The Influence Of Asset Allocation Policy On The Performance Of Contractual Type Open-End Investment Fund

(Equity Fund, Fixed Income Fund, and Balanced Fund).

ABSTRACT

A number of studies indicate that performance of mutual fund is mostly influenced by asset allocation policy. It is also indicated that there is a phenomenon where relationship between asset allocation policy and asset allocation implementation by investment manager is inconsistent. Referring to these observable facts, this study is carried out with the following objectives: (i) to analyze performance of three different types of mutual funds (i.e., equity, fixed income, and balanced funds); (ii) to analyze the influence of asset allocation policy on performance of the above-mentioned types of mutual funds; and (iii) to comprehend the level of consistence of fund managers in executing asset allocation policies.

Descriptive method was performed in this study. Secondary data relating to mutual fund performance analyses were used. These sets of data were collected from a number of publications published by Bank of Indonesia, the Surabaya Stock Exchange, Jakarta Stock Exchange, and Bapepam. The Sharpe Ratio (Elton et al., 2003:295) was used to determine performance of mutual funds under investigation. Multiple linear regression analysis whose statistical equation models were developed based on Asset Class Factor Model (Sharpe F. William, 1992) was used to analyze the impact of asset allocation policy and security selection on mutual fund performance.

The Results of this study show that performances of all types of mutual funds during the period between 2001 and 2003 were higher than performance of their benchmarks (i.e., market return levels). It was also found that asset allocation policy significantly influenced performance of equity fund, fixed income fund, and of balanced fund. This indicated that performance of mutual fund was determined by this activity of investment managers. Finally, results of the study found that there was no significant difference between asset allocation policy and asset allocation realization which has been executed by investment managers of equity fund and fixed income fund. This means that asset allocation policy was consistently accomplished by investment managers of these two types of mutual fund. A different finding determined for investment managers of balanced fund. There was found a significant difference between asset allocation policy and asset allocation indicating that investment managers of balanced fund were inconsistent in implementing their asset allocation policies.

Keywords: equity fund; fixed income fund; balanced fund; asset allocation policy; investment policy; mutual fund performance.