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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

The Performance of Equity Funds in Indonesia: Skill or Luck?

MSc Financial Analysis and Fund Management

A.T.Gemiarto

2013

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

The Performance of Equity Funds in Indonesia: Skill or Luck?

Submitted by Allan Tandhyka Gemiarto to the University of Exeter as a dissertation towards the degree of Master of Science by advanced study in Financial Analysis and Fund Management, September 2013.

I certify that all material in this dissertation which is not my own work has been identified and that no material is included for which a degree has previously been conferred upon me.

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Acknowledgement
It is my pleasure to hereby present my postgraduate dissertation. The work of this undergraduate thesis has been extensive as well as exciting at the same time. First of all, I would thank God for His blessings and guidance during the process. I believe that without Him, I would never have been able to finish the work. Also, I would like to take this opportunity to thank the people who have been helpful during the writing process, and thereby making this postgraduate dissertation successfully. They are: 1. Dr Evarist Stoja as my supervisor, for his invaluable help, guidance, feedback, and willingness to support me from constructing the proposal until the final realisation of my postgraduate dissertation. 2. Professor Richard Harris as my lecturer in Financial Modelling, whose knowledge has helped me improved a lot during the year and supported me in writing this postgraduate dissertation. 3. Every lecturer, administration staff, and classmate in MSc Financial Analysis and Fund Management (FAFM) Program who have taught me many things. 4. My best friend, Zhong Yazhen, who has helped me through ups and downs in the writing process and also helped me to submit this postgraduate dissertation. 5. My deepest gratitude to my mom for her enormous support and encouragement during the entire education as well as the writing process of this postgraduate dissertation. I would like to apologise for all parties who have not been mentioned above without forgetting the remarkable contributions toward the completion of this postgraduate dissertation. In the end, the writer would like to apologise for any weakness of this postgraduate dissertation and be gratefully open for any constructive critics and suggestions. I hope that this postgraduate dissertation will be valuable for all of the readers.

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Abstract
This paper examines the performance of actively managed Indonesian openended equity mutual funds that invest primarily in Indonesian equities during the periods of 1999 and 2013. Using a survivorship-bias free data set, I start from examining the excess return () for aggregate wealth invested in actively managed mutual funds. Then I focus on the performance of individual funds. Under the Carhart 4-Factor model and gross returns data, I find that the majority (more than 70%) cannot outperform the benchmark portfolios. Among the remaining funds, only 3 equity fund alphas are statistically different from zero. Then I analyse further these funds with positive alphas using net returns by subtracting the fees (average of 5.25%) from gross returns. Surprisingly, only 15 funds are able to achieve positive abnormal performance, but only 1 equity fund is still persistent in generating positive and statistically significant alpha. One step further, I use a residual bootstrap methodology to separate between skills and luck for aggregate, as well as for individual funds. The results from bootstrap simulations show that only few funds in the extreme right tails that genuinely have skills. However, there is not enough evidence to conclude that any fund managers on average have superior skill to cover the costs they impose on investors.

Keywords: Equity Fund, Indonesia, Mutual Fund Performance Evaluation, Bootstrapping

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

List of Contents
Acknowledgement ...................................................................................................................... 3 Abstract ........................................................................................................................................ 4 List of Contents ........................................................................................................................... 5 List of Tables ............................................................................................................................... 6 List of Figures ............................................................................................................................. 7 Chapter I: Introduction ............................................................................................................... 8 1.1. Research Background ............................................................................................... 8 1.2. Research Problems ................................................................................................. 11 1.3. Research Objectives ................................................................................................ 11 1.4. Research Benefits .................................................................................................... 12 1.5. Research Summary ................................................................................................. 13 Chapter II: Literature Review .................................................................................................. 15 Chapter III: Methodology and Variables ............................................................................... 18 3.1. Research Methodology ................................................................................................ 18 3.1.1. Mutual Fund Performance Evaluation Models ............................................. 18 3.1.2. Test of Significance .......................................................................................... 24 3.1.3. Bootstrap Analysis............................................................................................ 25 3.2. Research Variables .................................................................................................. 28 3.2.1. Dependent Variables ....................................................................................... 28 3.2.2. Independent Variables..................................................................................... 28 Chapter IV: Data ....................................................................................................................... 29 4.1. Data for the Dependent Variable ........................................................................... 29 4.2. Data for the Independent Variables ....................................................................... 30 Chapter V: Analysis ................................................................................................................. 32 5.1. Results from Preliminary Analysis ............................................................................. 32 5.2. Results from Regression Analysis ............................................................................. 32 5.2.1. Gross Returns ................................................................................................... 32 5.2.2. Net Returns ....................................................................................................... 38 5.3. Results from Bootstrap Analysis ............................................................................ 42 Chapter VI: Conclusions ......................................................................................................... 48 Chapter VII: Limitations and Recommendations ................................................................. 49 7.1. Limitations of the Research .................................................................................... 49 7.2. Recommendations for Further Researches ......................................................... 50 Appendices................................................................................................................................ 51 Bibliography .............................................................................................................................. 54

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

List of Tables
Table 5.1. Average monthly data for RMRF, SMB, HML, MOM ........................ 32 Table 5.2. Summary of Regression Results using Gross Returns .................... 35 Table 5.3. Summary of Funds with Positive Alphas using Gross Returns ........ 37 Table 5.4. The Changes from Gross Returns to Net Returns ........................... 39 Table 5.5. Summary of Regression Results using Net Returns ........................ 40 Table 5.6. Summary of Bootstrap Results from Ranked Ex-post Alpha ............ 46 Table 5.7. Summary of Bootstrap Results from Ranked Ex-post T-statistics of Alpha................................................................................................................. 46

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

List of Figures

Figure 1.1. Mutual Funds Distribution Channel Mix across Asia ....................... 9 Figure 3.1. SMB and HML portfolios ................................................................. 21 Figure 3.2. Momentum portfolios ...................................................................... 23 Figure 3.3. Framework of Mutual Fund Performance Evaluation ...................... 24 Figure 5.1. Histogram of Alpha ......................................................................... 34 Figure 5.2. Histogram of Residuals from Best Funds........................................ 41 Figure 5.3. Histogram of Residuals from Worst Funds ..................................... 42 Figure 5.4. Histogram of Ranked Expost Alpha ................................................ 43 Figure 5.5. Histogram of Residuals from Expost Best Funds ............................ 44 Figure 5.6. Histogram of Residuals from Expost Worst Funds.......................... 44 Figure 5.7. Histogram of Residuals from Expost Median Funds ....................... 44

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Chapter I: Introduction
1.1. Research Background The most frequent question launched by a mutual fund investor perhaps is how the fund performs over time. It is in the best interest of investors to know if there are actively managed mutual funds that can generate positive riskadjusted returns and consistently outperform the market. This topic has been intensively researched because of its importance to consider before investing in any fund or to evaluate whether a particular fund meets investors financial goals. It was Jensen (1968) who evaluated the mutual funds performance for the period 19451964 and he did not find any evidence of mutual fund manager skill. Unfortunately, despite the fact that so many researchers did deep researches in this area, especially the performance of individual US and UK mutual funds that have been extensively analysed with different methods and different time periods, there is still no exact conclusive answer regarding the real skill of mutual fund managers. Most studies in US mutual funds have concluded stronger evidence of underperformance rather than superior performance. Expectedly, UK mutual funds also exhibit similar pattern. This is the reason why both practitioners and academic researchers are so interested to find out this mutual fund performance evaluation. More importantly, running a mutual fund involves costs. Mutual fund investors have to pay extra money for mutual fund fees for the services provided by the fund. According to US Securities and Exchange Commission, there are two types of mutual fund fees. First, shareholder fees are imposed directly on every transaction being made by investors. It includes sales charge on purchases, purchase fee, deferred sales charge, redemption fee, exchange fee, and account fee. Second, annual fund operating fees are regul ar, recurring, fund-wide fees. The examples are management fees, distribution fees, and other expenses. These fees are considerably not a small percentage, ranging from average of 2 to 4 per cent in the developed market. It is very important to notice that these operating expenses are paid out of fund assets, which means that investors pay these costs indirectly. Therefore, these costs must be taken into account for the performance evaluation, because even though the mutual

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

funds might generate positive gross returns, but the net returns (including fees) might be negative. Many past studies before 1990s did not explicitly concern the role of luck in performance evaluation. Therefore, some literatures tried to account this luck factor through measuring out-of-sample performance to control for luck or the use of bootstrapping method for both outperform and underperform funds that might reveal the true performance of mutual fund managers, whether it is a real superior stock-picking skill or merely luck. In comparison with previous papers, this paper is trying to contribute in terms of the bootstrap analysis for individual funds in determining the existence of skill versus luck, especially the ones in the right tail, and the market subject. In accordance with the promising and growing population of mutual funds in Asia Pacific countries, I would like to emphasize on this market to be analysed further. Despite Asia accounts for approximately 60% of the worlds population, Asian investors investments only account for 13% of the mutual fund industry, compared to 52% in the America and 35% in Europe, according to PwC research (Figure 1). Looking at the past growth and the global economy dominance in the last few years in Asia Pacific countries, it is very probable that more significant development will be shown in the near future. Therefore, I feel the urge to analyse this topic in one of Asia Pacific countries.

Source: PwC Research Figure 1.1. Mutual Funds Distribution Channel Mix across Asia

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

The choice goes to Indonesia. Why Indonesia? The most basic reason for this question is the fact that the writer comes from Indonesia and would like to utilize the result of the research for investment consideration in the future. More importantly, the growth of Indonesia mutual fund has been very impressive. Since the product of mutual fund was familiarized in Indonesia in 1996, the number of mutual funds has increased quite rapidly in the last decade, despite a slight decline during the early global financial crisis back in the year 2008. Precisely, the first mutual fund was introduced in Indonesia on 7 September 1995 when the Indonesian Securities and Exchange Commission gave an effective statement on a private mutual fund, namely PT. BDNI Fund. Besides this fund, there were another 24 mutual funds launched at the same year. Based on the data from Indonesian Securities and Exchange Commission (2008), at the end of December 2004 246 Mutual Funds were recorded or 92.5% per annum. It is obvious that the Indonesian mutual fund industry is small compared to the USA or the UK, but it has been substantially growing over the last ten years as shown by its assets under management peaked in 2007 at $456 billion, but then dropped to $298 billion at end of 2008. Therefore, it is expected that the Indonesian mutual fund industry will become more important in future years, following the success of Indonesian Stock Exchange market. This tremendous phenomenon is most probably affected by the continuous declining trend of BI Rate (Utomo, 2010), which is considered as the risk-free rate in Indonesia. Thus, those who are used to invest in bank deposits might switch to mutual fund as it offers a more attractive return. Among all types of mutual funds, the equity fund has raised most investors attention. Utomo (2010) also proved that the NAV growth of equity mutual fund have managed to outperform the Indonesia Stock Exchange Indexs performance, where the index grew by 33.36% during January to May 2009, while the equity mutual funds NAV successfully rose by 53%.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

1.2.

Research Problems Based on the previously described research background (Section 1.1.)

and research problems (Section 1.2), I am eager to investigate these three following questions: a. Do open-end equity mutual funds in Indonesia can outperform the benchmark? How significant is the result? b. After taking the commercial fees into consideration, do open-end equity mutual funds in Indonesia still able to generate positive return to investors? c. If the open-end equity mutual fund in Indonesia can beat the benchmark and able to generate positive net returns, is it due to fund managers skill or merely luck?

1.3.

Research Objectives In general, the overall aim for this paper is to provide a summary of

results that can give relevant insight for investors, those who would like to invest in Indonesian equity mutual fund, whether they can earn positive net return by trusting their money to the fund manager. Specifically, related to the research problems mentioned above (section 1.2), I have several objectives to achieve by doing this research. The break down is the following: a. To understand the overall mutual fund performance in comparison with the benchmark b. To know whether the mutual funds net return can cover investors expenses c. To know whether the fund manager in Indonesia has the real stock-picking ability However, along with this paper, I will also show among three mutual fund performance evaluation models, which model is the best fit for explaining the variability in Indonesian equity mutual fund returns.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

1.4.

Research Benefits By conducting this research and achieving the objectives of the research,

I expect that this research can be beneficial for some parties, including the university and academicians, the potential and existing investors, and the writer himself. The benefits for each party are as follows:

a. Benefits for the University and Academicians This paper would like to contribute on further researches related with the mutual fund performance evaluation, specifically in a rapidly growing emerging economy, Indonesia. Thus, public can have better understanding on Indonesian mutual fund market with more number of mutual funds and longer period of existence included in the research data. I also would like to provide feedback for prior similar researches and to serve as a stepping stone for further researches in the future. One of many is by applying cross-sectional bootstrap analysis which is still relatively a new method yet really beneficial for the overall analysis. b. Benefits for the potential and existing investors This paper would like to inform investors so that they know and be more aware of the historical performance of Indonesian mutual funds before making an investment decision. Specifically, results regarding which equity mutual fund that can generate positive net returns for investors or to avoid mutual funds that have been proven to not be able to cover investors expenses or maybe which fund manager who really possess a real stock-picking ability will be revealed. c. Benefits for the Writers During the experience in writing this paper, I try to apply the knowledge and theories that have been taught during university life into the real professional world. At the same time, I also gain real-time research experience to develop research skill and deeper knowledge on mutual fund performance evaluation subjects.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

1.5.

Research Summary With all the reasons being said, in this paper I would show the

performance of 126 Indonesian open-end equity mutual funds between the periods from July 1999 to June 2013. In brief, I will show three different mutual fund performance evaluation models (CAPM, Fama-French 3-Factor Model, and Carhart 4-Factor Model) in order to find out the existence of excess gross and net returns. This analysis will be done with simple and multiple regression analysis. Furthermore, a basic bootstrap analysis will be performed to differentiate the fund managers skill from luck. At the end, I will show the overall performance result and also which mutual funds net return can outperform the benchmark individually. Some of the key findings from this paper are most equity funds are proven to unable to beat the benchmark even with gross returns. The result is even worse when net returns (after deducting all the fees) are used in the analysis. Moreover, RMRF being the only significant independent variables in explaining the variability in Indonesian equity fund returns. It means that CAPM is the best performance evaluation method to be used in Indonesian market. Under the Carhart 4-Factor model, the bootstrap results indicate that three best funds (above 75 percentile) large positive alphas, net of costs, are unlikely to happen due to sampling variability. This means that the manager of these funds employ genuine superior stock-picking ability. However, there is no significant evidence from left tail distribution that even though the bootstrapped alphas are negative, but the figures are not significant from its bootstrapped pvalues. This paper is divided into 5 main chapters and follows these following outlines. Chapter one explains the background of this research on why this topic is interesting for the writers and public. Chapter two emphasizes on the review of previous literatures, mainly regarding the development of mutual fund performance evaluation over time, that support this paper, especially in constructing the respective hypotheses. Chapter three describes the details of three performance evaluation models and bootstrapping analysis applied in this research. Chapter four justifies the dependent and independent variables used

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

in the regression analysis, as well as the supporting data needed to conduct the analysis. Chapter five presents the results of which equity funds are able to generate positive risk-adjusted gross and net returns, followed by the bootstrap analysis results only for those funds. Finally, chapter six concludes all the key findings in this paper.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Chapter II: Literature Review


Many studies have done similar research in this particular topic, mutual fund performance, and curious whether mutual funds can outperform the benchmark on risk-adjusted return basis. Treynor (1965) proposes to adjust the excess return of a portfolio (with respect to the risk-free return) by the portfolios , using the Capital Asset Pricing Model (CAPM) introduced by Markowitz (1952, 1959) and developed by Lintner (1965). Similarly, Jensens alpha () is dened as the dierence between the actual excess portfolio return and the expected excess benchmark return. The benchmark could be based on either the CAPM or on the Arbitrage Pricing Theory (APT) model developed by Ross (1976). Most researchers concluded that mutual funds underperform the benchmark. Jensen (1968) evaluated the performance of mutual funds in the period 1945 to 1964 and he found no evidence of manager skill. Since then, so many researches were eager to proof the existence of mutual fund performance beating the benchmark by using different time frame, different types of mutual fund, and also different methods. Similarly, Henriksson (1984) evaluated the performance of open-end mutual funds and concluded that their empirical results do not support the hypothesis that mutual fund managers are able to follow an investment strategy that successfully times the return on the market portfolio. Since the pioneering studies by Treynor, Sharpe and Jensen, a lot of performance measures have been introduced and empirically applied for evaluating the performance of mutual funds. In recent years, there is a growing body of studies that apply eciency and productivity techniques for evaluating the performance of mutual funds. Carhart (1997) considered the persistence in equity mutual funds mean and risk-adjusted returns, but he concluded that the results do not support the existence of skilled or informed mutual fund portfolio managers. Other past studies on US mutual funds also suggest stronger evidence of underperformance, such as Lakonishok et al. (1992); Grinblatt, Titman and Wermers (1995); and Wermers (2000). Similar results also shown in UK mutual funds, were done by Blake and Timmermann (1998); Blake, Lehmann and Timmerman (1999); Thomas and Tonks (2001). Taking the fees charged by mutual fund manager into account, Edelen

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

(1999) show that the common nding of negative return performance at open end mutual funds is attributable to the costs of liquidity motivated trading, which means that open-end equity funds provide diversied equity positions with little direct cost to investors for liquidity. Meyer et al. (2012) did research on skill and luck in individual investors investment performance using a four-factor model with dataset from September 2005 to April 2010 and they found that 89% of individual investors exhibit negative skill ( 0) when measured on a gross basis and 91% when considering returns net of costs and expenses. Surprisingly, consistent with headlines in the popular press, Jensen (1968), Malkiel (1995), and Carhart (1997) nd that in the aggregate equity funds underperform passive benchmark portfolios, especially after taking into account the management expenses. Unfortunately, there is only very limited literature focusing on Indonesia equity mutual funds. Sufianti (2003) who analysed Indonesian sharia funds within the period 2001-2002 concludes that the average alpha is 0.06% per month, but it is not statistically significant. Waelan (2009), who did the research on Indonesian equity mutual fund performance persistence based on 54 equity funds, concludes that the majority of these equity funds performed worse than the market. However, Waelan did not compare between the gross and net returns. The idea is if a funds gross returns already underperform the benchmark, it will perform worse even after considering the fees into calculation. This becomes the supporting proof to construct the first and second hypothesis related to the first and second research problems, respectively. : Indonesian open-ended equity mutual funds gross returns can outperform the benchmarks return : Indonesian open-ended equity mutual funds gross returns cannot outperform the benchmarks returns : Indonesian open-ended equity mutual funds net returns can outperform the benchmarks return : Indonesian open-ended equity mutual funds net returns cannot outperform the benchmarks returns While there is overwhelming evidence that actively-managed mutual 16

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

funds, in general, do not outperform the market after accounting for risk and expenses, there is some evidence of short-term persistence and that a select few funds, in the tail of the distribution of all mutual fund returns, produce positive alphas over time. Grinblatt and Titman (1992) looked at mutual fund data and found evidence that dierences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns. Furthermore, Zeckhauser (1993) found that in the period 19741988 relative performance of no-load, growth-oriented mutual funds persisted in the near term, with the strongest evidence for a oneyear evaluation horizon. Similar finding also concluded by Brown and Goetzmann (1995) who explored equity mutual fund data and found clear evidence of relative risk-adjusted performance persistence. Furthermore, it is crucial to know whether funds performance is due to fund managers superior stock-picking skill or he is just lucky. It is common to expect that some funds will outperform the market by a substantial amount simply by random chance (Kosowski, 2006). A commonly used method is bootstrapping, which is a very attractive approach to analyse a cross section of ranked mutual funds, in particular to separate skilful from lucky managers (Kosowski, 2006). According to Horowitz (2003), bootstrap can significantly reduce the difference between nominal and true probabilities of correctly rejecting a given null hypothesis, which in this case is fund managers, do not have superior stock-picking ability. In his journal, Kosowski et al. (2006) tries to analyse the mutual fund performance of US open-end domestic equity over the period of 1975-2002. They found that sizeable minority of managers, those who manage best funds in particular, have the persistent superior stock-picking ability that are able to cover their costs. Similarly, Cuthbertson et al. (2008) also proves the same thing, especially in both of the extreme tails for individual funds, which investors are more interested in. : Indonesian fund managers has the stock-picking ability : Indonesian fund managers do not have the stock-picking ability

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Chapter III: Methodology and Variables


This chapter discloses deeper analytical method that will be used in this research, by knowing first the detailed research methodology, the independent and dependent variables. 3.1. Research Methodology 3.1.1. Mutual Fund Performance Evaluation Models In order to answer the first stated hypothesis regarding the

outperformance ability of mutual fund, I try to evaluate its performance by producing alphas, , or excess return that cannot be explained by the risk factor(s), of individual mutual fund. There are three factor models being used and analysed with time-series Ordinary Least Squared regressions, i.e. Capital Asset Pricing Model (CAPM), Fama-French 3-Factor Model, and Carhart 4Factor Model. 3.1.1.1. Capital Asset Pricing Model (CAPM) A traditional approach of measuring performance is to regress the excess return of a portfolio on the market factor, known as Jensens Alpha. It is a risk-adjusted measure of portfolio performance, which based on the theory of the capital asset pricing model by Sharpe (1964) that estimates how much a manager's forecasting ability contributes to the fund's returns. Assuming that the market beta ( ( where while and ( is an error term. Indeed, the unconditional alpha, , represents the average excess is constant, the formula is given by: ) [1]

) are the fund and market return minus risk-free rate,

return on the portfolio per unit of time which is due to the managers ability to forecast future security prices. It is interesting to note that a naive random selection buy-and-hold policy (passive portfolio) is expected to yield a zero intercept. In addition, if the manager is not doing as well as a random selection 18

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

buy and hold policy, alpha will be negative. At first glance it might seem difficult to do worse than a random selection policy, but such results may very well be due to the generation of too many expenses in unsuccessful forecasting attempts. On the other hand, if the portfolio manager has an ability to forecast security prices, the intercept, alpha, will be positive. This equation is a rearrangement of CAPM equation by subtracting both sides with Rf. This equation becomes a familiar form of a linear model and it is possible to do regression analysis to reveal whether is significantly positive or not. Since there is only one risk factor incorporated within the equation, the appropriate method to be used is simple regression analysis, which will be performed using Microsoft Excel 2010. Despite of its popularity, there are some criticisms to CAPM, where Jensens Alpha is derived from, in recent years (Fama & French, 1993). Firstly, the CAPMs true predictive power is uncertain. Especially when someone compares the actual and predicted value, the model is often incorrect. According to Sekaran and Bougie (2010), CAPM only achieves R2 value of around 0.85 on average. Even though it is a relatively high R 2, it means that approximately 15% of the variation in observed returns still remains unexplained. Since it only considers one factor in the model, investors might end up investing in small stocks that tend to be more risky, rather than investing in large marketcap stocks. Therefore, many researchers believe that there are other risk factors that have significant impact on market returns. Secondly, in practice, beta is not constant, because when mutual fund manager changes the portfolio composition, the beta will also change and some funds might do it more often than the others. This problem comes from the model structure that bind the predictive and explanatory power of CAPM, which is the assumption of a single risk factor that has spurred much recent academic research into security price analysis. Thus, I also give a second alternative for measuring mutual fund performance, which is Fama-French 3-Factor Model.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

3.1.1.2. Fama French 3-Factor Model Fama and French (1993) take into consideration on other risk factors that might explain the variability of mutual fund returns. They present that an empirical asset pricing model that considers the returns on mimicking portfolios related to size factor and book-to-market factor, along with market return, is a better model to explain the variations in asset returns. They found out that value and size to be the most significant factors, outside of market risk, for explaining the realized returns of publicly traded stocks. To represent these risks, they constructed two factors, which are SMB to address size risk and HML to address value risk.

[2]

Specifically, these size and value portfolios are reconstituted annually at the end of June. All listed stocks in the specified universe are partitioned into 2 20

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

size portfolios (Small and Big) and 3 value portfolios (Value, Neutral, and Growth), ranked by Market Value (MV) and Book-to-Market Value ratio (BV/MV). The six portfolios are the intersections of the size and the value portfolios. Constituents of each of the six portfolios are weighted equally. For the reconstitution in June of year T, only companies that have reported financial information for fiscal year T-1, and with active market data, are included. MV is the reported market capitalization without free-float adjustment at the time of reconstitution. BV/MV for June of year T is defined as the book value of common equity for fiscal year that ends in year T-1, divided by the market value at the end of year T-1. The top 50 percentile of companies ranked by MV are partitioned into Big, while the bottom 50 percentile are partitioned into Small. The top 30 percentile of companies ranked by BV/MV are categorised into Value, the bottom 30 percentile are categorised into Growth, and the middle 40 percentile are categorised into Neutral. Therefore, six portfolios will be created, i.e. Small Value, Small Neutral, Small Growth, Big Value, Big Neutral, and Big Growth (Figure 3.1).

Figure 3.1. SMB and HML portfolios

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Then we are able to calculate the respective SMB and HML factor for each time period. The formulas are as follows: ( ( Meanwhile, ( ( [4] [3]

3.1.1.3. Carhart 4-Factor Model Although the benefits of the three-factor model are acknowledged, the Fama-French model has been subject to further improvements. The Carhart model is one of them. It is the extension of the Fama and French (1993) threefactor model and is effectively a four-factor Jensen measure. This model assumes that betas with respect to the returns of four zero-investment factormimicking portfolios that are the appropriate measures of multidimensional systematic risk. Those factors are very similar to Fama-French 3-Factor Model, except the additional momentum factor. This model implies that in the absence of stock-selection or timing abilities, the expected return for a fund is simply the expected returns of each of these four zero-investment portfolios. Alpha j ( , which is the Carhart measure

for fund j, is estimated with the following regression: [5]

where

equals the excess net return of fund j during month t (the fund

net return minus T-bills). The important factor in this model is the momentum effect, represented by PR1YR, which is defined as the effect of buying stocks that were past winners and selling past losers stock (Grinblatt, Titman, and Wermers, 1995).

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

This might be done by ranking the mutual funds based on average monthly returns for one-calendar year prior to portfolio formation, and form groups from it. Normally, the bottom 30% is referred to losers portfolio, while top 30% is referred to past winners, similar with research done by Widya (2010).

Firstly, the top 50 percentile of companies ranked by MV are partitioned into Big, the bottom 50 percentile are partitioned into Small. Secondly, the top 30 percentile of companies ranked by PR1YR are categorised into Up, the bottom 30 percentile are categorised into Down, the middle 40 are categorised into Medium. Similarly, six portfolios will be created, i.e. Small Up, Small Medium, Small Down, Big Up, Big Medium, and Big Down.

Figure 3.2. Momentum portfolios

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Then I can proceed to calculate the respective MOM factor for each time period. The formula is as follows: ( ( [6]

Although I use three factor models to measure the risk-adjusted mutual fund performance, my attitude towards the model is pragmatic, leaving theoretical interpretations to the reader.

3.1.1.4. Framework of Mutual Fund Performance Evaluation From Figure 3.3 we can see the relationships between the

aforementioned factors to the mutual fund performance evaluation. The more complicated and advanced the model, the more factors are taken into consideration. Carhart 4-Factor model as the most advanced one takes into account four factors, i.e. market, size, value, and momentum factors. These four factors are believed to influence the performance of mutual funds.

Figure 3.3. Framework of Mutual Fund Performance Evaluation 3.1.2. Test of Significance Along with the regression result, it is crucial to take notice on the significance of the alpha to interpret the result completely. In this paper, all tests are conducted at a 5% significance level. Here, the null hypothesis is that

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

mutual funds excess return is zero, which means that both mutual fund and benchmark have the same performance (H0: =0). On the other hand, the alternate hypothesis is that mutual funds excess return is positive (negative), which implies that mutual fund manager perform better (worse) than the benchmark (Ha: 0). There are two tools to be used, t-statistic and P-value. Even though most related papers only present the t-value, I, however, would like to show both indicators as they will lead to the same conclusion. Also, with different number of observations among mutual funds, P-value requires less adjustment to interpret. In brief, positive and significant alpha indicates that the respective mutual fund can outperform the benchmark, while negative and significant alpha implies the inability to beat the benchmark. Other than that, it means that both fund and market perform equally or even if there is a difference, it is not statistically significant. The answer to the second hypothesis, however, can also be obtained from running the similar regression analysis. The only difference is this time I employ the net returns data, instead of the gross returns. Both types of regression analysis will be performed using Microsoft Excel 2010.

3.1.3. Bootstrap Analysis In order to answer the third research problem, it is necessary to implement a cross-sectional bootstrap analysis to the return data. The purpose is to identify which fund has superior skill individually, because in a large universe of fund, it is common to find a fund that performs better than the benchmark due to good luck or vice versa. The result from this bootstrap analysis will still be relevant even if the idiosyncratic risks are highly non-normal. This is important because investors are more interested on the fund in the extreme tails as they want to invest in funds that can generate very high riskadjusted returns. As the basis, this paper is trying to imitate the bootstrap procedures done by Kosowski, Timmermann, White and Wermers (2006) to US mutual funds. 25

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

They perform a cross-sectional bootstrap across all individual funds, instead of applying it to portfolios of funds. This procedure allows us to measure the performance for any chosen fund in comparing to its own luck distribution. However, for the sake of comparison, I also perform the bootstrap analysis on aggregate data of equity funds risk-adjusted abnormal performances. In this paper, Carhart 4-Factor Model will be used to illustrate the bootstrap analysis. Recall the following equation from Carhart: [7] From the regression results, { } are saved for all the funds.

Then we have to do the residual-only resampling under the null hypothesis of no outperformance ( ). So, for every funds residual, draw a random

sample with replacement equal to the length of the data. Due to the limitation of Microsoft Excel 2010 that can only do random sample without replacement, I also combine with SPSS Statistics 21.0 to perform this analysis. Then, with the same chronological order, use this resampled residuals, , to generate a simulated excess return for every fund, , under the assumption of no outperformance ( Likewise, we can simply deduct the resampled residuals, ). The formula is as follows: [8]

, then add back the

to derive the simulated excess return, .

Similar with the aforementioned regression analysis, I use this new simulated excess return, , as the dependent variable while the independent variables are constant. The new performance model is estimated and the new alpha
( (

is saved. This alpha,

, represent the sampling variation around a , to the lowest,

true value of zero and are entirely resulted from luck. Then all these alphas for fund are ranked from the highest, . This

process is repeated B times for every fund, where B is the number of bootstrap simulations that will be performed. The default of B is 1000. This might be represented in this (n x B) matrix as follows:

26

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Correspondingly, the first row of the matrix is the bootstrapped values of the highest under the null hypothesis of no outperformance. This row represents the luck distribution of the best fund. Therefore, this matrix presents all the performance distribution of every fund in the sample, from the best to the worst performing fund, that is resulted from the luck factor. In order to separate the skill from this individual luck distribution, I compare the actual alpha with its own luck distribution. I take the highest expost alpha as example. According to Cuthbertson et al. (2008), if is bigger

than the 5% upper tail cut-off point of the luck distribution from the first row of the bootstrap matrix, it means that with 95% confidence, we reject the null hypothesis that the performance is due to luck. In other way, it means that the fund manager has the superior stock-picking skill. It is very doable to do this bootstrap analysis for any fund that the investor is interested in particular. In this paper, both alpha and t-statistic of alpha are being analysed through bootstrapping to represent the risk-adjusted abnormal performance. However, as mentioned by Kosowski et al. (2006), t-statistic of alpha,

, is a

pivotal statistic and has better sampling and statistical properties, while lack of precision in constructing confidence interval. Quoted from Kosowski, Specifically, fund that has a short life or engages in high risk -taking will have a high variance-estimated alpha distribution, and thus alphas for these funds will tend to be spurious outliers in the cross section. In addition, these funds tend to be smaller funds that are more likely to be subject to survival bias, raising the concern that the extreme right tail of the cross section of fund alphas is inflated. The t-statistic provides a correction for these spurious outliers by normalizing the estimated alpha by the estimated variance of the alpha estimate. Due to its advanced nature of analysis, IBM SPSS 21.0 will be used to answer the third hypothesis regarding the separation between luck and skill of the fund manager.

27

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

3.2.

Research Variables The variables used in this research can be classified into two, which are

dependent and independent variables, approached by Sekaran and Bougie (2010). 3.2.1. Dependent Variables Despite which performance evaluation model being used, all of them have the same dependent variable, which is excess return of the fund i (Ri Rf). However, in answering the second research problem, the data for excess net return (Ri Rf Fees) is used instead of the excess gross returns. 3.2.2. Independent Variables Depends on which performance evaluation model being used, the independent variables involved also vary. In brief, there are four independent variables among the three aforementioned models. a. The Market Factor (RM-RF) is the total return of a market portfolio, in excess of the risk-free rate. The market portfolio is the Market Value weighted portfolio of all listed stocks in the specified universe. b. The Size Factor (SMB) is defined as the average of total returns of the three Small portfolios, minus the average of the total returns of the three Big portfolios. c. The Value Factor (HML) is defined as the average of the total returns of the Big and Small Value portfolios, minus the average of the total returns of the Big and Small Growth portfolios. d. The Momentum Factor (Mom) is defined as the average of the total returns of the Big and Small Up portfolios, minus the average of the total returns of the Big and Small Down portfolios.

28

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Chapter IV: Data


To make it easier to understand, the data can be divided into two parts: one is for the dependent variable and another one is for the independent variables. 4.1. Data for the Dependent Variable In respect to answer the hypotheses mentioned in chapter II which is to analyse the performance of mutual funds, monthly data regarding the last prices are gathered and then will be manually calculated to generate the monthly return. The dataset was derived from Bloomberg Terminal, specifically from July 1999 to June 2013, reflecting 168 monthly or 14 years of data. I try to include as longest period as possible in this dataset. However, due to limited data availability, especially for Indonesian risk-free rate that only existed from 1998, and also the Asian financial crisis before 1999 that result in extreme negative outliers of mutual fund returns, this chosen period is the most appropriate to be analysed. Attributable to the problem of survivorship bias, this dataset tries to eliminate it by covering all currently active as well as inactive funds for which a full set of last prices were available from inception of each fund until the current period. Thus, funds that were liquidated or otherwise ceased to exist prior to June 2013, either due to being merged with another fund or were forced to closed down in result of a bad performance, are still part of the investment universe. This is important for the research because as Carhart et al. (2002) mentioned, a survivorship bias dataset will make the performance evaluation looks better than the reality. This survivorship-bias free dataset, which includes all share classes and all fund objectives, contains 951 funds and only 152 funds are classified under equity asset class, which is the appropriate data for this research. This already represents the whole universe of Indonesian equity funds at the moment. By choosing only equity funds, this allows the writer to select more accurate and appropriate benchmark portfolios in analysing the risk-adjusted abnormal performance. Moreover, I also take the fund style into account. Despite many ways to categorize mutual fund style types, this paper is trying to be consistent with the 29

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

data source, Bloomberg. It classifies mutual fund through returns based style analysis, with three possible returns, which are 'Growth', 'Value', and 'Blend'. In brief, growth fund managers tend to use consistent growth and earning momentums strategy; value fund managers use low P/E, contrarian, and yield strategy; while blend fund managers use a mix of both strategies. In this sense, only data with clear style are used. The initial sample includes a total of 152 funds that survived through the end of the sample period. Among those funds, to be included in the tests, a mutual fund must have at least 12 consecutive months of data. Since dead funds are more likely to underperform, by requiring a minimum time series of returns, I induce an upward bias in the distribution of alphas. At the end, 126 funds are included in the nal sample. Besides the data concerning mutual fund prices, we also need the data of risk-free rate in order to come up with mutual funds excess return (Ri Rf). Even though many papers use US 3-month Treasury bill as a proxy of risk-free rate, but the rate is irrelevant to be used in comparing Indonesian mutual fund. As an emerging market, Indonesia has a relatively higher risk-free rate compared to developed market, such as USA. Therefore, this paper uses SBI Rate as a proxy of risk free rate. The 1-month SBI Rate is also gathered from Bloomberg. In addition, related to the second research problem that requires funds net returns, data regarding funds fees are collected from Bloomberg as well. There are six types of funds provided by Bloomberg Terminal, i.e. front load, back load, early withdrawal fee, current management fee, performance fee, and also 12b1 fee, which are all presented in annual terms. Since monthly data is required to run the analysis, I simply sum all these fees from funds prospectus and divide the number by 12. 4.2. Data for the Independent Variables The other part of data concerning the independent variables includes the four risk factors mentioned in the section 3.1. In order to answer the first question on whether the open-end mutual funds in Indonesia are able to beat the benchmark, it is crucial to select the right benchmark. Since the dataset 30

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

represents only equity type fund, it is appropriate to use stock market index. Other papers normally use MSCI Country Index as the benchmark; however, I think that MSCI Indonesia will not be the best benchmark as it only consists of 27 stocks out of 427 in the stock exchange. Therefore, I choose Jakarta Stock Exchange Composite Index (JCI: IND), as the benchmark. For the input of factor models, especially SMB, HML, and Mom factors, unlike US and UK, there is no ready-made information for Indonesia. Thus, I attempted to calculate this manually. Therefore, I also gather the last prices of all the stocks listed in Indonesia Stock Exchange and applied the methodology mentioned in Section 3.1.1 to construct the portfolios.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Chapter V: Analysis
In this paper, I would like to show the data in the aggregate level first and then go deeper to the individual fund level. 5.1. Results from Preliminary Analysis The table 5.1 below reports monthly data summary statistics for the parameters of the three performance models being used in this paper, i.e. the CAPM, Fama-French 3-Factor model, and Carhart 4-Factor model. It is obvious that the average market excess return of 0.38% (or 4.56% p.a.) is fairly high as Indonesian stock exchange market has been bullish in these recent years. Expectedly, according to theories, the other parameters should be positive. Size factor (SMB) of 0.26% implies that small stocks are more profitable compared to big stocks. Meanwhile, the average monthly return from value and momentum factors are similar that investors might earn 0.19% and 0.2%, respectively, if they invest in this benchmark portfolios. This suggests that value stocks performs better than growth stocks and momentum anomaly occurs in Indonesia stock exchange market, where past winners will continue to win while past losers will continue to lose (in one year time). Table 5.1. Average monthly data for RMRF, SMB, HML, MOM Market (RMRF) Average monthly return within the period of July 1999 June 2013 Size (SMB) Value (HML) Momentum (MOM)

0.38%

0.26%

0.19%

0.20%

5.2. Results from Regression Analysis 5.2.1. Gross Returns For each model, cross-sectional across funds average statistics are calculated in respect of the R2. It seems like Carhart is the best model among other factor models as it can explain 82.16% of the variability in the equity fund gross returns. As comparison, Fama French 3-Factor Model and CAPM can only 81.2% and 80.04%, respectively. However, only market excess return (RMRF) is consistently found to be statistically significant across all factor models, whereas SMB, HML, and Mom are generally not statistically significant 32

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

at the individual Indonesian equity fund. This actually implies that having market factor as the only parameter can explain enough and statistically significant. Therefore, using a simply Capital Asset Pricing Model to analyse the equity fund performance is adequate. Another thing that is essential to be interpreted from the table is regarding the meaning behind the RMRF, SMB, HML, and MOM figures. Firstly, the average RMRF from all performance models is approximately 0.98, which is very close to 1. This suggests that on average equity mutual fund managers in Indonesia tend to hold portfolios that are almost identical to market portfolio. Secondly, the average SMB figure is around -0.06 and this indicates that Indonesian equity funds tend to invest more on large capitalization stocks rather than small capitalization stocks. Thirdly, average HML of 12% implies that the fund manager selects better value stocks (high BV/MV) in their portfolio. Lastly, the average MOM figure of 0.08 means that the equity funds tend to buy past winners and sell past losers to earn higher returns. In answering the first research problems regarding the performance using gross returns, it is important to take a look at the alpha values. Consistent in the three factor models, the cross-sectional average alpha takes on a small and statistically insignificant negative value, which is in line with Blake and Timmermann (1998). Carhart 4-Factor resulted in the lowest average monthly alpha of -0.45%, followed by Fama French 3-Factor and CAPM with -0.35% and -0.282%, respectively. It equals to -5.43%, -4.2%, and -3.38% per annum. The distribution of this alpha under C4F can be translated into Figure 5.1. With the skewness of -0.886, this distribution is classified as negative skewed curve. It means that there are more extreme negative values than the positive ones, shown by few alphas that are lower than -0.04. However, the kurtosis of 3.1 is not significant enough to say that the distribution is more peaked.

33

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Figure 5.1. Histogram of Alpha It is also worth to notice the relatively large figure of alphas standard deviation around 0.8% per month (9.6% per annum). It means that the extreme tails of alpha might include a considerable number of funds. As an investor is more interested in the extreme positive tails and avoiding funds in the extreme left tail, rather than funds with average performance. In addition, I also report the t-statistic of alpha as it is a better statistical properties. From the table 5.2, in spite of the factor models being used, all average t-stat are insignificantly negative. Similar with the results for alpha, these t-stat of alpha also get worse for more complicated factor model. CAPM as the simplest performance evaluation model is able to generate -0.6941. Meanwhile, FF3F and C4F give lower figures of -0.7491 and -0.8922, respectively. The absolute numbers of these three figures are clearly lower than the critical-t of 1.96 for 5% significance level. Therefore, the first null hypothesis that Indonesian open-ended equity mutual funds gross returns can outperform the benchmarks return is accepted. As I noted earlier, it is possible for a fund manager to do worse than a random selection policy since it is easy to lower a funds returns by unwisely spending resources in unsuccessful attempts to forecast security prices. These results imply that the excess gross returns of Indonesian equity funds on average cannot beat the benchmark portfolios. However, this bad performance is not necessarily caused by the inability of the fund manager to pick stocks, but it might also due to luck factor.

34

Panel A: CAPM RMRF t Stat RMRF 0.9771 23.3476 0.2638 14.8392 1.0236 20.9906 0.0029 1.4346 1.5735 58.8351 Panel B: FAMA FRENCH 3-FACTOR RMRF t Stat RMRF 0.9838 22.8724 0.2638 14.8645 1.0210 20.1975 0.0029 1.4084 1.5418 58.6950 Panel C: CARHART 4-FACTOR RMRF t Stat RMRF 0.9862 22.9804 0.2645 14.7919 1.0252 20.6466 0.0029 1.3998 1.6041 59.8076 SMB t Stat SMB -0.0590 -0.2866 0.2356 0.9462 -0.0377 -0.2889 -0.9351 -2.8162 0.6015 2.7752 HML t Stat HML Mom t Stat Mom 0.1366 0.6059 0.0829 0.2678 0.2687 1.0958 0.2546 1.3187 0.0925 0.5582 0.0320 0.2716 -0.7133 -2.2945 -0.7343 -2.3812 1.0881 3.5944 0.9111 3.7829 SMB t Stat SMB -0.0642 -0.3074 0.2260 0.9160 -0.0411 -0.2723 -0.9938 -3.1580 0.5102 2.9728 HML t Stat HML 0.1164 0.5471 0.2449 1.0316 0.0787 0.4973 -0.6989 -2.6164 1.1740 3.9744 Mom t Stat Mom SMB t Stat SMB HML t Stat HML Mom t Stat Mom -

R2 Average 0.8004 St. Dev. 0.2220 Median 0.8925 Min 0.0329 Max 0.9751

Alpha t Stat Alpha -0.0028 -0.6941 0.0081 1.8506 -0.0015 -0.6302 -0.0330 -6.0797 0.0190 3.9474

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Average St. Dev. Median Min Max

R2 0.8120 0.2122 0.8950 0.0368 0.9762

Alpha t Stat Alpha -0.0035 -0.7491 0.0084 1.6704 -0.0022 -0.8271 -0.0407 -5.3479 0.0231 3.9743

R2 Average 0.8216 St. Dev. 0.2086 Median 0.9006 Min 0.0374 Max 0.9762

Alpha t Stat Alpha -0.0045 -0.8922 0.0085 1.6561 -0.0030 -0.9100 -0.0412 -6.0781 0.0231 3.8560

Table 5.2. Summary of Regression Results using Gross Returns These performance statistics are presented using gross returns. Panel A displays the regression result under CAPM Model and R2, alpha, beta and its corresponding t-statistics are presented. Panel B is the results under Fama French 3-Factor Model, while Panel C is under Carhart 4-Factor Model.

35

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Nevertheless, if we look closer on individual funds t -stat of alpha, together with its alpha, it is possible to identify the funds that outperform the benchmark. Using CAPM as the performance model, 35.71% of the funds are able to generate positive alpha with the average of 0.4% per month. Among those, only seven equity funds are statistically significant at 5% significance level, i.e. SCPDPRI, PTPDMAI, SCHPPLU, SAMIDEQ, PTPPRMA, BIBHEKU, and MAHEKUI, representing 5.56% out of the total sample. Its average alpha is comparably higher with the figure of 1.025% per month. Similar results are shown by the other two factor models. With FamaFrench 3-Factor model, 39 funds (30.95%) could beat the benchmarks during this 14-year period by creating average alpha of 0.397% per month. Though, only five funds are categorized as positive and significant at the same time with the average alpha of 0.959%. However, less and less number of funds is proven statistically significant and positive. The result from Carhart 4-Factor model only shows 35 funds has positive alpha (average alpha=0.395%), but only 3 funds are statistically significant (average alpha = 0.601%) on significance level of 5%. It is interesting how the more complicated the model is or the more factors being considered into the equation, the funds produce less excess return and even some funds that were able to beat the market under CAPM, they cannot persist its result under Fama-French 3-Factor and Carhart 4-Factor models. Funds that can maintain its excess returns are SCPDPRI (t-Stat alpha= 3.856; P-value= 0.0001656), SCHPPLU (t-Stat alpha= 3.6813; P-value= 0.0003245), and PTPDMAI (t-Stat alpha= 3.2448; P-value= 0.0014264).

36

CAPM

all positive

positive but insignificant

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

positive and significant

Average St. Dev. Median Min Max Average St. Dev. Median Min Max Average St. Dev. Median Min Max

Alpha 0.0040 0.0045 0.0023 0.0001 0.0190 0.0029 0.0033 0.0016 0.0001 0.0180 0.0102 0.0054 0.0084 0.0049 0.0190

SE 0.0036 0.0026 0.0029 0.0012 0.0160 0.0036 0.0028 0.0028 0.0012 0.0160 0.0035 0.0020 0.0036 0.0012 0.0060

t Stat P-value Alpha 1.1493 0.4242 0.0040 1.0257 0.3314 0.0047 0.9709 0.3447 0.0025 0.0161 0.0001 0.0000 3.9474 0.9873 0.0231 0.7875 0.5006 0.0031 0.5651 0.3033 0.0042 0.7089 0.4806 0.0017 0.0161 0.0548 0.0000 2.0111 0.9873 0.0231 3.1134 0.0095 0.0096 0.6456 0.0151 0.0049 3.1967 0.0050 0.0080 2.0843 0.0001 0.0049 3.9474 0.0427 0.0159

FF 3-FACTOR SE t Stat P-value 0.0041 1.0458 0.4566 0.0035 0.9849 0.3317 0.0033 0.8160 0.4172 0.0012 0.0086 0.0001 0.0212 3.9743 0.9932 0.0042 0.7435 0.5215 0.0036 0.5447 0.3047 0.0033 0.6670 0.5086 0.0013 0.0086 0.0955 0.0212 1.6766 0.9932 0.0037 3.1016 0.0157 0.0027 0.8421 0.0223 0.0023 3.4577 0.0007 0.0012 2.0092 0.0001 0.0067 3.9743 0.0495 Alpha 0.0039 0.0043 0.0028 0.0002 0.0231 0.0038 0.0045 0.0027 0.0002 0.0231 0.0060 0.0014 0.0057 0.0048 0.0075

CARHART 4-FACTOR SE t Stat P-value 0.0041 1.1179 0.3994 0.0037 0.9180 0.2903 0.0033 0.9012 0.3788 0.0012 0.0390 0.0002 0.0217 3.8560 0.9690 0.0043 0.8857 0.4368 0.0038 0.5186 0.2749 0.0036 0.8473 0.4089 0.0012 0.0390 0.0698 0.0217 1.8504 0.9690 0.0017 3.5940 0.0006 0.0005 0.3148 0.0007 0.0015 3.6813 0.0003 0.0013 3.2448 0.0002 0.0023 3.8560 0.0014

Table 5.3. Summary of Funds with Positive Alphas using Gross Returns

Reported are the alpha, standard error of alpha, and t-statistics of alpha under each performance evaluation models. The first row is the summary for all funds with positive alpha, regardless the significancy. The second row focuses on funds with positive and insignifcant alphas, while the last row gives the summary of funds with positive and statistically significant alpha. All are shown for CAPM (Panel A), Fama-French 3-Factor Model (Panel B), and Carhart 4-Factor Model (Panel C).

37

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

5.2.2. Net Returns In this second part of regression analysis, I use the data of mutual fund net returns, which has already deducted with all the fund fees, to calculate the funds excess returns. The average fund fee is 5.25% per annum with a standard deviation across funds of 2.39%. This standard deviation is considerably large because there is a fund with fee as high as 17%. This figure is substantially bigger compared to the average fund fees in developed countries ranging from 2 to 4 per cent. Thus, it is common to expect higher returns from Indonesian funds. As the continuation from previous analysis, I only use funds with positive alphas for further analysis. According to Cuthbertson and Nitzsche (2012), if in terms of gross returns a fund cannot attain a positive abnormal performance or results in a negative performance, then those funds will perform even worse when net returns is applied in the analysis. As a result, only 45 funds from CAPM, 39 funds from FF3F, and 35 funds from C4F will proceed to the second regression analysis using net returns. From Table 5.4., I found a pretty significant difference between gross and net returns in general. Surprisingly, there is only one equity fund that still can generate positive and significant alpha, which is Sam Indonesia Equity Fund (SAMIDEQ), under the CAPM model. According to Jakarta Post, Sam Indonesia Equity Fund was the best performer in equity funds in 2012 which gave a oneyear return of 39.72%. They argue that even though the market was hit by crisis in 2012, but the fund manager of Sam Indonesia Equity Fund invests heavily on non-export oriented stocks that are based on domestic consumption, which is the main driver of Indonesias economic growth. Another possible reason of Sam Indonesia Equity Funds superior performance is due to the fee factor. According to its prospectus, chis fund charges a lot lower fee (4%) than the average of the sample of 5.25%, because they do not charge investors for purchases and redemptions. Moreover, they try to attract more investors to put their money in their account by settling no lock period, which means it can be redeemed at any time. These strategies are proven to be successful in the mutual fund market in Indonesia.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Among those funds under Carhart 4-Factor Model, more than half of the positive-alpha funds are now have negative abnormal performance and four of them are significant. Table 5.4. The Changes from Gross Returns to Net Returns With gross returns With net returns CAPM FF3F positive and significant to positive and significant 1 0 positive and significant to positive and insignificant 6 5 positive and insignificant to positive and insignificant 10 7 positive and insignificant to negative and insignificant 21 22 positive and insignificant to negative and significant 7 5 Total funds 45 39

C4F 0 3 12 16 4 35

From the regression results shown in Table 5.5, there are few similarities with the results from gross returns data. The goodness-of-fit of the models (R2) are around 80% and RMRF is still the only factor that has significant influence to the overall model shown by the average t-stat of alpha of more than 25. Even though the other factors (SMB, HML, and Mom) are still insignificant and have the same sign, but the figures of average betas are lower, which are approximately -0.09, 0.1, and 0.004, respectively. To answer the second research problems regarding the performance using net returns, alpha values are being considered. Similarly, consistent in all factor models, the cross-sectional average alpha takes on a small and statistically insignificant negative value. Carhart 4-Factor resulted in the lowest average monthly alpha of -0.07%, followed by Fama-French 3-Factor and CAPM with -0.06% and -0.04%, respectively. It equals to -0.84%, -0.72%, and 0.48% per annum. In terms of the t-statistic of alpha, the average figure is approximately 0.53. Again, the absolute numbers of these three figures are clearly lower than the critical-t of 1.96 for 5% significance level. Therefore, the second null hypothesis that Indonesian open-ended equity mutual funds net returns can outperform the benchmarks return is accepted. It means that the excess net returns of Indonesian equity funds on average cannot beat the benchmark portfolios.

39

R2 Average 0.8034 St. Dev. 0.2237 Median 0.9177 Min 0.0450 Max 0.9717 -

Alpha t Stat Alpha -0.0004 -0.5300 0.0048 1.3343 -0.0010 -0.3612 -0.0114 -3.1428 0.0157 2.6370

HML

t Stat HML Mom t Stat Mom -

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

R2 Average 0.8014 St. Dev. 0.2242 Median 0.9011 Min 0.0839 Max 0.9694

Alpha t Stat Alpha -0.0006 -0.5330 0.0051 1.2430 -0.0014 -0.2896 -0.0093 -2.9548 0.0188 1.9138

HML t Stat HML Mom t Stat Mom 0.0986 0.4617 0.2367 1.0510 0.0519 0.3745 -0.6399 -2.6164 0.6001 2.8783 HML t Stat HML 0.1009 0.3954 0.2516 1.0705 0.0232 0.2417 -0.4199 -1.2907 0.7774 2.7385 Mom t Stat Mom 0.0041 -0.3404 0.2160 1.3745 -0.0664 -0.5368 -0.2597 -2.3509 0.9111 3.7829

R2 Average 0.8104 St. Dev. 0.2359 Median 0.9228 Min 0.0840 Max 0.9709

Alpha t Stat Alpha -0.0007 -0.5565 0.0047 1.2224 -0.0014 -0.3037 -0.0075 -2.8381 0.0188 1.4401

Panel A. CAPM RMRF t Stat RMRF SMB t Stat SMB 0.9518 26.7811 0.2172 17.7351 0.9994 23.3326 0.1227 1.6250 1.1782 58.8351 Panel B. FAMA FRENCH 3-FACTOR RMRF t Stat RMRF SMB t Stat SMB 0.9407 25.5986 -0.0933 -0.4671 0.2248 17.6061 0.2040 0.8440 0.9932 20.2114 -0.0587 -0.4651 0.1449 1.5789 -0.8060 -2.3956 1.2013 58.6950 0.4408 1.5980 Panel C. CARHART 4-FACTOR RMRF t Stat RMRF SMB t Stat SMB 0.9340 28.0987 -0.0923 -0.4550 0.2339 17.7206 0.1994 0.8567 0.9932 27.8071 -0.0694 -0.5416 0.1447 1.5589 -0.8125 -2.4063 1.2009 59.8076 0.3644 1.8154

40

Table 5.5. Summary of Regression Results using Net Returns These performance statistics are presented using net returns. Panel A displays the regression result under CAPM Model and R2, alpha, beta and its corresponding t-statistics are presented. Panel B is the results under Fama French 3-Factor Model, while Panel C is under Carhart 4-Factor Model.

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Using the same data of net returns, I try to plot the residuals of the funds to gather more information about their performance distribution. Figure 5.2 shows the histograms of the residuals at various points in the upper end of the cross-sectional performance distribution. These three funds, i.e. MANZEKI, MAHEKUI, and GRLDYNA, represent the three best funds according to their alpha values. All of them are positively skewed with skewness figures of 0.66, 0.575, and 0.819, respectively. As the best fund, MANZEKI also exhibit the highest kurtosis among other best funds with the figure of 3.568 and standard error of kurtosis of 0.918. This result indicates that the distribution has fatter tails, which is more preferred by investors as the probability to generate extreme positive values is higher. For the other two best funds, it is noticeable from the histograms that there is higher frequency in the middle, but they also display some extreme positive values.

Figure 5.2. Histogram of Residuals from Best Funds

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

On the other hand, focusing on the left tail of the distribution, figure 5.3 shows the histograms of the residuals at various points in the lower end of the performance distribution. SAMIDEQ, BIBHEKU, and PTPPRMA are considered as the worst funds based on their alphas and possess negative skewness. As an example, SAMIDEQ has skewness figure of -0.39 and standard error of skewness of 0.512, both are the highest among the sample funds. As shown in the histogram, SAMIDEQ has many residuals on the left side of the distribution curve, which is definitely not preferred by investors. However, this distribution is regarded as flatter than the best performing funds as it has kurtosis of -0.371.

Figure 5.3. Histogram of Residuals from Worst Funds

5.3.

Results from Bootstrap Analysis In this section I would like to present the main findings from the

application of the baseline bootstrap procedure. As mentioned previously, I include only funds with positive abnormal performance using their net returns. This leaves a sample of 15 funds, two of which are non-survivor funds (i.e. have ceased to exist at some point before the end of the sample period), while 13 are 42

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

survivor funds. For this test, I rank all the mutual funds that were able to generate positive alphas using net returns, according to the ex-post alpha from highest to lowest. In order to be able to interpret the result from bootstrap, for every fund I compare the p-values generated from bootstrap with standard p-values that correspond to the t-statistics of these individual ranked funds. As we can see in Figure 5.4., this distribution of alphas itself is already non-normal that some extreme positive values exist. It is supported by the mean of 0.33%, standard deviation of 1.28%, skewness of 3.573, and kurtosis of 13.383 suggesting a fatter-tail and positive-skewed distribution.

Figure 5.4. Histogram of Ranked Expost Alpha

The results in Table 5.6 show that funds with high ranked alphas generally exhibit significant bootstrapped p-values, in this case are the funds more than 75 percentile. As an example, the best fund can generate excess return of 4.86% per month and it is significant under 1000 bootstrap simulations with a p-value of 0.0035. Therefore, the null hypothesis that these equity funds do not outperform the benchmark, net of costs, is rejected. Ranking by alpha results in an extreme deviation from normality of the extreme right and left tails, which might due to the very risky strategies implemented by their fund managers (Kosowski, 2006). Therefore, I am encouraged to do this ranking procedure for t-statistic as well. T-statistic has some advantageous statistical properties in building cross-sectional bootstrap distributions, because it scales alpha by its standard error. According to 43

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Kosowski, this tends to be larger for shorter-lived funds and for funds that take higher levels of risk. Figures 5.5 and 5.6 show the distribution of the residuals for top two funds in the right and left tails of the ex-post performance distribution, as well as the median fund (Figure 5.7).

Figure 5.5. Histogram of Residuals from Expost Best Funds

Figure 5.6. Histogram of Residuals from Expost Worst Funds

Figure 5.7. Histogram of Residuals from Expost Median Funds

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Based on the statistical results, especially skewness and kurtosis, it is obvious that residual from funds in the extreme tails displays greater level of non-normality than residual from median fund. For example, the best fund, MANZEKI, possesses very high positive skewness of 1.521 and high kurtosis (4.242) as well, which is desired by investors. The reason is because this fund has high variance (8%) and some large positive residuals that create a wide dispersion and non-normality among the top performer funds. On the left tail distribution, taking SAMIDEQ as an example, it also exhibit a very negative skewness (-0.826) and low kurtosis (0.251). This is almost seen as a mirror image compared with the upper tail distribution. However, funds in the middle of the performance distribution, especially MANIUGM as the median fund, demonstrates a near normal idiosyncratic risks and close to a normal distribution curve. It is supported by the fact that the skewness 0.042 and kurtosis of 2.978 (very close to normal kurtosis of 3). This is consistent with the hypothesis of Berk and Green (2004) that in a competitive market, excess fund returns will be quickly bid away by the market players. The first thing to notice from the table 5.7 is that there are three funds (all above 75 percentile) that have actual t-alpha higher than the t-statistics. Most importantly, all these figures are statistically significant with p-value lower than 5%. The best fund, for example, has an equal actual t-alpha and t-statistics of 1.9519 and it is significant with p-value of 0.0024. This implies that there is only 0.24% chance that this abnormal performance is due to luck under 1000 bootstrap simulations. In other way, the fund manager of this best fund really employs superior stock-picking skill in constructing his portfolios over time. However, for the second-best fund in the 87.5 percentile, even though the p-value of 0.0001 is very significant, but the t-alpha (0.946) is not bigger than the ranked t-statistics (1.0033). This means that the second-best fund abnormal performance is due to luck, not skills.

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6.25 25 18.75 12.5 worst fund -0.0052 -0.0039 -0.0022 -0.0016 Alpha 0.3845 0.1243 0.7565 0.5588 Parametric P-value 0.1535 0.2735 0.3264 0.3773 Bootstrapped P-value 56.25 62.5 68.75 75 81.25

Percentiles 50 43.75 37.5 31.25 median -0.0012 -0.0011 0.0003 0.0005 0.5776 0.8442 0.9505 0.7958 0.4284 0.4765 0.5217 0.5718 87.5

93.75 best fund 0.0486 0.0008 0.0017 0.0021 0.0025 0.0035 0.0050 0.0659 0.6033 0.8503 0.3183 0.7789 0.5738 0.3482 0.0035 0.4104 0.2596 0.1134 0.0459 0.0042 0.0012

Table 5.6 Summary of Bootstrap Results from Ranked Ex-post Alpha

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

The table is split into 15 columns representing the percentile of each fund as the subsample in this test consists only 15 funds. The first row displays the fund alphas that are already ranked from smallest to biggest. Second row displays the parametric p-value from the t-statistic, while the third row shows the bootstrapped p-value.

Percentiles 93.75 50 87.5 81.25 75 68.75 62.5 56.25 43.75 37.5 31.25 25 best fund median 0.0486 -0.0016 -0.0012 -0.0011 0.0003 0.0005 0.0008 0.0017 0.0021 0.0025 0.0035 0.0050 1.9519 -0.5859 -0.5581 -0.1974 0.0627 0.1897 0.2597 0.5207 0.2822 0.5636 1.0033 0.9460 -0.5581 -0.3121 -0.1974 0.0627 0.1897 0.2597 0.2822 0.5207 0.5636 0.9460 1.0033 0.3762 0.4273 0.4754 0.5206 0.5707 0.4093 0.2585 0.1123 0.0448 0.0031 0.0001 1.9519 0.0024

6.25 18.75 12.5 worst fund -0.0052 -0.0039 -0.0022 Alpha -0.8959 -1.5560 -0.3121 T-alpha -1.5560 -0.8959 -0.5859 T-stat 0.1524 0.2724 0.3253 P-tstat

Table 5.7 Summary of Bootstrap Results from Ranked Ex-post T-statistics of Alpha

The table is split into 15 columns representing the percentile of each fund as the subsample in this test consists only 15 funds. The first row displays the fund alphas that are already ranked from smallest to biggest and its corresponding t-statistic in the second row. The third row shows the conventional t-statistics of alpha ranked from smallest to biggest. Meanwhile, the fourth row presents the bootstrap p-values of the t-statistic in row 3 under the null hypothesis of no outperformance using 1000 bootstrap simulations.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Focusing more on the funds near the median, some funds (from percentile 37.5 to 62.5) actually have t-alpha higher or equal to their t-stat. But, these numbers are not statistically significant from their p-values that are ranging from 0.2585 to 0.5707. From this bootstrap analysis, it is shown that high alphas are not always significant and for analysing the distribution in tails that have complex distributional properties, bootstrap analysis is very essential. All in all, even though there are funds that are proven to have superior stock-picking skills, but there is not enough evidence that the overall Indonesian equity fund managers do not rely only on luck. Thus, the third null hypothesis that Indonesian fund managers have the stock-picking ability is rejected and it means Indonesian fund managers do not have superior stock-picking ability and the y merely lucky to outperform the benchmark.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Chapter VI: Conclusions


In relation to the aforementioned research problems in Section 1.2, there are three main things that I would like to emphasize to answer the respective hypotheses. First of all, most equity funds are proven to unable to beat the benchmark even with gross returns. Under the Carhart 4-Factor model, only 3 equity fund alphas are positive and statistically different from zero. Meanwhile, the majority (more than 70%) of the funds cannot outperform the benchmark portfolios. Therefore the first null hypothesis that Indonesian open-ended equity mutual funds gross returns can outperform the benchmarks return is rejected. Second of all, the result is even worse when net returns (after deducting all the fees) are used in the analysis. Surprisingly, only 15 funds are able to achieve positive abnormal performance, but only 1 equity fund is still persistent in generating positive and statistically significant alpha. As a result, the second null hypothesis that Indonesian open-ended equity mutual funds net returns can outperform the benchmarks return is also rejected. Last of all, basic bootstrap with 1000 simulations is implemented to the remaining 15 funds from net return analysis. This analysis is very useful to analyse the individual performance of any portoflio drawn from a population that the expost alpha or t-statistics of alpha have been ranked from lowest to highest. In particular. The bootstrap results from the right tail of performance distribution exhibit that some funds (higher than 75 percentile) have a significant bootstrapped p-values lower than 5 per cent. This implies that the fund managers of these best funds really have genuine stock -picking skills. However, this number is not substantial enough to represent the whole analysis. On the other hand, at the left tail of performance distribution, the bootstrap result shows really high p-values, suggesting that these worst funds are merely unlucky. Thus, the third null hypothesis that Indonesian fund managers has the stock-picking ability is rejected. Apart from the hypotheses, there is another interesting thing. From the regression results, RMRF is consistently the only significant independent variables in explaining the variability in Indonesian equity fund returns. It means that CAPM is the best performance evaluation model to be applied in Indonesia.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Chapter VII: Limitations and Recommendations


Without any doubt, there are some limitations from this research. In this chapter, I express some limitations experienced in writing this paper and also some recommendations to be implemented for further researches.

7.1.

Limitations of the Research


The most basic limitation from this paper is the country subject chosen.

There is only one emerging market being analysed, which is Indonesia, and it is not enough to represent the emerging countries or Asia as a whole. Despite of many similarities among emerging countries in Asia Pacific region, but each market has their own uniqueness and regulations, such as the one managed by stock exchange commission and taxation rules. Thus, the findings may not be applicable in other emerging economies. In this paper, I do not split the time frame for performance evaluation. In fact, the performance before and after global financial crisis in 2008 might be different. Moreover, during different economic condition, fund managers tend to apply different investment strategies and it results in beta value that may change over time. Different than some other researches, in constructing the benchmark portfolios, I only consider the equal-weighted portfolios for SMB, HML, and MOM factors. Even though the performance of equal-weighted and valueweighted are not significantly different, but presenting both portfolios will make the research even richer in knowledge. In calculating the net returns, I only gathered data available from Bloomberg that consists of front load, back load, early withdrawal fee, current management fee, performance fee, and 12b1 fee. However, these might not be the only fees being charged by the fund manager to the investors, because most of the times there are hidden charges that are not mentioned explicitly in the funds prospectus. Therefore, I only collected these data without questioning the true value. Due to time limitation, not all the equity funds are analysed regarding the net returns, because funds that cannot achieve positive alpha using gross 49

BEFM020: Dissertation for MSc Financial Analysis and Fund Management

returns will perform worse if the returns are subtracted by the substantial percentage of the fund fees. Under the similar reason, not all the equity funds underwent the bootstrap analysis. In this paper, I focus more on the right tail of the performance distribution, because equity funds are substantially more expensive than the stocks themselves. As a result, investors are very limited for the investment opportunity that they cannot invest in many equity funds at the same time. This to justify that this procedure might be enough for Indonesian case, but might not be relevant enough for other countries.

7.2.

Recommendations for Further Researches


Based on the limitations mentioned above, future researches might

consider splitting the time frame for the performance evaluation, so that readers can see the difference, especially regarding the fund managers strategies and dependence on the benchmark portfolios. Also, future researchers can use the whole sample to be analysed in terms of the gross returns, net returns, and also residual bootstrapping. The point is to display the whole performance distribution, rather than focusing only on the right tail. In addition, future researchers can include inflation in calculating the real return, rather than nominal return. As an emerging country, the inflation rate in Indonesia is considerably high (around 8% per annum). Without considering this inflation rate, the return from equity funds might be upward bias and maybe for some funds, their real returns are actually below the inflation rate. This means that actually the investors are losing money by investing to particular funds. Another major issue that will impact the mutual fund performance in Indonesia is the taxes. The government has issued Regulation No. 16/2009 which sets during the 2009-2010 interest or discount income bond mutual funds so tax will hit 0%. From 2010 to 2013, the interest on the bonds in mutual fund will be exposed to a final tax of 5%. After the year 2014 and beyond, interest on the bonds in the fund will be exposed to 15% final tax. Future researchers might consider this role of tax in calculating the real return, not nominal return.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

Appendices
The equity funds used as the sample in this paper are: No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Bloomberg Code AAAEQTY IJ AAAGAIN IJ AICSHRU IJ AILKAGR IJ AILKCSH IJ AIYSAEQ IJ AMFAMES IJ AMFZAMA IJ AMFZAMD IJ AMFZAMG IJ AMFZAMI IJ AVEQCST IJ AXAMMRP IJ AXASYDR IJ AXFIARP IJ AXFIBRP IJ AXFIDRP IJ AXFIERP IJ AXFIERS IJ BADOPTI IJ BATAGRO IJ BCTWPRI IJ BIBHEKU IJ BIRADINA IJ BIRADSI IJ BLSDINI IJ BNIRBEI IJ BNISSYA IJ BNPPISP IJ BNPPSTA IJ BSDSSYH IJ BTCWEKA IJ BTCWEPR IJ BTSSUKK IJ CIMBISL IJ CIMBPEF IJ CIPSYEQ IJ CITEKUI IJ CLEQDYN IJ CLEQINC IJ CLEQINF IJ CLEQSYA IJ CLKAGGR IJ CORGRW2 IJ DADINAR IJ DANMAWI IJ DANMKMD IJ DANMKNS IJ Mutual Fund Name AAA EQUITY FUND AAA BLUE CHIP VALUE FUND AVRIST LINK ASYA CASH RUPIAH AVRIST LINK AGGRESSIVE RP FD AVRIST LINK ACCESS CASH FUND AVRIST LINK ASYA EQUITY RP MANDIRI AMANAH EQTY SYARIAH MANDIRI ATTRACT MONEY RUPIAH MANDIRI DYNAMIC MONEY FUND MANDIRI ATTRACTIVE MONEY SYA MANDIRI EXCELLENT EQUITY RUP AVRIST EQUITY-CROSS SECTORAL AXA FINANCIAL MONEY MARKET R AXA SYARIAH DYNAMIC RP MAESTROLINK AGGRESSIVE EQ RP MAESTROLINK BALANCED IDR MAESTROLINK DYNAMIC IDR MAESTROLINK EQUITY PLUS IDR MAESTRO EQUITY SYARIAH RP BATAVIA DANA SAHAM OPTIMAL BATAVIA DANA SAHAM AGRO BAHANA TCW DANA PRIMA MNC DANA EKUITAS BATAVIA DANA DINAMIS BATAVIA DANA SAHAM AXA CITRADINAMIS BNI BERKEMBANG BNI SAHAM SYARIAH BNP PARIBAS INSPIRA BNP PARIBAS STAR BATAVIA DANA SAHAM SYARIAH DANA EKUITAS ANDALAN DANA EKUITAS PRIMA BATASA EQUITY SYARIAH CIMB ISLAMIC EQUITY GROWTH CIMB-PRINCIPAL EQUITY FOCUS CIPTA SYARIAH EQUITY BNP PARIBAS EKUITAS COMMONWLTH LIFE INV EQ DYNAM COMMONWLTH LIFE INV EQ INCOM COMMONWLTH LIFE INV EQ INFRA COMMONWLTH LIFE INV EQ SYARI COMM LINK AGGRESSIVE FUND CORFINA GROW 2 PROSPER DANAREKSA INDEKS SYARIAH DANAREKSA MAWAR DANAREKSA MAWAR KOMODITAS 10 DANAREKSA MAWAR KONSUMER 10 Equity Type Focus Blend Growth Value Blend Value Blend Value Value Value Value Value Growth Value Growth Growth Blend Blend Blend Growth Blend Blend Blend Growth Blend Blend Blend Growth Growth Blend Blend Growth Blend Blend Value Growth Growth Growth Blend Blend Blend Blend Growth Blend Blend Growth Blend Value Growth

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management No 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 Bloomberg Code DANMW10 IJ DMPHSAI IJ DNMWAGG IJ EQUSENT IJ EUREQUI IJ FORAMAN IJ FORINPL IJ FORSOLA IJ FORSPEK IJ FSIEHCO IJ FSIEQDY IJ FSINEQV IJ FSIPEKA IJ FSISECT IJ GEFFGAP IJ GMTEKUI IJ GRLDYNA IJ GRLEQTY IJ GVFFGAP IJ HPAMUE1 IJ JASBUMN IJ JISAPRO IJ JISAWSH IJ JKBLUCP IJ KRIND45 IJ LAUELEA IJ LAUEQPR IJ LAUEQUI IJ MAHEKUI IJ MAKGRWT IJ MAKMANT IJ MANDESM IJ MANGIFT IJ MANIEDI IJ MANISYA IJ MANIUGM IJ MANLIEK IJ MANSAND IJ MANSHAM IJ MANSITO IJ MANSSEK IJ MANTRAK IJ MANZEKI IJ MEGDEKT IJ MEGSAHM IJ MEGSHSY IJ MFIPERI IJ MLLDECI IJ MLLDECU IJ MLLDEII IJ MLLDEIU IJ MLNEQTY IJ NIAGRES IJ NIKSANI IJ Mutual Fund Name DANAREKSA MAWAR FOKUS 10 MANULIFE PHINISI DANA SAHAM REKSADANA DANAREKSA MAWAR AG EQUITY DANA SENTOSA EURO PEREGRINE EQUITY BNP PARIBAS PESONA SYARIAH BNP PARIBAS INFRASTRUKTUR PL BNP PARIBAS SOLARIS BNP PARIBAS SPEKTRA FIRST STATE IDEQ HIGH CONVIC FIRST STATE INDOEQUITY DIV FIRST STATE INDOEQUITY VALUE FIRST STATE INDOEQUITY PEKA FIRST STATE INDOEQUITY SECTO GAP EQUITY FUND GMT DANA EKUITAS GREATLINK DYNAMIC FUND GREATLINK EQUITY FUND GAP VALUE FUND HPAM ULTIMA EKUITAS 1 JATIM SAHAM BUMN JISAWI PROGRESIF JISAWI SAHAM JAKARTA BLUE CHIP KRESNA INDEKS 45 LAUTANDHANA EQUITY AGRESIF LAUTANDHANA EQUITY PROGRESIF LAUTANDHANA EQUITY MAHANUSA DANA EKUITAS REKSA DANA EMCO GROWTH REKSA DANA EMCO MANTAP MANULIFE DANA SMALL MID CAP MANULIFE GREATER INDONESIA MANDIRI INVESTA EKUITAS DINA MANDIRI IV ATRAKTIF SYARIAH MANDIRI INVESTA UGM MANULIFE LK DANA EKUITAS MANULIFE SAHAM ANDALAN MANULIFE DANA SAHAM MANULIFE INST EQUITY FD MIEF MANULIFE SYARIAH SEKTORL AMA MANDIRI INVESTA ATRAKTIF MANULIFE Z-LINK EKUITAS INT MEGA DANA EKUITAS MEGA DANA SAHAM MEGA DANA SAHAM SYARIAH BNP PARIBAS PESONA MANULIFE LK DN EK IND-CH IDR MANULIFE LK DN EK IND-CH USD MANULIFE DANA EKUITAS IN-IDR MANULIFE DANA EKUITAS INDO I MILLENNIUM DANATAMA EQUITY CIMB-PRINCIPAL EQUITY AGG NIKKO SAHAM NUSANTARA Equity Type Focus Growth Blend Growth Value Growth Growth Blend Blend Blend Blend Blend Blend Blend Blend Growth Blend Blend Blend Growth Growth Value Blend Growth Blend Blend Growth Growth Growth Blend Growth Blend Growth Blend Growth Growth Growth Blend Growth Growth Growth Growth Growth Growth Growth Growth Blend Blend Growth Blend Blend Blend Blend Blend Growth

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management No 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 Bloomberg Code NISINDK IJ NTUAMEQ SP OPTSAHM IJ OSKLQ45 IJ OSKNASR IJ PANDSYS IJ PARPREM IJ PLASHAM IJ PNMEQTY IJ PNMSAGR IJ PRASHAM IJ PTAIACI IJ PTLCERD IJ PTPDMAI IJ PTPPRMA IJ RECEQUI IJ RELEQUI IJ SAMIDEQ IJ SCHEQ90 IJ SCHINDE IJ SCHISTI IJ SCHPPLU IJ SCPDPRI IJ SIMSAHM IJ SLFBRAG IJ SUCOREQ IJ SYAEQOP IJ TRAMCOP IJ TRAMINF IJ TRIMKPP IJ TRISYAH IJ TRSMKPI IJ Mutual Fund Name NISP INDEKS SAHAM PROGRESIF AMANAH EQUITY OPTIMA SAHAM RHB OSK NUSA LQ45 TRACKER FD RHB OSK NUSA SECTOR ROTATION PANIN DANA SYARIAH SAHAM PARAMITRA PREMIUM PRATAMA EKUITAS PNM EKUITAS SYARIAH PNM SAHAM AGRESIF PRATAMA SAHAM AIA FINANCIAL IDR-CHINA/IND RENCANA CERDAS PANIN DANA MAKSIMA PANIN DANA PRIMA CAPITAL EQUITY FUND RELIANCE EQUITY FUND SAM INDONESIAN EQUITY FUND SCHRODER 90 PLUS EQUITY FUND SCHRODER INDO EQUITY FUND SCHRODER DANA ISTIMEWA SCHRODER DANA PRESTASI PLUS SCHRODER-DANA PRESTASI SIMAS DANAMAS SAHAM BRILLIANCE AGGRESSIVE SUCORINVEST EQUITY FUND SYAILENDRA EQUITY OPPORTUNIT TRAM CONSUMPTION PLUS FUND TRAM INFRASTRUCTURE PLUS FD REKSA DANA TRIM KAPITAL PLUS TRIMEGAH SYARIAH SAHAM REKSA DANA TRIM KAPITAL Equity Type Focus Blend Value Growth Blend Blend Growth Blend Blend Growth Growth Blend Blend Blend Blend Blend Value Value Growth Blend Blend Blend Blend Blend Blend Blend Blend Blend Growth Growth Blend Growth Blend

These are the actual distribution of alpha and t-statistic of alpha.

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BEFM020: Dissertation for MSc Financial Analysis and Fund Management

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