Articles

Investment Portfolio Optimization in Indonesia (Study On: Lq-45 Stock Index, Government Bond, United States Dollar, Gold and Bitcoin)

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In forming their portfolios, investors should analyze the risk and return of each investment instrument. This is aimed at preventing investors from speculating and gambling with their investments. Conducting an investment portfolio optimization study on LQ-45 stock index, government bond, USD, gold, and Bitcoin can provide valuable insights due to unique market characteristics in Indonesia. This research analyzes the formation of investment instruments over the last 60 months, specifically from January 2018 to December 2022. The research method used in this study is quantitative research aimed at selecting several investment instruments for a portfolio in Indonesia. The portfolio aims to minimize risk and maximize return using the Markowitz method, also known as the optimal portfolio. To fulfill the objectives of this research, data on the prices of each instrument are required. An optimal portfolio can be obtained by combining two instruments: 18% bitcoin and 82% gold. This optimal portfolio can achieve an expected return of 1.29% with a risk level of 5.15%. Considering a risk-free rate of 0.375%, this portfolio forms a slope of 0.1775, which is the largest slope formed between the combination of risk-free instruments and risky portfolios. Investors should allocate their funds more wisely, considering not only the highest return but also the associated risk. High returns often come with high risks, so investors need to assess the risk-return trade-off before making investment decisions.

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.

 

Sector Rotation Investment Strategy by Implementing Piotroski F-Score and Markowitz Portfolio Theory for Portfolio Construction: Indonesia Stock Market 2020 to 2022

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IHSG or IDX Composite Index crash during 2020 where the index fell 37.5% since beginning of 2020 until mid march to the level points of 3,938, recovered and marking up in 2021 where the index reaching the peak in November to the level points of 6,723, and then consolidating at the year of 2022 where the index move in a ranging movements of up and down within the level points of 6,500 to 7,300. The different cycles of stock market movement are happening because of changes and different economic factors, making investors presented with a different opportunities and risks at the stock market. In order to capitalize these changes at the market, investors need to analyzed their portfolio periodically for evaluation and assessment. These research were conducted to examines what are the best portfolio for each year of 2020, 2021, and 2022 using sector rotation investment strategy by implementing sector comparison analysis and Piotroski F-score for stock screening method, while using Markowitz portfolio optimization theory for portfolio construction.