Socially Responsible Investment (SRI)

in Indonesia: A Study on Jakarta Islamic

Index and Sharia Mutual Funds Performance
Bester Rajib
1358749

Arshad Hussain
September 2015
Word Count 12,185

A dissertation report submitted to Birmingham Business School in partial fulfilment of the requirements for the degree
Master of Business Administration in International Business.

Table of Contents
ACKNOWLEGDMENT ..................................................................................................................................... 2
ABSTRACT...................................................................................................................................................... 3
CHAPTER I. INTRODUCTION .......................................................................................................................... 4
I.1. BACKGROUND ..................................................................................................................................... 4
I.2. SCOPE AND LIMITATION ..................................................................................................................... 5
I.3. OBJECTIVE AND RESEARCH QUESTION ............................................................................................... 6
I.4. METHODOLOGY .................................................................................................................................. 6
I.5. OUTLINE .............................................................................................................................................. 7
CHAPTER II. LITERATURE REVIEW ................................................................................................................. 8
II.1. HISTORY OF SRI .................................................................................................................................. 8
II.2. DEFINING SRI ...................................................................................................................................... 9
II.3. DEFINING ISLAMIC/SHARIA-COMPLIANT INVESTMENT IN INDONESIA ........................................... 13
II.4. SRI DEVELOPMENT IN INDONESIA ................................................................................................... 15
II.4. PREVIOUS RESEARCH ....................................................................................................................... 21
CHAPTER III. METHODOLOGY ..................................................................................................................... 25
III.1. RESEARCH METHODOLOGY ............................................................................................................ 25
III.2. DATA SAMPLE ................................................................................................................................. 28
III.3. HYPOTHESES DEVELOPMENT .......................................................................................................... 31
III.4. RESEARCH ANALYSIS METHODS...................................................................................................... 31
CHAPTER IV. FINDINGS AND DISCUSSION................................................................................................... 36
IV.1. DESCRIPTIVE STATISTICS ................................................................................................................. 36
IV.2. NON RISK-ADJUSTED RETURN PERFORMANCE ANALYSIS .............................................................. 40
IV.3. RISK-ADJUSTED RETURN PERFORMANCE ANALYSIS....................................................................... 43
CHAPTER V. CONCLUSION........................................................................................................................... 56
RECOMMENDATION FOR FUTURE RESEARCH ........................................................................................ 58
REFERENCES ................................................................................................................................................ 59
APPENDICES ................................................................................................................................................ 66
ETHICS FORM .............................................................................................................................................. 68

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ACKNOWLEGDMENT
First and foremost, I would like to express my deepest gratitude and praise to Allah
subhanahu wa taala for blessing me with health, perseverance, and knowledge which
allow me to successfully complete this dissertation.
I am also sincerely grateful to my supervisor, Mr. Arshad Hussain, for his support and
guidance throughout this dissertation process.
I would also like to express my dearest appreciation to my wife, Vici Marsono, for her
love, patience, and support, not only in this MBA program but also in all aspects of my
life.
I would like to express my gratitude also to my parents (Abasman alm. and Yusnani), as
well as to my brothers and sisters, for their love and kindness throughout my life. For that,
I am forever in debt.
I want to thank you Karawang family as well for their support and prayer to me being able
to finish the MBA program successfully.
I am also thankful to the big family of University of Birmingham MBA program: lecturers,
staffs, and fellow students, who together walk hand in hand to achieve a wonderful study
experience.
Last but not least, I want to thank you Ministry of Finance of the Republic of Indonesia
and the World Bank for their sponsorship which makes all of this possible.

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ABSTRACT
The objective of this study is to give an overview on SRI Indonesia, with the focus on
describing and measuring its performance through the representation of Jakarta Islamic
Index (JII) and selected sharia mutual funds over the period of 1 January 2013 30 June
2015. The performance of JII and the selected sharia mutual funds were measured and
compared with market index and their conventional benchmarks from both non-riskadjusted and risk-adjusted perspectives. For risk-adjusted measurement, this study used
Sharpe Ratio, Treynor Index, and Jensen Alpha methods. The results of both non-riskadjusted and risk-adjusted performances were tested to determine their statistical
significance.
This study found that there is no statistically significant performance difference, either in
non-risk-adjusted or risk-adjusted, between JII and market index, JII and its conventional
benchmark, the selected sharia mutual funds and market, as well as between the selected
sharia mutual funds and their conventional benchmark. These findings indicate that the
recent growth of SRI in Indonesia might not be resulted from SRI having superior
performance. Nevertheless, those findings suggest that SRI is a solid investment
alternative, and therefore, the development of SRI in Indonesia will likely to continue
forward.

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CHAPTER I. INTRODUCTION
I.1. BACKGROUND
In the recent years, investors, both institutional and retail, are becoming increasingly
concerned about the Environmental, Social, and Governance (ESG) aspects of their
investment which leads to the positive development of Socially Responsible Investment
(SRI). According to Fung et. al. (2010) and Global Sustainable Investment Association
(GSIA) (2014), SRI has become the fastest growing segment in the global financial
market. The US, Canada, and Europe were the three fastest growing SRI markets with
76%, 60%, and 55% growth rate, respectively, over the period of 2012 2014. In total,
at the start of 2014, global SRI assets had reached USD 21.4 trillion, an increase of 61%
from the figure at the outset of 2012 (GSIA, 2014). SRI assets proportion relative to the
total global managed assets also increased from 21.5% in 2012 to 30.2% in 2014 (ibid).
Looking at Asia market in particular, Asia Sustainable Investment Review 2014 by
Association for Sustainable and Responsible Investment in Asia (ASrIA) showed that at
the end of 2013, SRI assets in Asia (ex-Japan) region, which consists of 11 key markets
(China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea,
Taiwan, Thailand, and Vietnam), stood at USD 44.9 billion. Even though compared with
global SRI assets the size of Asia (ex-Japan) SRI assets is very small, it underwent an
increasingly positive growth with a year-on-year increase of 22% from 2011 (ASrIA,
2014).
In term of market concentration, the Asia (ex-Japan) region SRI markets are concentrated
in 4 particular markets: Singapore, Hong Kong, Seoul, and Malaysia which represented
90% of the total SRI market (ASrIA, 2014). In term of strategy, the two most common SRI
strategies in Asia are the ESG integration which implemented by 52% or USD 23.4 billion
of Asia SRI assets, and the exclusion/negative screening which applied by 37% of Asia
SRI assets with the total value of USD 16.6 billion (ibid). With regard to the
exclusion/negative screening strategy, within Asia (ex-Japan) markets, Malaysia and
Indonesia are the two major contributors (ibid). This iss understandable as 99% of the
SRI assets in the two markets were in the form of Islamic or sharia-compliant investment
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which applied negative/exclusionary screening method in its investment policy (ibid).

Meanwhile, in term of availability, the number of SRI funds available for investors had
grown positively to a total of 500 funds at the end of 2013, representing a 24% increase
from 2011 figure (ibid).
With regard to Indonesia, based on ASrIA Review 2014, at the end of 2013 Indonesian
SRIs assets were recorded at USD 1.142 billion. Even though its SRI assets only
amounted to 2.54% of total Asia (ex-Japan) market, Indonesia has become the fastest
growing market since 2011 with 39% Compound Annual Growth Rate (CAGR),
outperformed even Singapore and Hong Kong which represented 44% of Asia (ex-Japan)
SRI market (ASrIA, 2014). Out of the total of USD 1.142 billion of Indonesian SRIs assets,
99.14% of them are identified as Islamic or sharia-compliant investment (ibid).
GSI and ASrIA findings indicate that the development of SRI is encouragingly positive,
both in global market and Indonesian market. However, in term performance, there are
mixed view on SRI. According to Sjostrom (2011) financial theory would suggest that SRI
to be more likely to underperform the market due to the screening process which restricts
SRI investment universe. Furthermore, the screening and monitoring of ESG
performance in SRI will likely to cause SRI to underperform its conventional benchmark
(Sjostrom, 2011). Nevertheless, some critics argued that the selection of companies with
stronger social performance and higher quality of corporate management in SRIs
portfolio will result in SRI having superior performance compared with its conventional
counterparts (ibid). Therefore, it is important to measure the performance of SRI to see
whether the recent growth is resulted from a superior performance.

I.2. SCOPE AND LIMITATION

SRI is a global phenomenon and has become the fastest growing segment in global
financial market (Fung et. al., 2010; and GSIA, 2014). However, for the purpose of this
study, the scope of the research was limited to SRI in Indonesian market. For analysis
purposes, the performance of SRI in Indonesia was measured by the daily returns of
Jakarta Islamic Index (JII) and selected sharia mutual funds. Due to the restricted access

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to publicly available data, especially with regards to JIIs daily returns data, the
observation period of the study was limited to 2.5 years period from 1 January 2013 30
June 2015.

I.3. OBJECTIVE AND RESEARCH QUESTION

In general, the objectives of this study is to describe and measure the performance of SRI
in Indonesia, by comparing the performance of JII and selected sharia mutual funds,
against market and their conventional benchmarks. This study also aims to provide a brief
overview of SRI in general and SRI in Indonesia in particular. In line with the objective,
the main research question of this study is that whether there is a performance difference
between SRI and market, as well as between SRI and its conventional counterparts in
Indonesia. Based on this, the research question is narrowed into 4 (four) smaller
questions as follows:
1. Is there a performance difference between JII and market?
2. Is there a performance difference between JII and its conventional counterpart?
3. Is there a performance difference between sharia mutual funds and market?
4. Is there a performance difference between sharia mutual funds and their conventional
counterpart?

I.4. METHODOLOGY
This study was designed as a deductive research using quantitative method. The
measurement of SRI performance was conducted from non-risk-adjusted and riskadjusted daily returns perspectives. To explain the risk-adjusted performance of SRI, this
study used Sharpe Ratio, Treynor Index, and Jensen Alpha as the measurement tools.
Statistical test was performed on both non risk-adjusted and risk-adjusted performance
to measure the significance level of the findings. In general, the research was a deskbased work using published reports, academic literatures, and statistical data available
from relevant sources.

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I.5. OUTLINE
The study consists of 5 Chapters. Chapter 1 provides an introduction which includes
background, scope and limitation, objective and research question, methodology, as well
as outline of the study. Chapter 2 reviews the relevant literatures which explain the history
of SRI, definition of SRI, definition of Islamic/sharia-compliant investment in Indonesia,
development of SRI in Indonesia, and also findings from previous research on SRI
performance. Chapter 3 explains the research methodology, data sample, hypotheses,
and analysis methods. Chapter 4 discusses the findings with regards to the performance
of SRI based on both non risk-adjusted and risk-adjusted returns. The final Chapter,
Chapter 5, summarises and concludes the findings of the study.

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CHAPTER II. LITERATURE REVIEW

II.1. HISTORY OF SRI
Even though, arguably, the application of Socially Responsible Investment (SRI)
strategies can be rooted to some of the oldest religions, such as Judaism, Christianity,
and Islam (Lane, 2005; Fung, et. al., 2010), the most prominent early concept of SRI can
be attributed to the investment practices by religious society such as Quackers and
Methodists in the 17th 18th century (Sparkes, 2002; Lane, 2005; Blanchett, 2010; and
Cadle, 2015). In 17th century, the Quakers, in accordance to their religious belief,
introduced the concept of shunning unethical companies or industries, in particular
companies dealing with slavery, from their investment money (Lane, 2005; and Fung et.
al., 2010). Meanwhile, the Methodist through John Wesleys, one of its founding
members, sermon in 1760 titled The Use of Money, underlined the importance of the
right use of money whereby although people should employ money to its greatest
advantage, they needed to ensure that their use of money did not inflict harm to the body
and mind of themselves or their neighbours (Sparkes, 2002). Essentially, Wesleys
sermon introduced the avoidance scheme toward what would be recognized as sinful
trades such as gambling and alcohol since both of them are considered harmful to the
health of the people and encourages moral corruption to the society as a whole (ibid).
20th century SRI movement started in the 1920s period when Methodist Church of the
United Kingdom began to apply screening methods to exclude sin stocks such as
alcohol, tobacco, and gambling from its investment portfolio (White, 2005; and Fung et.
al., 2010). There was also similar movement in the United States (US) at that period with
the 28th Amendment to the US Constitution which prohibited the production or sale of
alcohol throughout the US for 15 years (Sparkes, 2002). Gambling was also banned in
most of the US at that period (ibid). In 1928, the temperance groups in the US introduced
Pioneer Fund, which, even though fairly small in size and made only a little impression,
was the first SRI mutual fund in the world (ibid).
However, it was not until 1960s that the development of modern SRI truly started. At that
period, worker unions in continental Europe began to voice their concerns toward the
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decisions about their pensions (White, 2005; and Fung, et. al., 2010). Furthermore,
religious groups started to adopt SRI approach in their investment (ibid). Meanwhile in
the US, there were rise in shareholder activism and civil rights campaign. These sparked
when the campaigning group FIGHT bought Eastman Kodak shares in order to attend
Annual General Meeting (AGM) to voice their concerns regarding the living conditions
and job opportunities for black employees in Eastman Kodak Company (Sparkes, 2002).
In 1970s, college endowment funds and other US investors began to exclude companies
that profiting from the Vietnam War from their portfolios (Sparkes, 2002; and Fung et. al.,
2010). One example of the companies was Dow Chemical. It produced Agent Orange, a
powerful defoliant that was alleged to cause diseases to the children of US Vietnam War
veterans (Sparkes, 2002). The concerns regarding the Vietnam War eventually led to the
establishment of Pax World, the first modern SRI mutual fund on the basis of the
exclusion of sin stocks and avoidance of profiteering from war (ibid). Opposition against
the Vietnam War also inspired the divestment from companies that associated with South
Africa during the anti-apartheid movement in 1980s (Sparkes, 2002; Hussein and Omran,
2005; and Fung et. al., 2010). Ralph Naders consumer right activism completed the driver
for the development of modern SRI with its successful campaign (Campaign GM) that
convinced churches, university, and pension funds to be actively involved in corporate
governance, pollution, and automobile safety issues (Lamb et. al., 1995; Sparkes, 2002;
and Fung et. al., 2010). All of these factors, together with the increasing awareness
toward environmental and sustainability issues in the recent years, helped to shape what
todays people recognized as SRI.

II.2. DEFINING SRI

As a concept SRI has been around for at least several hundred years. However, as a
terminology, SRI is a more recent phenomenon compares with the term ethical
investment which, arguably, used to describe similar practices. Sparkes (2002), Beal et.
al. (2005), and Valor and de la Cuesta (2007) argued that the term SRI is equivalent to
the term ethical investment and thus can be used interchangeably. Even though some
authors preferred the use of ethical investment (Schaefer, 2004), there is a definite trend

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for SRI to replace ethical investment as the standard term, starting in the US market
(Sparkes, 2002). Sparkes (2002) argued that many people feel uncomfortable to use the
word ethical to describe investment, particularly when it relates to the profit maximizing
activities in it. Moreover, Fung et. al. (2010) suggested that, in term of criteria, SRI is more
objective and standardised compares with ethical investment, and therefore tends to be
more popular and even being used to embrace the term ethical investment in recent
period.
One of the earliest attempts to provide a precise definition of SRI was done by Russell
Sparkes in 1994. His first attempt on defining SRI saw him used the term ethical
investment which he defined as an investment philosophy that combines ethical or
environmental goals with financial ones (Sparkes, 2002). However, Sparkes (2002)
acknowledged in his book, Socially Responsible Investment, that his early attempt to
define SRI lacked the emphasis on the use of both ethical and social criteria in the
selection and management of investment portfolios, as well as the importance of financial
return. Those aspects are expressed in Cowton (1994) definition of ethical investment.
Therefore, in 2002, Sparkes revised his definition and more importantly suggested the
use of the term SRI rather than ethical investment. SRI, according to Sparkes (2002),
has key distinguishing features which lie in the construction of equity portfolios in which
investment objectives combine social, environmental and financial goals. He further
added that in practice this means attempting to obtain a return on invested capital
approaching that of the overall stock market (Sparkes, 2002).
However, it was not until 2012 that SRI had an industry standard definition. Global
Sustainable Investment Alliance (GSIA), which members including: The Association for
Sustainable and Responsible Investment in Asia (ASrIA), The European Sustainable
Investment Forum (Eurosif), Responsible Investment Association Australasia (RIAA), UK
Sustainable Investment and Finance Association (UKSIF), The Forum for Sustainable
and Responsible Investment (US SIF), and The Dutch Association of Investors for
Sustainable Development (VBDO), released the first Global Sustainable Investment
Review in 2012 which mentioned the definition of SRI recognized as the industry
standard.

GSIA (2012) defined SRI as an investment approach that consider

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environmental, social, and governance (ESG) factors in portfolio selection and

management (GSIA, 2012). There are 7 (seven) activities and strategies of SRI
according to GSIA:
1. Negative/exclusionary screening
Negative/exclusionary screening is related to the exclusion of particular sectors,
companies, or practices based on specific ESG criteria from investment portfolios or
funds (GSIA, 2014). Research by Hughey and Villareal (2009), and Viviers and Eccles
(2011), as well as GSIA findings in Global Sustainable Investment Review 2014
showed that this is the most apparent and widely used SRI strategy. The avoided
sectors in this strategy include the usual sin industries (alcohol, tobacco, and
gambling), weapon industry, and also industries which are considered to be nonenvironmental friendly such as fossil fuel industry and nuclear industry (Hughey and
Villareal, 2009; and Social Funds, 2015).
2. Positive/best-in-class screening
Positive/best-in-class screening is related to the investment in particular sectors,
companies, or projects which have positive ESG performance compared with their
peers (GSIA, 2014). This is a proactive strategy that requires investors to not only
exclude sectors or companies with unacceptable ESG performance, but also actively
support the ones with positive ESG performance (Social Funds, 2015). Moreover, this
strategy requires a complete analysis on various criteria such as products, products
safety, pollution level, policies regarding employees, and workplace conditions (PRI,
2013; and Social Funds, 2015).
3. Norms-based screening
Norms-based screening strategy screens out investment from companies which have
below minimum standards business practice according to international norms set by
internationally recognized institutions such as United Nation (UN) Draft Human
Rights Norms for Business and Global Compact Principles, International Labour
Organisation (ILO) Tripartite Declaration of Principles concerning Multinational
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Enterprises and Social Policy, and Organisation for Economic Co-operation and
Development (OECD) Guidelines for Multinational Enterprises (PRI, 2013; and
GSIA, 2014). To some extent, due to the similarity in nature, this strategy can be seen
as a sub-set of negative/exclusionary screening (PRI, 2013)
4. Integration of ESG factors
Integration of ESG factors refers to the systemic and explicit inclusion of ESG factors
into traditional financial analysis by investment managers (GSIA, 2014). The ESG
factors have to be material issues which directly affect a companys business model
and or share price, such as: environmental impact, resource access, and safety
standards for mining companies; labour and social issues for retail/manufacturing
companies; product liability and bribery for health care companies; and corporate
governance for companies in general (Bos, 2014).
5. Sustainability-themed investing
Sustainability-themed investing refers to the investment in assets which are
particularly related to sustainability issues (GSIA, 2014). Sustainability-themed
investing includes investment in clean energy, green technology and building,
sustainable agriculture and forestry, retail micro finance and Small Medium
Enterprises (SME) financing, community development, affordable housing, education,
as well as global health (PRI, 2012; and GSIA, 2014)
6. Impact/community investing
Impact/community investing is targeted investments which are intended to solve
social or environmental problems, whether in the form of community investing where
capital is directed to particular individuals or communities that are traditionally
underserved, or direct financing to businesses which have clear social or
environmental purposes (GSIA, 2014). According to PRI (2012), there are 2 distinct
types of impact/community investing investors: financial first and impact first. While
impact first investors focus on optimization of social or environmental impact before
financial return target, financial first investors seek optimization of financial return
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before setting minimum target for social and environmental impact (Rockefeller
Philanthropic Advisors, 2009, as taken from PRI, 2012)
7. Corporate engagement and shareholder action
Corporate engagement and shareholder action refers to the use of shareholder power
to influence a company behaviour (GSIA, 2014). It can be in the form of direct
engagement, filing or co-filling shareholder proposals, and proxy voting (PRI 2013;
and GSIA, 2014).
GSIA definition of SRI, along with the detailed explanation on what are considered as SRI
strategies or activities, is not only fully comprehensive and all encompassing, but also in
line with the recent development and trend in society.

II.3. DEFINING ISLAMIC/SHARIA-COMPLIANT INVESTMENT IN INDONESIA

Law No. 8 Year 1995 regarding Capital Market (Capital Market Law) defines Capital
Market in Indonesia as an activity concerned with public offering and trading of securities,
the Public Company relating to the issuance of securities, as well as the institutions and
professions related to securities (OJK, 2015). Securities, in accordance to this law,
include the acknowledgment of indebtedness, commercial paper, stock, bond, loan
evidencing, mutual fund, futures contract, and every derivative of securities (ibid).
With regards to Indonesian market, Islamic capital market is not considered as a separate
entity to the existing capital market system. Thus, according to Indonesia Financial
Services Authority (OJK) (was known as Bapepam-LK before 2013), Islamic capital
market is defined as the activity in the capital market as described by the Capital Market
Law that does not go against Islamic principles (OJK, 2015). The difference between
Islamic capital market and the conventional one is the application of Islamic or sharia
principles to the products and transaction mechanism on the former (ibid). In term of
instruments, sharia investment includes all the securities defined in Capital Market Law,
as long as the contracts, methods, and business activities are issued in accordance to
Islamic or sharia principles. This means Indonesian market acknowledged various types

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of sharia investments (IDX, 2015). Unlike conventional securities, sharia securities have
to have a fatwa foundation along with the legal foundation such as Laws or regulations
by the regulators. The fatwa regarding sharia principles for capital market purposes is
issued by the National Sharia Board of Indonesian Ulema Council (DSN-MUI).
In general, sharia principles cover the issues regarding to business activities or industry
sectors, products or services, contracts, as well as corporate governance aspects.
According to DSN-MUI (2001) the type of businesses or business activities that are not
in accordance with sharia principles are as follows:
1. Gambling and other illegal activities;
2. Conventional financial institutions, including conventional Bank and Insurance;
3. Producing, distributing, and or selling of religiously prohibited food and drink (such as
alcohol); and
4. Producing, distributing, and or selling/providing products and services that are
considered to cause moral impairment.
All in all, the history of SRI, the industry standard definition of SRI, and the nature of
Islamic/sharia-compliant investment in Indonesia suggest that Indonesian Islamic/sharia
compliant investment can be considered as SRI. Although Forte and Miglietta (2008)
argued that Islamic/sharia investments in general have different characteristics when
compared with SRI, both in term of asset allocation and economic profile, GSIA definition
of SRI allows Islamic/sharia-compliant investment to be recognized as an SRI. The
screening used by Islamic/sharia-compliant investments complies with the definition of
negative/exclusionary screening by GSIA. Moreover, the inclusion of Islamic/shariacompliant assets in GSIA and ASrIA Reviews further strengthen the recognition of
Islamic/sharia-compliant investment as SRI.

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II.4. SRI DEVELOPMENT IN INDONESIA

As ASrIA review 2014 indicated, 99.14% of the total USD 1.142 billion of Indonesias SRI
assets 2013 were in the form of Islamic or sharia-compliant funds. Therefore, based on
that figure, it is only appropriate to study the development Islamic capital market and
Islamic/sharia-compliant investment in order to explain the development of SRI in
Indonesia.
Indonesia is the country with the largest Muslims population in the world. According to
national population census 2010 by Indonesian Central Body of Statistic (BPS), there
were just over 207 million Muslims in Indonesia (BPS, 2015). This amounted to 87.2% of
the total Indonesian population at that period (ibid). Looking at the demographic situation,
it is understandable for Islamic or sharia-compliant investments to be the dominant
instruments in Indonesian SRIs market. However, it was not until the second half of 1990s
that Islamic/sharia-compliant investment, particularly in Indonesian capital market, started
to develop in Indonesia.
Historically, Indonesian capital market itself has been existed since 1912, which was long
before the independence of Indonesia in 1945 (IDX, 2005). However, due to several
factors such as World War I and World War II, as well as the political situations before
and after independence, Indonesia capital market underwent a long period of inactivity
(ibid). It was not until 1977 before Indonesian government reactivated its capital market
(ibid). In 1995, Indonesian government issued the Law No. 8 Year 1995 regarding Capital
Market (Capital Market Law) (ibid). After that, Indonesian capital market continued to grow
rapidly (ibid).
The beginning of Indonesian Islamic capital market development, which also the
beginning of SRI development in Indonesia, was marked by the issuance of the first sharia
mutual fund by a State Owned Investment Management company, PT Danareksa, in
1997 (OJK, 2015). Mutual fund, according to Indonesian Capital Market Law is an
instrument used to collect funds from the investors to be invested in securities portfolio
by investment managers. Sharia mutual fund, in another hand, is a mutual fund that are
operated in accordance to Islamic or sharia principles, in the form of a contract between

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the investors and the investment managers, as well as between the investment managers
and investment users (DSN-MUI, 2001).
The development of sharia mutual fund market in Indonesia is encouraging. As of May
2015, there were a total of 80 sharia mutual funds consisted of several types including
equity funds (23), balanced funds (18), protected funds (18), fixed income funds (11),
money market funds (8), index fund (1), and exchange traded fund (1) (OJK, 2015). The
80 sharia mutual funds equalled to 8.27% of the total numbers of mutual funds in
Indonesia (OJK, 2015). Compared with the conventional mutual funds, the number of
sharia mutual funds is still very small. However, the growth speed of sharia mutual funds
outperformed that of the conventional ones. In the last 5 years period (2010 2014),
sharia mutual funds recorded 9.04% Compound Annual Growth Rate (CAGR) compared
with 7.77% CAGR of conventional mutual funds.
Chart 1. Number of Sharia Mutual Funds as of May 2015

11

18
Money Market
Equity
Fixed Income
23

Balanced
Protected
Index

Exchange Traded
18
11

(Source: OJK, 2015)

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Chart 2. NAV of Sharia Mutual Funds as of May 2015 (in Billion Rupiah)

172.98
568.56

885.2

1433.94

Money Market
Equity
Fixed Income
Balanced

1868.49

Protected
6,272.53

594.66

Index
Exchange Traded

(Source: OJK, 2015)

In term of value, as of May 2015, the total net asset value (NAV) of sharia mutual funds
had reached Rp11.8 billion, which equalled to 4.42% of total NAV of Indonesian mutual
funds (OJK, 2015). Even though relatively small in value, sharia mutual funds NAV
displayed a positive growth over time. From 2010 to 2014, sharia mutual funds NAV had
grown by a massive 115.02%. This positive trend of sharia mutual funds growth in the
last 5 years, both in number and NAV, suggests that the development of Indonesias
sharia mutual fund will likely to continue further to the next period.

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Chart 3. Development of Indonesian Sharia Mutual Funds 2003 May 2015 (in billion
rupiah)

(Source: OJK, 2015)

Table 1. Comparison between Sharia and Conventional Mutual Funds in Indonesia
Number
Year

Sharia

Conventional

MF

MF

NAV (in billion rupiah)

Total

Sharia MF

Conventional
MF

Total

2003

182

186

2.15

66.94

69,380.06

69,477.00

0.10

2004

11

235

246

4.47

592.75

103,444.25

104,037.00

0.57

2005

17

311

328

5.18

559.10

28,846.63

29,405.73

1.90

2006

23

380

403

5.71

723.40

50,896.68

51,620.08

1.40

2007

26

447

473

5.50

2,203.09

89,987.54

92,190.63

2.39

2008

36

531

567

6.35

1,814.80

72,251.01

74,065.81

2.45

2009

46

564

610

7.54

4,629,22

108,354.13

112,983.35

4.10

2010

48

564

612

7.84

5,225.78

143,861.59

149,087.37

3.51

2011

50

596

646

7.74

5,564.79

162,672.10

168,236.89

3.31

2012

58

696

754

7.69

8,050.07

204,541.97

212,592.04

3.79

2013

65

758

823

7.90

9,432.19

183,112.33

192,544.52

4.90

2014

74

820

894

8.31

11,236.50

230,225.59

241,462.09

4.65

Jan

73

821

894

8.17

11,260.39

231,857.79

243,118.18

4.63

Feb

74

838

912

8.11

11,451.32

237,671.29

249,122.61

4.60

Mar

75

854

929

8.07

12,035.97

242,743.24

254,779.21

4.72

Apr

78

874

952

8.72

11,606.25

244,374.35

255,980.60

4.84

May

80

887

967

8.27

11,796.36

254,942.14

266,738.50

4.82

2015

18 | P a g e

3 years after the issuance of the first sharia mutual fund, Indonesia Stock Exchange (IDX)
in co-operation with PT Danareksa launched the Jakarta Islamic Index (JII) (OJK, 2015).
JII is aimed to provide guidance for investors who want to invest in sharia compliant stocks
(OJK, 2015). It is also used as a benchmark to measure the performance of sharia stocks
(Cahyaningsih, 2008). JII consists of 30 sharia stocks which are listed in IDX (IDX, 2015).
The criteria for a stock to be considered sharia are based on the sharia principles defined
in the fatwa by DSN-MUI. Aside from sharia principles, JII has additional filtering activity
as follows:
1. The sharia stocks have to be listed for more than 3 months, except for the ones with
top 10 market capitalisation;
2. Selecting companies (stocks) which have debt to equity ratio of a maximum 90%
based on their annual or mid-term financial report;
3. Selecting 60 stocks based on the average size of their market capitalisation in the
last 1 year period; and
4. Selecting the final 30 stocks based on the liquidity for the last 1 year period.
In the last 2.5 years period (1 January 2013 30 June 2015), JII had grown by 9.12%
(Yahoo Finance, 2015).
To further support the development of Islamic/sharia-compliant investment market, in
2007, OJK (or Bapepam-LK at that time) launched the first Sharia Securities List (DES)
(OJK, 2015). It is a bi-annual list, published every May and November, which records the
current sharia compliant securities. At launch, there were 174 sharia stocks listed in DES.
As of Mei 2015, there were a total of 331 shares listed in DES, a 90% increase in 6 years
time (OJK, 2015).

19 | P a g e

Chart 4. Development of Indonesian Sharia Stocks

(Source: OJK, 2015)

In term of products, Indonesian Islamic capital market continued to develop with the
issuance of the first Islamic (Corporate) Bonds, or Sukuk in 2012. The first Sukuk was
issued by then-State-Owned-Telecommunication-Company, PT Indosat, with the total
value of Rp175 billion (OJK, 2015). According to monthly statistics by OJK (2015), at the
end of May 2015, there were a total of 73 corporate Sukuks that had been issued with
the nominal value of Rp13,579 billion. From end of 2010 to May 2015, the corporate
Sukuk market in Indonesia had grown by 55.3% in number of issuance and 73.8% in
nominal value (OJK, 2015). However, in total, Sukuk only amounted to less than 0.1% of
the total corporate bond market in Indonesia. Therefore, for the purpose of this study,
sharia bond or Sukuk was not used to represent Indonesian SRI in the analysis.

20 | P a g e

Chart 5. Development of Indonesian Corporate Sukuk

Outstanding
Number of Outstanding

Nominal Value
Number of Issuance

(Source: OJK, 2015)

All in all, the current situation shows that Indonesias sharia investment market size only
amounted to less than 10%. However, past performance and growth rate indicate a
positive trend and reveal that this particular type of market is experiencing a rapid and
significant grow which is likely to continue further into the future.

II.4. PREVIOUS RESEARCH

In term of SRI/sharia related Index, a research by Hakim and Rashidian (2004) regarding
the correlation between Dow Jones Islamic Market Index (DJIMI) and Dow Jones World
Index (DJWI), using Capital Asset Pricing Model (CAPM) method, revealed that there is
no significant performance difference between them. Hakim and Rasidian (2004) further
added that according to their findings, Islamic screening has no significant effect toward
the risk and return characteristic of an investment portfolio. Meanwhile, in a similar topic,
Hassan and Girard (2011) examined the performance of Dow Jones Islamic Index and its
21 | P a g e

seven index vis--vis their non-Islamic counterparts using several methods including
Sharpe, Treynor, Fatmas selectivity, net selectivity, and diversification as well as
Carharts four factor pricing model. They also used co-integration to study how Islamic
index related to their non-Islamic index counterparts. Hassan and Girard (2011)
conducted a testing on 120 samples from the period that started in January 1996 and
ended in December 2005. They found that there is no performance difference between
Islamic and non-Islamic index. In general, they recognized an identical risk and return
characteristic of Islamic and conventional index. Rosly (2005) conducted a study on the
daily price movement of sharia index and composite index on Kuala Lumpur Stock
Exchange within the period of June Juli 2000. He found that sharia index and
conventional index is positively correlated. The price movement of composite index is
similar to sharia index. However, composite index appears to be more volatile compared
with sharia index. In a more recent research, Khamlichi, et. al (2014) who studied global
Islamic indices performance suggested that Islamic indices can be as attractive as
conventional ones since both indices tended to move together and had similar long run
diversification benefits. However, the authors also noted that both Islamic and
conventional indices do deviate from market efficiency. In addition, Schroder (2004),
Kreander, et. al. (2004), and Beer, et. al. (2014), all found that SRI stock indices do not
exhibit a different level of risk-adjusted return than conventional benchmarks. However,
Beer, et. al. (2014) further added that many SRI indices have a higher risk figure relative
to the benchmarks. All in all, these research suggested that there may not be a significant
performance difference between SRI/sharia index and conventional index.
In term of SRI mutual funds performance, a study by Hamilton, et. al. (1993) on socially
conscious funds and conventional funds from 1980 to 1990 showed that, during the
period, the return of socially conscious funds outperformed that of the conventional funds.
Another research by Statman (2000) on 31 socially conscious funds by Morningstar from
May 1990 to September 1998 also suggested that the social funds outperforms the
conventional funds on a risk-adjusted basis. Meanwhile, Blanchett (2010) found that SRI
funds could be outperforming or underperforming their conventional peers depended on
the basis of measurement, whether it is a risk-adjusted basis or a pure return basis.

22 | P a g e

Nevertheless, all of these researchers suggested that the differences in performance

between SRI funds and conventional funds are actually not statistically significant.
According to Diltz (1995a, 1995b), based on his research on 14 socially screened stock
portfolios and 14 unscreened portfolios during 1989 1991 period, there is no statistically
significant difference in returns between those investments strategies (SRI vs
conventional). Viviers and Eccles (2001)s study on SRI-related researches conducted in
1975 2009 discovered that the majority of the researches during that period indicate a
neutral performance of SRI funds compared with conventional (non-SRI) funds, and also
with stock market indices in general. The research by Humprey and Lee (2011) on
Australian market also found that there is no significant difference in performance
between SRI funds and conventional funds. The result of their research suggested that
there is no financial penalty or benefit for investors that invest in SRI funds relative to
conventional funds. Furthermore, the most recent research by Revelli and Viviani (2015)
who meta-analysed 85 studies and 190 experiments on SRI also pointed out that there is
no real cost or benefit to invest in SRI.
Minor (2007), on the other hand, argued that even though the difference in returns
between SRI and conventional funds may not be significant, still there must be a net
additional financial cost to SRI compared with conventional investments. Fitzpatrick, et.
al (2012) research on selected SRI, specialty mutual fund, and general mutual fund also
suggested that SRI funds exhibit a higher risk per return compared with general mutual
funds and do not generate a higher return.
Minor (2007), however, also noted that investment managers skills might contribute to the
performance of SRI funds which negate the cost of investing in them. A previous research
by Geczy, et. al. (2005) also suggested that fund managers skills affect the cost of SRI.
However, they added that investors views concerning assets pricing models affect the
cost of SRI as well. According to them, the cost of SRI will be lower for a passive investor
and higher for an investor who disallowed skills but associated higher investment returns
with exposure to size, value, and momentum factors.

23 | P a g e

All those research above conducted on general SRI funds which include broad types of
SRI strategies. With regards to the particular type of SRI in this study, the sharia mutual
funds, Achsien (2003) found that they outperform their benchmarks which include a
conventional fund, RHB Islamic Index, and KLSE Composite Index. Achsiens findings
were based on the performance of sharia mutual funds in Malaysia from January 1997 to
February 1999, analysed using Sharpe, Treynor, and Jensen methods. In another
research, Rahmayanti (2006), using Sharpe, Treynor, and Jansen methods as well,
examined the performance of sharia stocks portfolio investment in Indonesian Stock
Exchange (IDX) over the period of 2001 2002 and found that in 2001, sharia stock
portfolios outperformed conventional stock portfolios on Sharpe and Treynor methods.
Meanwhile in 2002, sharia stocks portfolios outperformed conventional stock portfolios
on all methods. Cahyaningsih (2008)s research on two types of sharia mutual funds in
Indonesia, fixed income and balanced funds, over the period of May to September 2008,
revealed a slightly different result. While fixed income sharia mutual funds recorded a
positive performance measured by Sharpe, Treynor, and Jensen methods, balanced
sharia mutual funds recorded a negative performance on all methods of measurement.
However, she noted that this result might be affected by the length of the observation
period.
All in all, the findings concerning the performance of SRI mutual funds, whether the
general SRI funds or the specific Islamic/sharia-based funds, suggest that there are
several directions for SRI mutual funds to perform when being compared with their
conventional benchmarks.

24 | P a g e

CHAPTER III. METHODOLOGY

III.1. RESEARCH METHODOLOGY
For a research to produce a comprehensive result, it is important to select the appropriate
research approach. In a broad sense, there are 2 (two) distinct reasoning approaches in
a research: inductive and deductive (Trochim, 2006). According to Goddard and Melville
(2004) an inductive approach starts with the observations and ends with theory
formulation as the result of the observations. In other words, inductive approach can be
defined as moving from the specific information to the general idea (Trochim, 2006) and
sometimes referred as the bottom up approach (Lodico, et. al., 2010). Therefore, in an
inductive research, the researcher begins with collecting and observing relevant data to
the topic of interest, and then seeks for patterns in the collected data, before finally
develops a theory which can explain the pattern accordingly (Blackstone, 2015). The
outline of an inductive research is described in Figure 1 below.
Figure 1. Inductive Research

Deductive approach, in another hand, is the opposite of inductive research in which it

begins with the general and end with the specific (Trochim, 2006). According to Wilson
(2010) deductive approach is concerned with developing a hypothesis (or hypotheses)
based on existing theory, and then designing a research strategy to test the hypothesis.
25 | P a g e

In a deductive research, the researcher begins with a theory and formulates a set of
hypotheses which then being tested with the analysis on the relevant data or observation
(Blackstone, 2015). Inductive approach sometimes referred to as the top down
approach (Tavakoli, 2012) and thus the outline of a deductive research will be as follows:
Figure 2. Deductive Research

In the case of this study, since the main objective is to describe and compare the
performance of Socially Responsible Investment (SRI) in Indonesia with the relevant
benchmarks, the reasoning of the study followed that of in the deductive approach. The
reason to select this approach was that it could best explain the objectives of this study.
Moreover, the nature of the study itself is in line with the approach. The study started
under the perspective of a theory which suggests that there is a difference in performance
between SRI and its conventional benchmarks. Some critics argued that the screening
and monitoring of ESG performance in SRI would cause the SRI to underperform its
conventional benchmarks (Sjostrom, 2011). Meanwhile, some others argued that
companies with stronger social performance and higher quality of corporate management
within SRIs portfolio would lead to SRI having a superior performance compared with its
conventional counterparts (ibid). Based on this, for the case of Indonesian SRI, this study
26 | P a g e

developed 4 hypotheses as explained in Hypotheses Development section. In the

observation stage, the performance of Jakarta Islamic Index (JII), selected sharia mutual
funds, and conventional benchmarks was analysed based on their daily returns over the
period of 1 January 2013 30 June 2015. The result of the analysis was statistically
tested accordingly.
In term of data analysis, this study used a quantitative method. This method was selected
since not only it was the most suitable method to answer the research questions emerging
from the objectives of the study, but it also offered the necessary tools to analyse the
numerical sample data and test the proposed hypotheses. Creswell (1994) defined
quantitative research as explaining phenomena by collecting numerical data that are
analysed using mathematically based methods (in particular statistics). Creswell (1994)
also explained that the process of quantitative research includes deduction, cause and
effect, static design, generalizations, as well as validation. In term of techniques, a
quantitative research method includes observation, pilot studies, quantitative analysis,
and questionnaire (Brynard and Hanekom, 2005). For research purposes, a quantitative
research is the most suitable to answer or explain the six main types of research
questions or activities as follow:
1. Questions that need a quantitative or numerical answer;
2. Numerical changes on a particular subject;
3. Conducting audience segmentation;
4. Quantifying opinions, attitudes, and behaviours;
5. Explaining phenomena; and
6. Testing hypotheses (Sukamolson, 2007)
The first 4 (four) points are descriptive researches where descriptive statistics are used
to describe a particular situation, while the last 2 (Point 5 and 6) are called inferential
research where inferential statistics are used to explain certain issues (Sukamolson,
2007). In the end, the application of quantitative research method on this study helped to
generalise the truth found in the samples (JII and selected sharia mutual funds) to the
population (SRI in Indonesia).

27 | P a g e

All in all, the general outline of this study is illustrated in Figure 3 below.
Figure 3. The Outline of the Study

III.2. DATA SAMPLE

This study used Jakarta Islamic Index (JII) and selected sharia mutual funds to represent
the Socially Responsible Investment (SRI) in Indonesia. The study analysed the daily
returns data of JII and the selected mutual funds over the period of 1 January 2013 30
June 2015.
The sharia mutual funds for this study were selected based on the following criteria:
1. Equity type mutual funds;
2. The mutual funds had been effective before the start of the study period; and
3. The mutual funds had been operated for a minimum 5 years before the end of the
study period.

28 | P a g e

According to OJK (2015), as of May 2015, there were a total of 23 sharia mutual funds.
Based on the criteria above, for the purposes of this study, 7 (seven) sharia mutual funds
were selected for analysis (as shown in Table 2).
Table 2. The Selected Sharia Mutual Funds
No

Sharia Mutual Funds

Effective Date

TRIM Syariah Saham (TRIM SS)

16 December 2006

Batavia Dana Saham Syariah (Batavia DSS)

16 July 2007

PNM Ekuitas Syariah (PNM ES)

26 July 2007

CIMB Principal Islamic Equity Growth Syariah (CIMB- 16 August 2007

PIEGS)

Mandiri Investa Atraktif Saham (Mandiri IAS)

19 December 2007

Cipta Syariah Equity (Cipta SE)

16 March 2008

Manulife Syariah Sektoral Amanah (Manulife SSA)

16 January 2009

For Risk-Free Rate, market, and benchmarking purposes, this study used the followings:
1. Risk-Free Rate
In term of risk-free rate, this study used the rate of Bank Indonesia Certificate (SBI)
which is issued by the Central Bank of Indonesia (BI).
2. Market
Jakarta Composite Index (JCI) is the market index used in this study. JCI represents
the price movement of all the listed stocks in Indonesian Stock Exchange (IDX, 2015).
3. Conventional Benchmark Index
LQ45 Index was selected for benchmark index because it has similar size (45 stocks
in LQ45 index vs 30 stocks in Jakarta Islamic Index) and nature (selection based on
the market capitalisation and the liquidity of the stocks) with Jakarta Islamic Index.
29 | P a g e

4. Conventional Benchmark Fund

Panin Dana Prima was selected for benchmark fund because it was the best
conventional fund with the asset above Rp 1 trillion for the period of 3 years according
to Investor magazine 2014 (Beritasatu, 2014) and had been effective before the
beginning of the study period (Panin Dana Prima was effective in December 2007).
All the data used in this research was secondary data taken from the following sources:
Table 3. Data Source
No

Source

Data

Yahoo Finance

Daily data of Indices: Jakarta Composite Index (JCI),

Jakarta Islamic Index (JII), and LQ45 Index for the
period of 1 January 2013 30 June 2015

Portal Reksadana

Daily data of sharia mutual funds (TRIM Syariah

Saham, Batavia Dana Syariah Saham, PNM Ekuitas
Syariah, CIMB Principal Islamic Equity Growth
Syariah, Mandiri Investa Atraktif Syariah, Cipta Syariah
Equity, Manulife Syariah Sektoral Amanah) and
conventional benchmark fund (Panin Dana Prima) for
the period of 1 January 2013 31 December 2013

(www.portalreksadana.com)

Kontan
(pusatdata.kontan.co.id)

Tempo
(bisnis.tempo.co)

Indonesian Sock Exchange

Daily data of sharia mutual funds (TRIM Syariah

Saham, Batavia Dana Syariah Saham, PNM Ekuitas
Syariah, CIMB Principal Islamic Equity Growth
Syariah, Mandiri Investa Atraktif Syariah, Cipta Syariah
Equity, Manulife Syariah Sektoral Amanah) and
conventional benchmark fund (Panin Dana Prima) for
the period of 1 January 2014 30 June 2015
Several missing daily data on sharia mutual funds and
conventional benchmark fund for the period of 1
January 2013 30 June 2015

(idx.co.id)

Several missing daily data on Indices (Jakarta

Composite Index, Jakarta Islamic Index, and LQ45
Index) for the period of 1 January 2013 30 June 2015

Indonesia Central Bank

Risk free rate (Bank Indonesia Certificate/SBI rate)

(www.bi.go.id)

30 | P a g e

III.3. HYPOTHESES DEVELOPMENT

Based on the objectives, research questions, and literature review of this study, the
hypotheses were developed as follows:
Ha1: The performance (non-risk-adjusted and risk-adjusted) of Jakarta Islamic Index (JII)
is different from that of market index
Ha2: The performance (non-risk-adjusted and risk-adjusted) of Jakarta Islamic Index (JII)
is different from that of conventional benchmark index
Ha3: The performance (non-risk-adjusted and risk-adjusted) of the sharia mutual funds is
different from that of market index
Ha4: The performance (non-risk-adjusted and risk-adjusted) of the sharia mutual funds is
different from that of conventional benchmark fund
In order to prove the hypotheses of this study, hypothesis testings were conducted.
According to DeFusco, et. al. (2007) hypothesis testing is conducted in order to create
judgments about population based on observed sample. Hypothesis testings were
performed using t-Test with 95 percent significance level.

III.4. RESEARCH ANALYSIS METHODS

There are 3 (three) main analysis methods used in this study as follows:
1. Descriptive Statistics
In this study, descriptive statistics was conducted on JII and the selected sharia
mutual funds daily returns, as well as on their respective conventional benchmarks
daily returns. The aim for descriptive statistics is to give basic statistical summary and
basic analysis on risk and return aspect of the observed investment instruments.
2. Performance Measurement
In this study, the performances of JII and the selected sharia mutual funds was
measured from two aspects: non risk-adjusted return and risk-adjusted return. The
31 | P a g e

non-risk-adjusted performance was analysed from the raw daily returns of JII and the
selected sharia mutual funds. The non-risk-adjusted performance of JII and the
selected sharia mutual funds then compared with the non-risk-adjusted performance
of market index and conventional benchmarks (index and fund).
The risk-adjusted performance measurement was performed using 3 (three)
methods:
a. Sharpe Ratio
Sharpe ratio is one of the popular methods to measure the performance of mutual
funds and other investment portfolios. The Sharpe ratio measures the reward to
volatility trade-off of a portfolio (Bodie, et. al., 2003). It is considered to be a
comprehensive performance measurement since it recognizes the risk free rate
return aspect in asset portfolios (Eling and Faust, 2010). In general, using Sharpe
ratio as a risk adjustment, the performance of one portfolio can be compared to
other portfolio (Investopedia, 2015).
Sharpe ratio is calculated using the formula as follow:

Where,
Sp

= Sharpe ratio of the portfolio

rp

= return of the portfolio

rf

= risk-free rate

= standard deviation of the returns on the portfolio

b. Treynor Index
Similar to Sharpe ratio, Treynor Index or Treynors measure allows the
performance of one portfolio to be compared to other portfolio by measuring the
excess return per unit of risk (Bodie et. al., 2003). However, it uses beta of the
32 | P a g e

portfolios returns (systematic risk) instead of standard deviation of the portfolios

returns (total risk). According to Wilson (2010) beta of the portfolio expresses the
systematic risk of the portfolio against the relevant benchmark (market).
The formula for Treynor Index is described as follows:

Where,
Tp

= Treynor Index of the portfolio

rp

= return of the portfolio

rf

= risk-free rate

= beta of the portfolio

c. Jensen Alpha
According to Bodie, et. al. (2003) Jensen alpha or Jensens measure is the
average return on the portfolio over and above that predicted by the CAPM, given
the portfolios beta and the average market return. Jensen alpha measures
portfolios performance relative to the market and thus allowing portfolios
performance to be compared accordingly.
The Jensen alpha formula is expressed as follows:

Where,
Rp

= portfolio return

Rf

= risk free rate

RM = market return

= Jensen alpha

= portfolio beta
33 | P a g e

For the purpose of this study, Jensen alpha was calculated using the regression
analysis tool on Microsoft excel software.

3. T-Test
T-test was selected for hypotheses testing because it is a robust statistical tool, does
not require a large amount of data, easily calculated using computer software, and
relatively simple to interpret. T-test compares the means difference between two
samples. In this way, t-Test was used to compare the performance of JII, selected
sharia mutual funds, and conventional benchmarks from statistical significance point
of view. Based on t-Test result, the hypotheses of this study can be proven whether
they are correct or incorrect. Under the 95 percent significance level, if p-value based
on the result of t-Test is greater than 0.05 the null hypothesis cannot be rejected
which means that there is no performance difference between the compared
instruments. Meanwhile, if p-value is lower than 0.05 the null hypothesis can be
rejected and therefore the hypothesis that there is performance difference between
the compared instruments should be accepted. For the purposes of this study, the tTest was conducted using data analysis tool on Microsoft excel software.
Figure 4. Descriptive Statistics Analysis

Figure 5. Non-Risk-Adjusted Analysis

34 | P a g e

Figure 5. Risk-Adjusted Analysis

35 | P a g e

CHAPTER IV. FINDINGS AND DISCUSSION

IV.1. DESCRIPTIVE STATISTICS
The descriptive statistics provides the basic statistical summary of JII, selected sharia
mutual funds, market index, and conventional benchmarks (index and fund) based on
their daily returns. It also gives basic description on the risk and return performance of
those variables.
1. Indices
Table 4. Summary Statistics of JCI, JII, and LQ45 Daily Return

The descriptive statistics in Table 4 gives basic statistical summary based on raw
daily returns to describe the risk and return characteristics of Jakarta Islamic Index
(JII) and conventional benchmark index (LQ45) for the period of January 2013 to June
2015. Based on the summary statistics, over the period of January 2013 June 2015,
all the indices generate positive daily returns. From January 2013 to June 2015, LQ45
has the highest daily mean return with 0.000288653. Meanwhile, during the same
period, JII records a 0.000232627 daily mean return which is lower than both LQ45
and market (JCI) daily mean return of 0.000258044.
In term of standard deviation of daily returns, Table 4 shows that JII has the highest
figure with 0.013364104. LQ45 has the second highest standard deviation of daily
36 | P a g e

returns with 0.01329133, while market index (JCI) records the lowest figure with
0.010729838. Overall, it appears that both JII and LQ45 have higher volatility and risk
profile compared with market index (JCI). However, while LQ45 outperforms market
index return, JII risk profile does not translated into a higher return performance. As
shown by the daily mean return figures, JII underperforms market index in term of
return performance.

2. Mutual Funds
Table 5. Summary Statistics of Sharia Mutual Funds, Conventional Benchmark
Mutual Fund, and Market Index
Mean
Standard Error
Median
Mode
Standard Deviation
Sample Variance
Kurtosis
Skewness
Range
Minimum
Maximum
Sum
Count

JCI
TRIM SS
Batavia DSS
PNM ES
CIMB-PIEGS
Mandiri IAS
Cipta SE
Manulife SSA
Panin DP
0.000258468 0.000241531 0.000225504 3.49245E-05
0.00018057 2.24162E-05 0.000371086 0.000210556 0.000228794
0.00043551 0.000471751
0.00048777 0.000486378 0.000490191 0.000507508 0.000445787 0.000478073
0.00050367
0.001071102 0.000882411 0.000804006
0.00076354 0.000714412 0.000632491 0.001059772 0.000743441 0.000857166
#N/A
#N/A
0
#N/A
#N/A
#N/A
#N/A
#N/A
0
0.010738668 0.011632276 0.012027272
0.01199293 0.012086964 0.012513953 0.010992052 0.011788161 0.012419316
0.000115319
0.00013531 0.000144655
0.00014383 0.000146095 0.000156599 0.000120825 0.000138961 0.000154239
3.31220225 2.604767945 3.205139598 2.483476347 2.590398813 3.330970305 2.545436392 2.367419641 4.818294978
-0.366691009 -0.339314052 -0.344991354 -0.439594221 -0.321232232 -0.436839796
-0.2714249 -0.273343036 -0.022102846
0.102330881 0.111231827
0.11517879 0.097024096 0.109388261 0.119777999 0.101634332 0.105385815 0.124453309
-0.05584484 -0.056923151 -0.063649631 -0.053041919 -0.056143338 -0.06659543 -0.046751516 -0.053820515 -0.059329491
0.046486041 0.054308677 0.051529159 0.043982177 0.053244923 0.053182569 0.054882816
0.0515653 0.065123818
0.157148571 0.146850801 0.137106708 0.021234125 0.109786669
0.01362906 0.225620414 0.128017846
0.13910674
608
608
608
608
608
608
608
608
608

The descriptive statistics in Table 5 gives basic statistical summary based on raw
daily returns to describe the risk and return characteristics of the selected sharia
mutual funds and their conventional benchmark fund for the period of January 2013
to June 2015. In general, based on summary statistics result, market index and
mutual funds (both sharia and conventional benchmark) generate positive returns
during the observed period. In term of daily mean returns, Cipta Syariah Equity has
the highest figure with 0.00371086. The second highest daily mean returns figure is
recorded by market index (JCI) with 0.000258468. Panin Dana Prima as the
conventional benchmark fund has the 4th highest daily mean return figure with
0.000228794, slightly below TRIM Syariah Saham with 0.000241531. The overall
daily returns performance ranking is shown in Table 6 below:

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Table 6. Daily Mean Return Ranking

NO

DAILY MEAN RETURN

MUTUAL FUNDS AND MARKET

Cipta Syariah Equity

0.000371086

Jakarta Composite Index (JCI) / Market

0.000258468

TRIM Syariah Saham

0.000241531

Panin Dana Prima (Conventional Benchmark)

0.000228794

Batavia Dana Saham Syariah

0.000225504

Manulife Syariah Sektoral Amanah

0.000210556

CIMB-Principal Islamic Equity Growth Syariah

0.000180570

PNM Ekuitas Syariah

0.000034925

Mandiri Investa Atraktif Syariah

0.000022416

In term of risk, which measured by the standard deviation figure of the daily returns,
Mandiri Investa Atraktif Syariah is recorded as the mutual fund with the highest daily
return standard deviation figure with 0.012513953. The conventional benchmark fund
(Panin Dana Prima) has a slightly lower daily return standard deviation with
0.012419316. The rest of the sharia mutual funds, CIMB-Principal Islamic Equity
Growth Syariah, Batavia Dana Saham Syariah,PNM Ekuitas Syariah, Manulife
Syariah Sektoral Amanah, Cipta Syariah Equity, and TRIM Syariah Saham, have
lower daily return standard deviation figures with 0.012086964, 0.012027272,
0.01199293,

0.011788161,

0.011632276,

and

0.010992052,

respectively.

Meanwhile, market index (JCI) has the lowest daily return standard deviation figure
with 0.010738668. The standard deviation ranking of the mutual funds and market
index is shown in Table 7 below:

38 | P a g e

Table 7. Daily Return Standard Deviation Ranking

DAILY RETURN
NO

MUTUAL FUNDS AND MARKET

STANDARD DEVIATION

Mandiri Investa Atraktif Syariah

0.012513953

Panin Dana Prima (Conventional Benchmark)

0.012419316

CIMB-Principal Islamic Equity Growth Syariah

0.012086964

Batavia Dana Saham Syariah

0.012027272

PNM Ekuitas Syariah

Manulife Syariah Sektoral Amanah

0.011788161

TRIM Syariah Saham

0.011632276

Cipta Syariah Equity

0.010992052

Jakarta Composite Index (JCI) / Market

0.010738668

0.01199293

Overall, all of the mutual funds appear to have higher daily return standard deviation
figures than that of market index. This suggests that sharia mutual funds and
conventional benchmark funds daily returns are more volatile than market index. This
also implies that sharia mutual funds and conventional benchmark fund have higher
risk profiles compared with market. However, the higher risk profile of the funds does
not necessarily lead to a higher return performance. Mandiri Investa Atraktif Syariah
for example, has the highest risk profile but the lowest return performance based on
the summary of basic statistics.

39 | P a g e

IV.2. NON RISK-ADJUSTED RETURN PERFORMANCE ANALYSIS

This section of study provides the comparative performance analysis between the JII and
LQ45, as well as the 7 sharia mutual funds and conventional benchmark fund in the period
of January 2013 June 2015. The performances of the indices, sharia mutual funds, and
conventional benchmarks (index and fund) were measured using the non-risk-adjusted
daily returns.
1. Indices
Looking at the daily mean returns figures during the period of January 2013 June
2015 (Table 4 above), the conventional benchmark index (LQ45) seems to
outperform both the market (JCI) and sharia index (JII) by 0.000031 and 0.000056,
respectively. Meanwhile, not only outperformed by LQ45, JII also underperforms
market index by 0.000025. However, statistical analysis on those figures yields a
different result. The t-Test was conducted to find any significant statistical differences
in the return performance of JII, LQ45, and market index. The result (as shown in
Table 8) reveals that the differences in return performance of JII and LQ45 relative to
the market are statistically insignificant (p-value > 0.05). In term of JII return
performance, compared with LQ45 as the conventional benchmark, the t-test result
(as shown in Table 9) also indicates that there is no statistically significant difference
between them (p-value > 0.05). Thus, it can be stated that there is no difference in
non-risk-adjusted return performance between JII and market index, as well as
between JII and conventional benchmark index.
Table 8. T-Test: Assuming Unequal Variances (Market)

Mean
Variance
Observations
Hypothesized Mean Difference
Df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

JII
0.000233
0.000179
609
0
1162
-0.0366
0.485406
1.646166
0.970812
1.962008

LQ45
0.000289
0.000177
609
0
1164
0.044195
0.482378
1.646164
0.964757
1.962004

JCI
0.000258
0.000115
609

40 | P a g e

Table 9. T-Test: Assuming Unequal Variances (Benchmark)

Mean
Variance
Observations
Hypothesized Mean Difference
Df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

JII
LQ45
0.000233 0.000289
0.000179 0.000177
609
609
0
1216
-0.07333
0.470777
1.646108
0.941555
1.961917

2. Mutual Funds
The daily mean return figures in the period of January 2013 June 2015 (Table 6
above) shows that out of 7 sharia mutual funds, only 1 manages to outperform the
market (JCI) return. In that period, Cipta Syariah Equity outperforms market index
return by 0.000112618. All of the other sharia mutual funds: TRIM Syariah Saham,
Batavia Dana Saham Syariah, Manulife Syariah Sektoral Amanah, CIMB-Principal
Islamic Equity Growth Syariah, PNM Ekuitas Syariah, and Mandiri Investa Atraktif
Syariah, underperform market return by 0.000016937, 0.000032964, 0.000047912,
0.000077898, 0.000223543, and 0.000236052, respectively. At the same period,
conventional benchmark mutual fund (Panin Dana Prima) also underperform market
return slightly by 0.000029674.
In relation to conventional benchmark fund (Panin Dana Prima) performance, 2 out
of 7 sharia mutual funds manage to outperform the benchmark return. Cipta Syariah
Equity outperforms Panin Dana Prima by 0.000142292 and TRIM Syariah Saham
outperforms Panin Dana Prima by 0.000012737. Meanwhile, Batavia Dana Saham
Syariah, Manulife Syariah Sektoral Amanah, CIMB-Principal Islamic Equity Growth
Syariah, PNM Ekuitas Syariah, and Mandiri Investa Atraktif Syariah all underperform
conventional benchmark fund return by 0.000003290, 0.000018238, 0.000048224,
0.000193869, and 0.000206378, respectively.
41 | P a g e

For statistical purposes, t-Test was conducted to see whether the different in return
performance between the sharia mutual funds and market, conventional benchmark
fund and market, as well as between the sharia mutual funds and conventional
benchmark fund, have statistical significances. With regards to the relative return
performance against the market, the result of t-Test (Table 10) suggests that there is
no statistically significant difference (p-value > 0.05) between the mutual funds
returns (both sharia and conventional benchmark fund) and market return. The
comparison between the sharia mutual funds and conventional benchmark fund also
reveals a similar result where the test found no statistically significant difference (pvalue > 0.05) in return performance (Table 11). Therefore, it can be concluded that
there is no difference in non-risk-adjusted return performances of the 7 sharia mutual
funds, whether compared to the market index or to the conventional benchmark fund.
This finding differs with Mansor (2012)s finding on Malaysian sharia mutual funds
performances over 1997 2007 period which suggested that sharia mutual funds
outperform their conventional benchmarks based on pure returns basis. However, the
difference in findings may be resulted from the differences in the observed market
and duration of the study.
Table 10. T-Test: Assuming Unequal Variances (Market)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

TRIM SS
0.000241531
0.00013531
608
0
1206
-0.026380066
0.489479279
1.646118095
0.978958558
1.961932938

Batavia DSS
0.000225504
0.000144655
608
0
1199
-0.050410516
0.479901827
1.646125483
0.959803653
1.961944444

PNM ES
0.000034925
0.00014383
608
0
1199
-0.342403944
0.366053466
1.646125483
0.732106933
1.961944444

CIMB-PIEGS
0.000180570
0.000146095
608
0
1197
-0.118799107
0.452727225
1.646127609
0.90545445
1.961947757

Mandiri IAS
0.000022416
0.000156599
608
0
1187
-0.352971932
0.362086077
1.646138351
0.724172153
1.961964487

Cipta SE
0.000371086
0.000120825
608
0
1213
0.180705594
0.428314427
1.646110792
0.856628854
1.961921564

Manulife SSA
0.000210556
0.000138961
608
0
1204
-0.07408728
0.470476621
1.646120197
0.940953243
1.961936212

Panin DP
JCI
0.000228794 0.000258468
0.000154239 0.00011532
608
608
0
1189
-0.044565868
0.482230416
1.646136188
0.964460832
1.961961118

42 | P a g e

Table 11. T-Test: Assuming Unequal Variances (Benchmark)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

TRIM SS
0.000241531
0.00013531
608
0
1209
0.018456771
0.492638754
1.646114955
0.985277509
1.961928047

Batavia DSS
0.000225504
0.000144655
608
0
1213
-0.004691657
0.498128692
1.646110792
0.996257385
1.961921564

PNM ES
0.000034925
0.00014383
608
0
1213
-0.276886733
0.390957127
1.646110792
0.781914255
1.961921564

CIMB-PIEGS
0.000180570
0.000146095
608
0
1213
-0.068613708
0.472654208
1.646110792
0.945308416
1.961921564

Mandiri IAS
0.000022416
0.000156599
608
0
1214
-0.288633896
0.386455414
1.646109756
0.772910829
1.961919949

Cipta SE
0.000371086
0.000120825
608
0
1196
0.211551249
0.416246594
1.646128675
0.832493188
1.961949417

Manulife SSA Panin DP

0.000210556 0.000228794
0.000138961 0.000154239
608
608
0
1211
-0.026263608
0.489525704
1.64611287
0.979051409
1.9619248

IV.3. RISK-ADJUSTED RETURN PERFORMANCE ANALYSIS

This part of study analyses the comparative risk-adjusted performances between JII and
LQ45, as well as between the 7 sharia mutual funds and their conventional benchmark
fund (Panin Dana Prima) in the period of January 2013 June 2015. The risk-adjusted
performance of the indices and mutual funds was measured using 3 (three) methods:
Sharpe Ratio, Treynor Index, and Jensen Alpha.
1. Indices
As shown in Table 12, the conventional benchmark index (LQ45) performs better than
both market index (JCI) and JII in the period of January 2013 June 2015. Based on
Sharpe Ratio figures, LQ45 outperforms market index risk-adjusted performance by
0.0009553. LQ45 also outperforms JII by 0.0042342. JII, on the other hand, performs
the worst by underperforming both LQ45 and market index risk-adjusted
performances by 0.0042342 and 0.0032789, respectively.
Table 12. Sharpe Ratio on Daily Return of JCI, JII, and LQ45
Sharpe Ratio
LQ45
JCI
JII

Mean

Median Standard Deviation Sample Variance Minimum Maximum N

0.0079412 0.0614184
0.0069859 0.0815942
0.0037070 0.0514244

0.9999719
0.9999668
0.9999816

0.9999437 -5.0462834 4.1472310 609

0.9999335 -5.2203701 4.3166688 609
0.9999633 -4.7940095 4.2822986 609

43 | P a g e

In order to find the statistical significance on the different in Sharpe Ratio figures of
the indices, statistical test in the form of t-Test assuming unequal variances was
conducted. The result of the test (Table 13) reveals that, relative to market index, the
p-values for both JII and LQ45 are higher than 0.05. Furthermore, the p-value for JII
Sharpe Ratio figure relative to LQ45 Sharpe Ratio figure is also higher than 0.05
(Table 4).

These results suggest that there are no differences in risk-adjusted

performance between JII and market, as well as between JII and LQ45 for the period
of the study.
Table 13. T-Test Assuming Unequal Variances (Market)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

JII
0.003707
0.999963
609
0
1216
-0.05722
0.477191
1.646108
0.954381
1.961917

LQ45
JCI
0.007941 0.006986
0.999944 0.999934
609
609
0
1216
0.01667
0.493351
1.646108
0.986703
1.961917

Table 14. T-Test Assuming Unequal Variances (Benchmark)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

JII
LQ45
0.003707 0.007941
0.999963 0.999944
609
609
0
1216
-0.07389
0.470556
1.646108
0.941112
1.961917

44 | P a g e

With regards to Treynor Index, the result (Table 15) also confirms that LQ45 has a
better risk-adjusted performance compared with both market and JII over the period
of January 2013 June 2015. Based on Treynor Index figures in Table 15, LQ45 has
a slightly higher risk-adjusted performance compared with market index. Compared
with JII, risk-adjusted performance of LQ45 is convincingly better with 0.0000458
higher Treynor Index figure. Meanwhile, JII, once again, has the worst risk-adjusted
performance. Based on Treynor Index figures, compared with that of market index,
JII has 0.0000325 lower risk-adjusted performances.
Table 15. Treynor Index on Daily Return of JCI, JII, and LQ45

Treynor Ratio
LQ45
JCI
JII

Mean

Median Standard Deviation Sample Variance Minimum Maximum N

0.0000883 0.0006829
0.0000750 0.0008755
0.0000425 0.0005898

0.0111191
0.0107295
0.0114681

0.0001236 -0.0561119 0.0461149 609

0.0001151 -0.0560137 0.0463172 609
0.0001315 -0.0549791 0.0491107 609

However, even though the calculated Treynor Index figures indicate that JII has the
lowest risk-adjusted performance compared with market index and conventional
benchmark index, the statistical test on Treynor Index figures demonstrates a
different view. In order to measure the statistical significance of Treynor Index values,
t-Test assuming unequal variance was performed. The result of t-test on JII and LQ45
Treynor Index against market Treynor Index (Table 16) shows that there is no
statistically significant difference between JII and market, as well as between LQ45
and market (as indicated by p-values > 0.05). Moreover, the result of t-Test on
Treynor Index figures for JII and LQ45 (Table 17) also reveals that there is an
insignificant statistical difference (p-value > 0.05) between JII and LQ45. All in all, it
appears that although JII Treynor Index figure is lower than that of market index and
conventional benchmark index, there is no difference in risk-adjusted performance
between them.

45 | P a g e

Table 16. T-Test Assuming Unequal Variances (Market)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

JII
4.25E-05
0.000132
609
0
1211
-0.05098
0.479674
1.646113
0.959348
1.961925

LQ45
JCI
8.83E-05 7.5E-05
0.000124 0.000115
609
609
0
1214
0.021312
0.4915
1.64611
0.983001
1.96192

Table 17. T-Test Assuming Unequal Variances (Benchmark)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

JII
4.25E-05
0.000132
609
0
1211
-0.05098
0.479674
1.646113
0.959348
1.961925

LQ45
JCI
8.83E-05 7.5E-05
0.000124 0.000115
609
609
0
1214
0.021312
0.4915
1.64611
0.983001
1.96192

In term of Jensen Alpha, the result of this method (Table 18) further indicates that
LQ45 has a better risk-adjusted performance compared with JII. Based on Jensen
Alpha figures, over the period of January 2013 June 2015, LQ45 has a positive
alpha with 0.0000160 while JII has a negative alpha with -0.0000378. The result from
Jensen Alpha method is consistent with the result from Sharpe and Treynor methods
where LQ45 outperforms market return (as indicated by positive alpha figure) and JII
underperforms market return (as indicated by negative alpha figure).

46 | P a g e

Table 18. Jensen Alpha of JII and LQ45

Variable

JII

LQ45

INTERCEPT (JENSEN ALPHA) -0.0000378 0.0000160

P-VALUE
0.8434274 0.9102523
BETA
1.1653246 1.1953256
P-VALUE
0.0000000 0.0000000
R SQUARE
0.8753616 0.9311453
ADJUSTED R SQUARE
0.8751563 0.9310318
N
609
609

The Jensen Alpha result also suggests that LQ45 had a slightly higher systematic risk
than JII. This is indicated by the beta figure of LQ45 (1.195) which is higher than that
of JII (1.165). The higher systematic risk of LQ45 might correspond to it having a
better risk-adjusted performance over the period of the study. In general, LQ45 and
JII beta figures that are higher than 1 suggest that both of them are riskier than market
index.
However, even though alpha figures indicate that there are differences in riskadjusted performances of JII and LQ45 (compared with the market), the p-values for
both alphas suggest that they are not statistically significant (p-value > 0.05).
Therefore, it can be inferred that based on Jensen Alpha, there is no risk-adjusted
performance difference between JII, LQ45 and market index for the period of January
2013 June 2015.
All in all, all 3 (three) methods of performance measurement suggest that there is no
performance difference between JII and market index, as well as between JII and
LQ45. This is consistent with Hakim and Rashidian (2004) findings which suggested
that there is no significant performance difference between Islamic index (Dow Jones
Islamic Market Index/DJIMI) and conventional index (Dow Jones World Index/DJWI).
The finding also consistent with Hassan and Girard (2005)s finding on their research
on the performance of Dow Jones Islamic Index and its non-Islamic counterparts
which concluded that there is no performance difference between Islamic and nonIslamic index. Furthermore, this finding also in line with Schroder (2004), Kreander
47 | P a g e

(2004), and Beer et al (2014)s findings which stated that SRI stock indices do not
exhibit a different level of risk-adjusted return compared with their conventional
benchmarks.

2. Mutual Funds
The daily Sharpe Ratio figures (Table 19) reveals that not all of the observed mutual
funds have positive risk-adjusted daily returns during the period of January 2013
June 2015. As shown In Table 19, out of 7 sharia mutual funds, 3 of them: CIMBPrincipal Islamic Equity Growth Syariah, PNM Ekuitas Syariah, and Mandiri Investa
Atraktif Syariah have negative Sharpe ratio figures with -0.0002064, -0.0123523, and
-0.0128376,

respectively.

Compared

with

market

index,

the

risk-adjusted

performance of 6 out of 7 sharia mutual funds: TRIM Syariah Saham, Batavia Dana
SahamSyariah, Manulife Syariah Sektoral Amanah, CIMB-Principal Islamic Equity
Growth Syariah, PNM Ekuitas Syariah, and Mandiri Investa Atraktif Syariah, are lower
by 0.0019955, 0.0034930, 0.0046896, 0.0072280, 0.0193740, and 0.0198592,
respectively. Similarly, the conventional benchmark fund (Panin Dana Prima), also
underperforms market index risk-adjusted performance by 0.0033396. Over the
period of the study, only one mutual fund, Cipta Syariah Equity, manages to
outperform market index with Sharpe Ratio figure of 0.0171052 or 0.0100836 higher
than that of market index.
Compared with conventional benchmark fund (Panin Dana Prima), as shown in Table
19, only 2 out of 7 of sharia mutual funds have a better risk-adjusted. Cipta Syariah
Equity outperforms Panin Dana Prima by 0.0134231, while TRIM Syariah Saham
outperforms Panin Dana Prima by 0.0013441. Batavia Dana Saham Syariah,
Manulife Syariah Sektoral Amanah, CIMB-Principal Islamic Equity Growth Syariah,
PNM Ekuitas Syariah, and Mandiri Investa Atraktif Syariah have lower risk-adjusted
performance compared with Panin Dana Prima. In total, based on Sharpe Ratio
figures, they underperforms Panin Dana Prima by 0.0001535, 0.0013500, 0.0038885,
0.0160344, and 0.0165197 respectively.

48 | P a g e

Table 19. Daily Sharpe Ratio of Market Index, Sharia Mutual Funds, and
Conventional Benchmark Fund

Sharpe Ratio
Cipta Syariah Equity
JCI (Market Index)
TRIM Syariah Saham
Panin Dana Prima (Conventional Benchmark)
Batavia Dana Saham Syariah
Manulife Syariah Sektoral Amanah
CIMB-PIEGS
PNM Ekuitas Syariah
Mandiri Investa Atraktif Syariah

Mean

Median Standard Deviation Sample Variance Minimum Maximum Count

0.0171052 0.0787698
0.0070216 0.0826761
0.0050262 0.0601895
0.0036821 0.0543425
0.0035286 0.0516939
0.0023320 0.0466546
-0.0002064 0.0444126
-0.0123523 0.0495838
-0.0128376 0.0349598

0.9999689
0.9999667
0.9999567
0.9999843
0.9999776
0.9999713
0.9999627
0.9999677
0.9999582

0.9999379 -4.2685753 4.9775903

0.9999335 -5.2160778 4.3131195
0.9999133 -4.9080709 4.6542733
0.9999686 -4.7907932 5.2301538
0.9999552 -5.3083764 4.2703179
0.9999427 -4.5799681 4.3600030
0.9999253 -4.6589219 4.3911801
0.9999354 -4.4368476 3.6532600
0.9999164 -5.3351898 4.2363659

608
608
608
608
608
608
608
608
608

At a glance, over the period of the study, the Sharpe ratio figures suggest that sharia
mutual funds have different risk-adjusted performances compared with market index
and conventional benchmark fund. In general, it can be stated that sharia mutual
funds have a lower risk-adjusted performance. However, statistical test on the riskadjusted performance based on Sharpe ratio figures indicates a different finding.
The result of t-Test (Table 20) on Sharpe ratio figures of the 7 sharia mutual funds
and conventional benchmark fund relative to market index shows that the p-values
for all the mutual funds were higher than 0.05. This suggests that the differences in
risk-adjusted performance between the 7 sharia mutual funds and market, as well as
between the conventional benchmark fund and market are statistically insignificant.
The second t-Test (Table 21) on the Sharpe ratio figures of the 7 sharia mutual funds
against the conventional benchmark fund also confirms that there is no statistically
significant difference between the two investment types (p-values > 0.05). Therefore,
although each sharia mutual funds have different (lower or higher) Sharpe Ratio
figure than their respective market and benchmark, it can be concluded that the riskadjusted performance of sharia mutual funds is no different with either the market
index or their conventional benchmark fund.

49 | P a g e

Table 20. T-Test Assuming Unequal Variances (Market)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

TRIM SS
0.005026159
0.999913343
608
0
1214
-0.034793297
0.486125143
1.646109756
0.972250285
1.961919949

Batavia DSS
0.003528581
0.999955208
608
0
1214
-0.060904829
0.475722514
1.646109756
0.951445028
1.961919949

PNM ES
-0.012352336
0.999935365
608
0
1214
-0.337807459
0.367783345
1.646109756
0.735566691
1.961919949

CIMB-PIEGS
-0.000206427
0.999925341
608
0
1214
-0.126029666
0.449864655
1.646109756
0.89972931
1.961919949

Mandiri IAS
-0.012837593
0.999916364
608
0
1214
-0.346270123
0.364599861
1.646109756
0.729199722
1.961919949

Cipta SE
0.017105173
0.999937863
608
0
1214
0.175818501
0.430232928
1.646109756
0.860465856
1.961919949

Manulife SSA
0.002332036
0.999942657
608
0
1214
-0.08176814
0.467422285
1.646109756
0.93484457
1.961919949

Panin DP
JCI
0.003682065 0.007022
0.99996857 0.999933
608
608
0
1214
-0.058228475
0.476788111
1.646109756
0.953576222
1.961919949

Table 21. T-Test Assuming Unequal Variances (Benchmark)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

TRIM SS
0.005026159
0.999913343
608
0
1214
0.023435776
0.49065326
1.646109756
0.981306519
1.961919949

Batavia DSS
0.003528581
0.999955208
608
0
1214
-0.002676136
0.498932597
1.646109756
0.997865194
1.961919949

PNM ES
-0.012352336
0.999935365
608
0
1214
-0.279576047
0.389925205
1.646109756
0.779850411
1.961919949

CIMB-PIEGS
-0.000206427
0.999925341
608
0
1214
-0.067799967
0.472978017
1.646109756
0.945956035
1.961919949

Mandiri IAS
-0.012837593
0.999916364
608
0
1214
-0.28803836
0.386683271
1.646109756
0.773366542
1.961919949

Cipta SE
0.017105173
0.999937863
608
0
1214
0.234045368
0.40749461
1.646109756
0.81498922
1.961919949

Manulife SSA Panin DP

0.002332036 0.003682065
0.999942657 0.99996857
608
608
0
1214
-0.023539081
0.490612067
1.646109756
0.981224133
1.961919949

The second measurement of risk-adjustment performance was conducted using

Treynor Index method. The Treynor Index for daily return figures (Table 22) exhibit
similar result with the previous Sharpe Ratio method. The result of Treynor Index
analysis for the period of January 2013 June 2015 shows that there are 3 sharia
mutual funds with negative risk-adjusted daily returns. Those 3 sharia mutual funds
are the same ones in Sharpe Ratio method to have negative figures: CIMB-Principal
Islamic Equity Growth Syariah (-0.0000024), Mandiri Investa Atraktif Syariah (0.0001462), and PNM Ekuitas Syariah (0.0001568). However, while Mandiri Investa
Atraktif Syariah has the lowest risk-adjusted performance based on the result of
Sharpe Ratio method, in Treynor Index method it slightly outperforms PNM Ekuitas
Syariah to be the second lowest fund on risk-adjusted performance ranking.
50 | P a g e

Table 22. Daily Treynor Index of Market Index, Sharia Mutual Funds, and
Conventional Benchmark Fund
Treynor Index

Mean

Median Standard Deviation Sample Variance Minimum Maximum Count

Cipta Syariah Equity

0.0002200 0.0010133
JCI (Market Index)
0.0000754 0.0008878
TRIM Syariah Saham
0.0000587 0.0007032
Panin Dana Prima (Conventional Benchmark) 0.0000432 0.0006376
Batavia Dana Saham Syariah
0.0000419 0.0006142
Manulife Syariah Sektoral Amanah
0.0000264 0.0005281
CIMB-PIEGS
-0.0000024 0.0005129
Mandiri Investa Atraktif Syariah
-0.0001462 0.0003982
PNM Ekuitas Syariah
-0.0001568 0.0006294

0.0128631
0.0107383
0.0116824
0.0117337
0.0118815
0.0113201
0.0115490
0.0113891
0.0126938

0.0001655
0.0001153
0.0001365
0.0001377
0.0001412
0.0001281
0.0001334
0.0001297
0.0001611

-0.0549089
-0.0560137
-0.0573405
-0.0562144
-0.0630729
-0.0518470
-0.0538080
-0.0607658
-0.0563223

0.0640294
0.0463172
0.0543754
0.0613698
0.0507389
0.0493569
0.0507157
0.0482506
0.0463753

608
608
608
608
608
608
608
608
608

Similar to the result of Sharpe Ratio method, in Treynor Index method, there are 6
sharia mutual funds that have lower risk-adjusted performance compared with market
index. TRIM Syariah Saham, Batavia Dana Saham Syariah, Manulife Syariah
Sektoral Amanah, CIMB-Principal Islamic Equity Growth Syariah, Mandiri Investa
Atraktif Syariah, and PNM Ekuitas Syariah underperformed market index by
0.0000167, 0.0000335, 0.0000490, 0.0000778, 0.0002216, and 0.0002322,
respectively. The conventional benchmark fund (Panin Dana Prima) also has a lower
Treynor Index figure compared with market index. In total, it underperforms market
index by 0.0000322. Meanwhile, Cipta Syariah Equity (sharia), once again, turns out
to be the fund with the highest risk-adjusted performance over the period of the study
and outperforms the market index by 0.0001446.
Treynor Index calculation in Table 22 also reveals that, relative to the conventional
benchmark fund (Panin Dana Prima)s performance, 5 out of 7 sharia mutual funds
are considered to be underperform. The risk-adjusted performance, as indicated by
the Treynor Index figures, of Batavia Dana Saham Syariah, Manulife Syariah Sektoral
Amanah, CIMB-Principal Islamic Equity Growth Syariah, Mandiri Investa Atraktif
Syariah, and PNM Ekuitas Syariah are 0.0000013, 0.0000168, 0.0000456,
0.0001894, and 0.0002000, respectively, lower than that of Panin Dana Prima. As in
Sharpe Ratio method, both Cipta Syariah Equity and TRIM Syariah Saham have a
better risk-adjusted performance than the conventional benchmark fund. Their
51 | P a g e

Treynor Index figures are 0.0001768 and 0.0000155 higher, respectively, than Panin
Dana Prima Treynor Index figure.
All in all, during the period of January 2013 June 2015, market index, sharia mutual
funds, and conventional benchmark fund generated different Treynor Index figures.
Generally, this indicates that there are differences in risk-adjusted performances
among them, in which most of sharia mutual funds underperform their respective
market and benchmark. However, the statistical test on the differences in Treynor
Index figures suggests a different view.
As shown in Table 23, the t-Test assuming unequal variances on Treynor Index
figures between each of the funds (both sharia mutual funds and conventional
benchmark fund) and the market index shows that p-values are above 0.05 for all of
the funds. This indicates that the difference in risk-adjusted performance, as reflected
by the Trenor Index figures, between the funds (sharia and conventional) and the
market is statistically insignificant. The second t-Test (Table 24) on the Treynor Index
figures of the 7 sharia mutual funds and their conventional benchmark fund also
reveals that there is no statistically significant difference between them (indicated by
all the p-values > 0.05). Therefore, even though the Treynor Index figures are
different, it can be concluded that there is no difference in risk-adjusted performance
between each of the 7 sharia mutual funds and market index, also between them and
their conventional benchmark fund.
Table 23. T-Test Assuming unequal Variance (Market)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

TRIM SS
0.000058720
0.000136478
608
0
1205
-0.025923756
0.489661222
1.646119145
0.979322444
1.961934573

Batavia DSS
0.000041926
0.00014117
608
0
1202
-0.051543144
0.479450644
1.646122306
0.958901288
1.961939496

PNM ES
-0.000156803
0.000161133
608
0
1182
-0.344367107
0.36531574
1.646143789
0.730631479
1.961972958

CIMB-PIEGS
-0.000002384
0.00013338
608
0
1208
-0.121626441
0.45160755
1.646116
0.9032151
1.961929674

Mandiri IAS
-0.000146215
0.000129713
608
0
1210
-0.349102341
0.36353661
1.646113911
0.727073219
1.961926422

Cipta SE
0.000220033
0.00016546
608
0
1176
0.212830562
0.415748005
1.646150377
0.831496011
1.961983218

Manulife SSA
0.000026400
0.000128144
608
0
1211
-0.077440409
0.469142994
1.64611287
0.938285988
1.9619248

Panin DP
JCI
0.000043205 0.000075403
0.000137679 0.00011531
608
608
0
1205
-0.049914841
0.480099261
1.646119145
0.960198523
1.961934573
52 | P a g e

Table 24. T-Test Assuming unequal Variances (Benchmark)

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

TRIM SS
0.000058720
0.000136478
608
0
1214
0.02310547
0.49078497
1.646109756
0.98156994
1.961919949

Batavia DSS
0.000041926
0.00014117
608
0
1214
-0.001888573
0.499246724
1.646109756
0.998493448
1.961919949

PNM ES
-0.000156803
0.000161133
608
0
1207
-0.285299229
0.387731926
1.646117046
0.775463851
1.961931305

CIMB-PIEGS
-0.000002384
0.00013338
608
0
1214
-0.068277714
0.472787904
1.646109756
0.945575808
1.961919949

Mandiri IAS
-0.000146215
0.000129713
608
0
1213
-0.285630219
0.387605061
1.646110792
0.775210122
1.961921564

Cipta SE
0.000220033
0.00016546
608
0
1204
0.250427756
0.401149646
1.646120197
0.802299293
1.961936212

Manulife SSA Panin DP

0.000026400 0.000043205
0.000128144 0.000137679
608
608
0
1212
-0.025415612
0.489863821
1.64611183
0.979727642
1.96192318

For the third risk-adjusted performance measurement, Jensen Alpha, the result in
Table 25 shows that all of the mutual funds have negative alpha figures. This
suggests that those funds: TRIM Syariah Saham, Batavia Dana Saham Syariah,
Manulife Syariah Sektoral Amanah, CIMB-Principal Islamic Equity Growth Syariah,
PNM Ekuitas Syariah, Mandiri Investas Atraktif Syariah (sharia), and Panin Dana
Prima (conventional benchmark) perform weaker than market index. As also revealed
in Sharpe ratio and Treynor Index methods, only Cipta Syariah Equity performs better
than market index (as indicated by the positive alpha figure). However, even though
alpha figures indicate that there is difference in risk-adjusted performance between
each of the funds (both sharia and conventional) and the market index, the p-values
of all the alpha figures suggest that all of it is statistically insignificant (p-value > 0.05).
Therefore, it can be stated that, based on Jensen Alpha method, there is no difference
in risk-adjusted performance either between each of the sharia mutual funds and
market index or between the conventional benchmark fund and market index over the
period of the study.

53 | P a g e

Table 25. Jensen Alpha of Sharia Mutual Funds and Conventional Benchmark Fund

Variable
INTERCEPT (JENSEN ALPHA)
P-VALUE
BETA
P-VALUE
R SQUARE
ADJUSTED R SQUARE
N

TRIM SS Batavia DSS PNM ES CIMB-PIEGS MandiriI IAS Cipta SE Manulife SSA Panin DP
-0.0000158
0.9322604
0.9956664
0.0000000
0.8448880
0.8446320
608

-0.0000361
0.8628035
1.0122464
0.0000000
0.8168439
0.8165416
608

-0.0002093
0.4206001
0.9447554
0.0000000
0.7156306
0.7151614
608

-0.0000899
0.6187604
1.0465396
0.0000000
0.8645252
0.8643017
608

-0.0002616 0.0001502 -0.0000586 -0.0000448

0.1228776 0.5411496 0.6989771 0.8256948
1.0987160 0.8545130 1.0413225 1.0584191
0.0000000 0.0000000 0.0000000 0.0000000
0.8889608 0.6969164 0.8998688 0.8375693
0.8887776 0.6964162 0.8997035 0.8373012
608
608
608
608

Jensen Alpha calculation in Table 25 also displays the beta figures which represent
the systemic risk of the funds (sharia and conventional benchmark). In general, the
beta figures are relatively similar. Mandiri Investa Atraktif Syariah (1.099), Panin Dana
Prima (1.058), CIMB-Principal Islamic Equity Growth Syariah (1.047), Manulife
Syariah Sektoral Amanah (1.041), and Batavia Dana Saham Syariah (1.012) have
beta figures slightly over 1 which mean that they are slightly riskier than market index.
Meanwhile, TRIM Syariah Saham (0.996), PNM Ekuitas Syariah (0.945), and Cipta
Syariah Equity (0.855) have beta figures slightly below 1 which suggest that they are
slightly less risky than market index. Overall, there are no funds which are significantly
riskier or less risky compared with the market.
All in all, all the risk-adjusted performance measurement methods (Sharpe Ratio,
Treynor Index, and Jensen Alpha) in this study suggest that there is no performance
difference between sharia mutual funds and market index, as well as between sharia
mutual funds and their conventional benchmark fund. This is consistent with
Hamilton, et. al. (1993), Diltz (1195a, 1995b), Statman (2000), Viviers and Eccles
(2001), Blanchett (2010), Humprey and Lee (2011), and Revelli and Viviani (2015)s
findings which suggested that the seemingly different in performance between SRI
funds and conventional funds is actually not statistically significant. However, the
finding of this study is different with the findings by Achsien (2003) and Rahmayanti
(2006) which suggested that sharia mutual funds outperform their conventional
54 | P a g e

benchmarks in Malaysian and Indonesian markets. The finding also differs from the
result of the research by Cahyaningsih (2008) who finds a mixed result on the
performances of sharia mutual funds in Indonesia.

55 | P a g e

CHAPTER V. CONCLUSION
Socially Responsible Investment (SRI) has been existed and practiced for at least 300
years. As a concept, SRI started as a faith-based investment strategy which then
developed into a more comprehensive framework which incorporated environmental,
social, and governance (ESG) factors without neglecting the financial return importance.
According to industry standard definition, there are 7 (seven) SRI strategies as follows:
negative/exclusionary

screening,

positive/best-in-class

screening,

norms-based

screening, integration of ESG factors, sustainability-themed investing, impact/community

investing, and corporate engagement and shareholder action.
In Indonesia, SRI could be considered as synonymous to Islamic/sharia-compliant
investment since 99.14% of Indonesian SRIs assets are identified as Islamic/shariacompliant investment according to Association for Sustainable and Responsible
Investment in Asia (ASrIA). Moreover, the definition of Islamic/sharia-compliant
investment in Indonesia itself is in line with the negative/exclusionary screening strategy
in SRI. In term of development, SRI in Indonesia, particularly in the form of mutual fund,
was showing a positive trend. With the first issuance in 1997, sharia mutual funds in
Indonesia had reached 80 in number and Rp11.8 billion in net asset value (NAV) by May
2015. In the last 5 years (2010 2014), sharia mutual funds NAV had grown by a massive
115.02%. However, in term of absolute size, sharia mutual funds only amounted to 8.27%
of the total numbers and 4.42% of the total NAV of the mutual funds in Indonesia.
Nevertheless, it can be concluded that based on the positive trend in growth rate,
Indonesian sharia mutual funds will likely to keep on growing further in the upcoming
years.
In term of actual performances, the analysis on non-risk-adjusted and risk-adjusted
returns of the SRI in Indonesia, which was represented by Jakarta Islamic Index (JII) and
sharia mutual funds over the period of 1 January 2013 30 June 2015, revealed the
following results:

56 | P a g e

1. Non Risk-Adjusted Performance

a. There is no statistically significant performance difference between JII and market
index (Jakarta Composite Index/JCI)
b. There is no statistically significant performance difference between JII and its
conventional benchmark index (LQ45 Index)
c. There is no statistically significant performance difference between the selected
sharia mutual funds and market index (JCI)
d. There is no statistically significant performance difference between the selected
sharia mutual funds and their conventional benchmark fund (Panin Dana Prima)

2. Risk-Adjusted Performance
a. There is no statistically significant performance difference between JII and market
index (JCI) based on Sharpe Ratio and Treynor Index results
b. There is no statistically significant performance difference between JII and its
conventional benchmark index (LQ45 Index) based on Sharpe Ratio, Treynor
Index, and Jensen Alpha results
c. There is no statistically significant performance difference between the selected
sharia mutual funds and market index (JCI) based on Sharpe Ratio and Treynor
Index results
d. There is no statistically significant performance difference between the selected
sharia mutual funds and their conventional benchmark fund (Panin Dana Prima)
based on Sharpe Ratio, Treynor Index, and Jensen Alpha results
In conclusion, the study found that there is no performance difference between SRI and
market, as well as between SRI and its conventional benchmarks in Indonesia, whether
from non-risk-adjusted or risk-adjusted perspective. In addition, the findings of this study
suggested that the current rapid growth of SRI in Indonesia may not be resulted from SRI
having a superior performance compared with other (conventional/non-SRI) investment.
Nevertheless, the finding indicated that SRI or Islamic/sharia-compliant investment is a
solid investment alternative in Indonesia since it provided statistically equal return
57 | P a g e

performance compared with other non-SRI investments. Therefore, SRI, particularly

Islamic/sharia-compliant investment, would likely to continue to grow and attract more
investors, especially when taking into account the increasing ESG and sharia awareness
in the Muslims population in Indonesia.

RECOMMENDATION FOR FUTURE RESEARCH

Although the study found the evidence that there is no performance difference between
SRI and market, as well as SRI and its conventional benchmarks in Indonesia, the result
of this study may be affected by the limitations in the number of observed samples and
the length of the observation period. Therefore, in order to have a more comprehensive
result on the performances of SRI in Indonesia, it is necessary that future research to
include all the available and relevant types of SRI or Islamic investment in Indonesia such
as sharia mutual funds (equity, balanced, protected, fixed income, money market, index,
and exchange traded), and Sukuk (sovereign and corporate). It is also important to
expand the sample size and the observation period of the study for statistical purposes.

58 | P a g e

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APPENDICES
APPENDIX 1. List of Stocks in Jakarta Islamic Index, December 2014 May 2015

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APPENDIX 2. List of Stocks in LQ45 Index, February July 2015

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ETHICS FORM

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