

Malkiel (1995), which shows that it is very difficult for a mutual fund maintain its

performance superiority over the performance of the market for over 10 years. After 2011,

PNM Syariah and Panin Dana Maksima unable to maintain its performance superiority, and

both ratings dropped dramatically when compared with the performance of other mutual

funds and market performance.

Conclusion

From the analysis and discussion above, a number of conclusions, including:

1. Viewed from Sharpe index, Treynor index and Jensen's Alpha index, equity mutual

funds showing the top ranked with high consistency is Panin Dana Maksima

2. Judging from Sharpe index, Treynor index and Jensen's Alpha index, mixed mutual

fund which shows the consistency of the top ranked high enough is PNM Syariah.

3. Equity mutual fund with relatively consistent performance rankings are Panin Dana

Maksima, BNI Developing, Schroder Fund Performance, Danareksa Mawar, and Schroder

Fund Performance Plus.

4. Mixed mutual funds with relatively consistent mix of performance ratings is PNM

Syariah, Islamic Danareksa Balanced and Dynamic Funds Batavia.

5. There is a weak consistency of the performance Treynor index and Sharpe index

equity funds and balanced funds examined when tested with Kendall's.

6. Consistency of performance as measured by the Investment Manager Jensen's Alpha

Index, both in mutual funds and mutual fund shares, stronger than Treynor index and Sharpe

Index.

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