Articles

Portfolio Optimization Using Markowitz Model on Sri-Kehati Index

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This thesis investigates the portfolio optimization process using the Markowitz model on the SRI-KEHATI index, an esteemed sustainable investment index. The study aims to explore the potential advantages of incorporating environmental, social, and governance (ESG) factors into portfolio construction. By leveraging historical financial data and reliable ESG metrics, this research develops optimized portfolios that strike a balance between risk and return while adhering to the sustainability criteria of the SRIKEHATI index.

The methodology encompasses the collection of credible ESG data and financial information for the constituents of the SRIKEHATI index. The Markowitz model is subsequently employed to analyze the risk and return characteristics of each asset within the portfolio. Through the application of optimization algorithms, the study seeks to identify the optimal asset allocation that maximizes risk-adjusted returns, taking into account the ESG criteria outlined by the SRI-KEHATI index.

The outcomes of this research provide valuable insights into the effectiveness of portfolio optimization techniques within the realm of sustainable investing. By considering both financial metrics and ESG factors, investors can construct portfolios that align with their sustainability objectives while optimizing risk and return. The findings shed light on the performance of the optimized portfolios and compare them with conventional approaches, thereby demonstrating the potential benefits of integrating ESG considerations into portfolio decision-making.

Additionally, this study examines the practical implications associated with implementing sustainable portfolio strategies based on the SRI-KEHATI index.

Overall, this thesis contributes to the expanding body of knowledge on sustainable investing and portfolio optimization, specifically focusing on the SRI-KEHATI index. It provides valuable insights for investors, asset managers, and policymakers interested in sustainable investment strategies. Furthermore, it offers a framework for incorporating ESG considerations into the portfolio construction process using the Markowitz model, thereby aiding in the development of more robust and sustainable investment portfolios.

Optimizing Investment Portfolio of a State-Owned Company Pension Fund

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The Pension Fund of PT Pos Indonesia (Dapenpos) is considering cutting off all its stock from the portfolio and trying to find the optimal portfolio to increase the funding ratio level. This research is using Modern Portfolio Theory (MPT) by Markowitz to solve the current issue faced by the company by optimizing company’s current portfolio, company’s stock universe, and optimizing modified portfolio of company. Portfolio optimization of the company is complying to the OJK regulation as well as company’s investment direction with constant government bond proportion of 30% and unchanged proportion of both direct investment and property assets. The historical existing portfolio of Dapenpos from 2017 to 2021 has an expected return of 8.83% with standard deviation of 3.45%, so it is suggested that both mutual fund and stock portfolio should be emptied and reallocated to time deposit and corporate bond. The efficient frontier from current portfolio optimization indicated that Dapenpos could get a higher return of 9.31% by choosing portfolio above the optimal frontier. The optimal LQ45 index has a range of return from 6.90% as its Global Minimum Variance (GMV) to 27.46% as its optimal portfolio suggestion. GMV LQ45 is the preferable portfolio to modify the existing portfolio, with an optimal modified portfolio expected retrurn’s range of 7.37% to 9.28%. The decision of the fund manager to cut all the stock from its portfolio is validated by MPT tools with strategic reallocation to time deposit and corporate bond in gaining potential higher return with similar risk.