Performance Evaluation of Equity Mutual Funds in Indonesia

Mutual funds considered as an investment alternative for investors. One type of mutual fund that attracts many investors was the equity mutual funds. Equity mutual fund a type of mutual funds that most part of the investment consists of stocks in the capital market so the risk rate was higher than the other types of mutual funds. For its different characteristic, the measurement for equity funds performance did not be same with other types of mutual funds. As a stock portfolio, equity mutual funds can measure with portfolio measurement methods such as Sharpe Index, Treynor Ratio, Jensen Index, Adjusted Sharpe Index, Adjusted Jensen Index, and Sortino Ratio. This study was conducted by using all of those performance measurements as most research in Indonesia was conducted by using limited performance measurements (focusing on Sharpe Index, Treynor Ratio, and Jensen Index). This study aims to evaluated the performance of 42 equity mutual funds available in Indonesia by employing Sharpe Index, Treynor Ratio, Jensen Index, Adjusted Sharpe Index (ASI), Adjusted Jensen Index (AJI), and Sortino Ratio because most previous researches in Indonesian setting disregards ASI and AJI. In general, it was concluded that the SAM Indonesian Equity was the best performing equity fund during the study period. It was further found that most equity mutual fund studied have been well diversified.


| 528 |
Mutual fund is one of the alternative investments in financial assets for the society in addition to deposit, stock, and bond investments (Simforianus & Hutagaol, 2008). Mutual fund arises because, in general, investors experience difficulties to make their own portfolio investments in securities. The difficulties faced by the investors include the need to conduct various analyses on securities and to continuously monitor the market conditions which is very time-consuming. Another difficulty is the need for relatively large funds to do investment in securities.
Mutual fund is managed by two parties, namely Investment Manager and Custodian Bank. Investment manager (IM) is a company which manages the client's securities portfolio and is responsible for the investment activities which include analysis and selection of investment types, making investment decisions, monitoring investment markets, and taking actions for the interests of it customers. Whereas Custodian Bank is a part of business activities of a bank in the field of securities storage and its administrations (Pratomo, 2001). Thus, the performance of a mutual fund is determined by how the investment manager manages the investors' funds in a securities portfolio.
Mutual fund is able to offer higher long-term potential benefits than savings and deposits. But, it should be realized that basically all investments have risks. Similarly in the mutual fund investment, potential benefits and risks offered by each mutual fund varied, ranging from the lowest to the highest, depending on the type of mutual funds to be selected. There are several types of mutual funds in Indonesia including equity mutual funds, fixed income mutual funds, balanced mutual funds, money market mutual funds, and sharia mutual funds. Each mutual fund has different characteristics. These different characteristics will cause differences in mutual funds performances, for instance, equity mutual funds will tend to have higher risks compared to fixed income mutual funds because equity mutual fund is the mutual funds with the largest portfolio composition in the form of stocks as it has growth objectives (Simforianus & Hutagaol, 2008). Due to these different characteristics also, the performance analyses of each mutual fund need to be carefully carried out and use appropriate benchmarks (Arisonda, 2013).
Equity mutual funds as a stock portfolio can be measured for its performance using portfolio measurement methods such as Sharpe Index, Treynor Ratio, Jensen Index, and Sortino Ratio. Of all the measuring instruments, the Sharpe Index in the most commonly used and even become standard for industry (Scholz & Wilkens, 2006;Kidd, 2011b;Bednarek, Patel, & Ramezani, 2014;Robiyanto, Wahyudi, & Pangestuti, 2017) since it can be implemented to compare performance among mutual funds (Swinkels & Rzezniczak, 2009). However, some of these measuring instruments such as Sharpe Index and Jensen Index are perceived as to have weaknesses. For example, Sharpe Index is considered to focus only on variance (Kidd, 2011b), whereas Jensen Index cannot be compared at different market levels (Zulkafli, Ahmad, & M., 2017). Hence, they need to be adjusted to become Adjusted Sharpe Index (Jobson & Korkie, 1981) and Adjusted Jensen Index (Zulkafli, Ahmad, & M., 2017).
In Indonesia, several research on equity mutual funds performance measurements or stock portfolio performance in Indonesia have been performed by Simforianus & Hutagaol (2008); Simanjuntak (2012); Arisonda (2013) ;Qomariah, Sari, & Budiarti (2016). Arisonda (2013) conducted a study on stock portfolio in Indonesia Stock Exchange by using Sharpe Index, Treynor Ratio, and Jensen Index. Arisonda (2013) found that there were no differences in performance measurements using the 3 instruments. Meanwhile, Simanjuntak (2012) examines equity mutual fund performance with sharia mutual fund performance in Indonesia by employing Sharpe Index, Treynor Ratio, and Jensen Index as the measuring instruments.
| 529 | Simanjuntak (2012) found that the sharia mutual funds are able to produce better performance than the equity mutual funds. Simforianus & Hutagaol (2008), with those measuring instruments, found that 56.25 percent of equity mutual funds can generate superior performances during [2002][2003][2004][2005][2006][2007]. In contrast to these research, Qomariah, Sari, & Budiarti (2016) does not utilize the performance measuring instruments but only compares the risks and returns of sharia equity mutual funds and conventional mutual funds. The research found that the sharia equity mutual funds have lower risks compared to the conventional ones.
Research on equity mutual funds that have been conducted in Indonesia tend to use limited measuring instruments on Sharpe Index, Treynor Ratio, and Jensen Index (Arisonda, 2013), and also Sortino Ratio (Simforianus & Hutagaol, 2008). There is still no research conducted that employed the adjusted instruments such as Adjusted Sharpe Index and Adjusted Jensen Index to avoid bias. Hence, in addition to the utilization of Sharpe Index, Treynor Ratio, Jensen Index, and Sortino Ratio, this study also uses Adjusted Sharpe Index and Adjusted Jensen Index. Jobson & Korkie (1981), Cvitanic, Lazrak, & Wang (2007), and Zulkafli, Ahmad, & M. (2017) stated that the Sharpe Ratio have a weakness and could biased. Pav (2016) stated that the occurence of this bias was led by the noise of time series data. So the use of Adjusted Sharpe Index (ASI) is indispensable in portfolio evaluation (Kidd, 2012;Bednarek, Patel, Ramezani, 2014). The same problem also rise in Jensen Alpha, according Zulkafli, Ahmad, & M. (2017), Jensen Alpha is not appropriately used to measure performance at different performance levels, hence need an adjustment also in order to make better comparation (Kidd, 2011a). This adjustment held by using systematic risk factors and the results often called as Adjusted Jensen Alpha (Index)/AJI.
Overall, this study aims to evaluate the performance of equity mutual funds in Indonesia by using various portfolio measurement methods, so can objectively give a suggestion toward the Indonesian equity mutual fund investors. Markowitz (1952) suggests 2 approaches in the investment portfolio, i.e. the classical approach and the modern portfolio approach. The classical approach emphasizes on efficiency. Markowitz uses mean-variance analysis to form an efficient portfolio, a portfolio that provides the highest return for a given level of risk. Hence, the efficient portfolio of Markowitz is also called mean-variance efficient portfolio. While on the modern portfolio theory approach for investment, it starts with an assumption that investors have spent some amount of money on the current investment. This money will be invested for a certain period of time called the investor's holding period. At the end of the holding period, the investor will sell the securities purchased at the beginning of the period and use the proceeds for consumptions or reinvestments in various securities (or perform both). Thus, this Markowitz approach can be viewed as a single approach. Markowitz stresses that investors usually expect not only high returns but also definite returns. It means that investors in their attempt to maximize the expectation of return and to minimize the uncertainty (risks) have 2 conflicting goals that must be balanced against each other when making a decision to buy securities. Returns and risks are related. To expect high returns, the risks expectation will also be high (Meredith, David, & James, 2000).

Portfolios Theory and Mutual Funds
Modern portfolio theory now become the main guidance in favor of portfolio allocation decisions for mutual funds, pension funds, and other institutions seeking for maximized portfolio investment returns and minimizing the risks. The modern portfolio theory explores how investors who avoid risks can form an optimal portfolio by regarding the exchange between market risks and | 530 | expectation of returns. The theory calculates the benefits of diversification. Investors can determine the efficient frontier of optimal portfolio. Each portfolio on the efficient frontier offers maximum return expectation on a certain level of risk. Investors can hold one optimal portfolio on efficient frontier by borrowing or lending government bonds that are risk-free securities.

METHODS
Asset diversification strategy (securities) through the establishment of a portfolio refers to Modern Portfolio Theory introduced by Markowitz (1952) and later refined by Markowitz (1959). Various methods of measuring portfolio performance that currently exist mostly refer to the theory developed by Markowitz (1952). Among the many instruments of portfolio performance measurements, Sharpe Index developed by Sharpe (1966), which was originally created to measure the performance of mutual funds in the United States, is the most common measuring instrument used and becomes standard for industry for its popularity. Moreover, Sharpe Index is also widely used by the financial industry because of its simplicity and facilitates practitioners and academicians in assessing a portfolio performance (Low & Chin, 2013;Bednarek, Patel, & Ramezani, 2014;Robiyanto, Wahyudi, & Pangestuti, 2017). In terms of method, Sharpe Index is a measure that employs calculations of unit return minus risk-free rate of return compared to the total risk, commonly referred as reward to variability (Ferruz, Gómez-Bezares, & Vargas, 2010). In other words, Sharpe Index emphasizes the portfolio performance measurement based on non-systematic risks.
Unlike Sharpe Index, Treynor (1965) introduced Treynor Ratio that calculates return per systematic risk unit. The Treynor Ratio formula measures return minus risk-free investment rate of return on each unit of market risks. This method of Treynor Ratio measure is often referred to as reward to volatility (Beer, Estes, & Deshayes, 2011). Scholz & Wilkens (2006) propose that both Sharpe Index and Treynor Ratio can be applied to rank the portfolio performances and to test for a well diversified portfolio (Robiyanto, 2017). Jensen (1967) also creates a measurement instrument of portfolio performance which is often called Jensen Alpha. Based on the formula, Jensen Alpha is a special measure for risk-adjusted return of portfolio performance that specifically emphasizes on systematic risks. Sortino & Price (1994) also take a role in modifying the existing instruments of measuring portfolio performance by developing Sortino Ratio. The basic idea of Sortino Ratio is to modify the Sharpe Index by utilizing downside deviation in lieu of standard deviation (Rollinger & Hoffman, 2013). Sortino & Price (1994) attempt to accommodate the argument suggested by Markowitz (1959) that only downside deviation is relevant for investors. Related to Jensen Alpha, Zulkafli, Ahmad, & M. (2017) argues that Jensen Alpha is not appropriately used to measure performance at different performance levels. To overcome this issue, it is necessary to make adjustment to systematic risk factors. This adjustment is often called Adjusted Jensen Alpha (AJI).
Over time, those measurement instruments are not free of criticism, those instruments are even considered to have many disadvantages. Although its vast popularity, the Sharpe Index was not flawless. It been criticized by many scholars. Jobson & Korkie (1981) stated that Sharpe Index have bias in the estimation of the standard deviation, while Bednarek, Patel, & Ramezani (2014) arguing that Sharpe Index must used carefully according investment horizon. So it need adjusted before used to make a portfolio comparation. Jobson & Korkie (1981), in an attempt to overcome the weakness of Sharpe Index that is considered as biased, conducted a modification of Sharpe Index which is then referred to as Adjusted Sharpe Index (ASI). While for the Jensen Alpha, according Zulkafli,

| 531 |
Ahmad, M. (2017), Jensen Alpha is not appropriately used to measure performance at many different performance levels, hence need an adjustment according many different level of market risk. This adjustment must held in order to make better comparation (Kidd, 2011a).
Population of this study is all the equity mutual funds in Indonesia until the end of 2014 period. Not all members of the population are examined so that sampling is necessary. The samples are chosen by purposive sampling method with the following criterions: (1) active from 2012-2014; and (2) complete monthly data of Net Asset Value are available from 2012-2014.

Table 1. Sampling Derivation
Where: NAV t : net asset value of an equity mutual fund closing at month t NAV t -1 : net asset value of an equity mutual fund closing at month t -1 This study uses several methods of portfolio performance measurements that include Sharpe Index, Treynor Ratio, Jensen Index, Sortino Ratio, Adjusted Sharpe Index, and Adjusted Jensen Index.
Performance measurement of equity mutual funds with Sharpe Index is done by the following formula (Sharpe, 1966): The sampling showed 42 equity mutual funds met the criteria. The list of samples are presented in Appendix 1. Data used in this study are as follows: (1) net asset value per unit of monthly period participation of each equity mutual fund sample from January 2012-December 2014, to calculate monthly return of equity mutual fund. The data were retrieved from the official website of each investment manager; (2) monthly SBI (Bank Indonesia Certificates) rate during 2012-2014, to calculate risk-free return (Rf). The data were obtained from Bank Indonesia; and (3) monthly closing of Composite Stock Price Index of Indonesia Stock Exchange Index during 2012-2014, to calculate market return (Rm) of stock. The data were gathered from Indonesia Stock Exchange.
To calculate return of equity mutual funds studied here, the following formula is used: Performance measurement of equity mutual funds with Treynor Ratio is done by the following formula (Treynor, 1965 Performance measurement of equity mutual funds with Jensen Alpha ( i ) is calculated by the following formula: has mean of return with value mark at 0.02 percent and after being reduced with risk free return becomes 0.05 percent.
There are several equity mutual funds accounted premium return with negative sign, they are Prospera Bijak and Mandiri Investa Atraktif Syariah. It indicates that the 2 equity mutual funds provide lower return than the risk free investment instrument. The detail for each mutual fund returns is presented in Table 2.
From the standard deviation side, as shown in Table 3, Cipta Syariah Equity generates the lowest standard deviation with 0.0336 which indicates that the equity mutual funds formed from these stocks have the lowest risk compared to other funds. On the other hand, the highest standard deviation belongs to Pratama Saham with 0.0601 which implies that the risk of this fund is considered as relatively the highest when compared to other equity mutual funds studied here. Besides becoming a equity mutual fund with the lowest risk, according Table 4 Cipta Syariah Equity also generates the lowest beta portfolio with 0.6993 which indicates that the systematic risk of this fund is extremely low and it is also classified as defensive and is inelastic against stock market changes, on the contrary, Pratama Saham shows the highest total and, indeed, is the equity mutual fund with the biggest beta portfolio with 1.4659 which is considered as aggressive or sensitive against the stock market changes. By using Sharpe Index as shown in Table 5, SAM Indonesian Equity is an equity mutual funds with the highest Sharpe Index (with value 0.3676), based on that SAM Indonesia Equity is the best among other equity mutual funds if measured by variability based return, conversely, Prospera Bijak the equity mutual funds with the worst performance compared to other equity mutual funds. Prospera Bijak showed Sharpe Index with the biggest negative signs (-0.0928 Where, is downside deviation of equity mutual funds return rate at a certain period which is calculated with the following formula: Risk-free rate is represented SBI return (interest rate) in 1 month period. After the results of Sharpe Index, Adjusted Sharpe Index, Treynor Ratio, Jensen Index, Adjusted Jensen Index, and Sortino Ratio found, those results will be sorted from highest value to the lowest value in order to know the best performer and the worst performer.

RESULTS
Based on the mean return and return premium, it is acquired that SAM Equity is able to produce the highest mean of return rate during 2012-2014 at 2.23 percent and generate return premium with 1.74 percent. Meanwhile, Prospera Bijak

Performance Evaluation of Equity Mutual Funds in Indonesia
Irene Rini Demi Pangestuti, Sugeng Wahyudi, Robiyanto Robiyanto | 535 | By using Adjusted Sharpe Index (ASI) as shown in Table 6, consistently SAM Indonesian Equity is an equity mutual funds with the highest Adjusted Sharpe Index (with value 0.3601), same with Sharpe Index measurement, Prospera Bijak is an equity mutual funds with the worst performance compared to other equity mutual funds. Prospera Bijak showed Adjusted Sharpe Index with the biggest negative signs (-0.0909). The sequence of top 5 equity mutual funds are consistent also, they are OSK Nusadana Alpha Sector (Sharpe Index: 0.2847), Cipta Syariah Equity (Sharpe Index: 0.2102), Pratama Saham (Sharpe Index: 0.1927), and BNP Paribas Infrastruktur Plus (Sharpe Index: 0.1812). Table 7, SAM Indonesian Equity also become an equity mutual funds with the highest Treynor Ratio (with value 0.0153), based on that SAM Indonesia Equity is the best among other equity mutual funds if measured by volatility based return, conversely, the same condition also found on Prospera Bijak. Prospera Bijak is an equity mutual funds with the worst performance compared to other equity mutual funds. Prospera Bijak has Treynor Ratio with the biggest negative signs (-0.0040 Table 8, still SAM Indonesian Equity is an equity mutual funds with the highest Jensen Index (with value 0.0166), based on that SAM Indonesia Equity is the best among other equity mutual funds, on the contrary, Prospera Bijak is an equity mutual funds with the worst performance if measured by Jensen Index and compared to other equity mutual funds. Prospera Bijak showed Jensen Index with the biggest negative signs (-0.0060). By using Jensen Index, the sequence of other top 5 equity mutual funds are changing. The second best performer is OSK Nusadana Alpha Sector (Jensen Index: 0.0116), followed by Pratama Saham (Jensen Index: 0.0107), BNP Paribas Infrastruktur Plus (Jensen Index: 0.0068), and Cipta Syariah Equity (Jensen Index: 0.0067).

By using Treynor Ratio as shown in
By using Adjusted Jensen Index (AJI) as shown in Table 9, still SAM Indonesian Equity is an equity mutual funds with the highest Adjusted Jensen Index (with value 0.0145), based on that SAM Indonesia Equity is the best among other equity mutual funds, on the contrary, Prospera Bijak is an equity mutual funds with the worst performance if measured by Adjusted Jensen Index and compared to other equity mutual funds. Prospera Bijak showed Adjusted Jensen Index with the biggest negative signs (-0.0047).  Surprisingly, by using Sortino Ratio as shown in Table 10, the sequence of 5 best performers are similar to the one which measured by Adjusted Jensen Index (AJI). SAM Indonesian Equity is an equity mutual funds with the highest Sortino Ratio (with value 0.6731). Consistenly, Prospera Bijak is an equity mutual funds with the worst performance compared to other equity mutual funds if measured by Sortino Ratio. Prospera Bijak showed Sortino Ratio with the biggest negative signs (-0.1265). The second best performer is still OSK Nusadana Alpha Sector (Sortino Ratio: 0.4885

DISCUSSION
This study found that equity mutual funds formed from the sharia stocks such as Cipta Syariah Equity, Manulife Syariah Sektor Amanah, Mandiri Investa Atraktif Syariah, Batavia Dana Saham Syariah, Trimegah Syariah Saham were infact able to produce lower risks compared to the other equity mutual funds. Equity mutual funds with the highest risk are dominated by the conventional equity mutual funds. These findings support a research result by Robiyanto (2017) which revealed that the sharia stocks tend to have lower risks than the other stocks and is consistent to the research by Qomariah, Sari, & Budiarti (2016).
The analysis showed that in general there is a consistency among the measurement instruments of portfolio performance by employing Sharpe Index, Adjusted Sharpe Index, Treynor Ratio, Jensen Index, Adjusted Jensen Index, and Sortino Ratio, then it is revealed that almost all equity mutul funds have a consistent rate. For example, consistently SAM Indonesia Equity become the best performer when measured by Sharpe Index, Adjusted Sharpe Index, Treynor Ratio, Jensen Index, Adjusted Jensen Index, and Sortino Ratio. While the other member of top 5 performer only differ slightly in sequential manner but the top 5 performer are SAM Indonesia Equity, OSK Nusadana Alpha Sector, Cipta Syariah Equity, Pratama Saham and BNP Paribas Infrastruktur Plus. The usage of risk based measurement is more apprioriate than return comparison, since according Markowitz (1952), the aim of the portfolio is to provides the highest return for a given level of risk.
The findings also shows that by using Sharpe Index and Adjusted Sharpe Index (ASI), the se-  quence of the best performers to the worst performers do not change at all. The different sequence occurs when using Jensen Index and Adjusted Jensen Index. By using Adjusted Jensen Index which use beta as a proxy of market risk, Adjusted Jensen Alpha expected can produce fair comparation between each portofolio (Kidd, 2011a), this study find that there are inconsistency between the ranking result by using Jensen Index and Adjusted Jensen Index (AJI). The higher Jensen Index would not guarantee the higher Adjusted Jensen Index if the market risk (beta) also higher. But the lower Jensen Index with lower market risk (beta) could led the higher Adjusted Jensen Index. This measurement sound fair enough to make portfolio's performance comparation, as evidenced in this study.
Overall, this study also indicates that the equity mutual funds studied are in general have been well diversified. This result is in line with Pratomo (2001) which suggests that the portfolios which are well diversified will tend to have a consistent rate between the Sharpe Index and the Treynor Ratio.

Conclusion
The result shows that not all of the equity mutual funds studied is able to produce premium return with positive sign. It implies that the performance of those equity mutual funds is no better than the risk-free investment instruments. It further found that the sharia equity mutual funds tend to possess a lower risk rate compared to the conventional ones when seen from the standard deviation.
In general, it is concluded that most of the equity mutual funds under this study are already well diversified for they have consistency in performance rate when measured with Sharpe Index and Treynor Ratio. This study also reveals that the equity mutual funds of SAM Indonesian Eq-uity comes as the best performer during the research period with the highest score of Sharpe Index, Adjusted Sharpe Index, Treynor Ratio, Jensen Index, Adjusted Jensen Index, and Sortino Ratio. This study also found that higher risk do not associated automatically with risk based return (i.e. reward based volatility and reward based variability), since some mutuals fund could produce superior return with better diversification strategy.

Suggestions
Since the SAM Indonesian Equity comes as the best performer during the research period with the highest score of Sharpe Index, Adjusted Sharpe Index, Treynor Ratio, Jensen Index, Adjusted Jensen Index, and Sortino Ratio, so investors who are interested to invest in equity mutual funds as the investment instrument with growth orientation may choose SAM Indonesian Equity. Whereas, investors who expect investment instrument with safe growth, trusted, and based on sharia may invest in sharia equity mutual funds since it has a lower risk rate. Meanwhile, mutual fund's investment manager especially for mutual fund with worst performance, should reformulate their investment strategy in order to obtain better performance.
For future research agenda, researchers who are interested to conduct research in the same field may use instruments of measuring portfolio performance that have not been utilized in this study such as Information Ratio. It is also suggested to study per investment manager and use other indicators such as the existing managed funds.