PORTFOLIO

OPTIMIZATION
FOR GREEN SHARIA STOCK
UNLOCKING INDONESIA SUSTAINABLE
ISLAMIC FINANCE POTENTIAL

THE 5TH ASIA-PASIFIC MANAGEMENT RESEARCH CONFERENCE

P R E S E N T E D BY G H I N A A U FA
 The 5th Asia-Pasific Management Research Conference

INTRODUCTION

Malaysia

FTSE Bursa Malaysia Top 100 ESG Law

Carbon Sharia Index (FBM100LS)
FTSE4Good Bursa Malaysia Shariah (F4GBMS)
– 1st ESG-Shariah Index in the world

Indonesia has Muslim population of over 242 million (87% of the overall ESG (Environmental, Social, and Governance) Investment practices gained
population) and ranks seventh in the world of Islamic Financial asset. considerable attention since the pandemic Covid-19. Based on PWC
Significantly less than Malaysia, a neighboring country known as the research, 78% of investor willing to pay premium for this investment. ESG
World’s Largest Islamic Financial Hub practices being more resilient in unfavorable market conditions. (Shah, 2023)

Indonesia is the largest market for sharia-compliant financial goods. With sizable Muslim The integration of ESG and Shariah concepts is expected to play a critical role an tackling
population, Indonesia has enormous potential to build Islamic capital market by leveraging environmental concerns and fostering economic development. In contrast to Malaysia that’s
on the growing demand for Sharia-compliant investor. have ESG-Syariah Index, Indonesia does not yet have a specific ESG-Sharia stock index.

Portfolio Optimization for Green Sharia Stock: Unlocking Indonesia Sustainable Islamic Finance Potential
 The research period spans from January 2018
to December 2023
This study is descriptive quantitative research.
METHODS
RESEARCH Step 1 : Select the Best Stock
TLF Approach Sectoral Analysis

The 5th Asia-Pasific Management Research Conference

Step 2: Build a Stock Portfolio
Markowitz Model Single Index Model

Step 3 : Analyzing Risk of Investment

Value at Risk Conditional Value at Risk

Step 4: Evaluate Performance Portfolio

Sharpe Ratio Treynor Ratio Jensen’s Alpha

SHARIA RESEARCH
SAMPLE
SRI KEHATI
ESG IDX LEADER INDEKS SAHAM SYARIAH
ESG SECTOR LEADER INDONESIA (ISSI)
ESG QUALITY 45 KEHATI

GREEN
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STEP 1 : STOCK SELECTION

The researchers thoroughly select stocks before constructing the portfolio to identify top performers. They use the Taguchi
Loss Function (TLF) and sectoral analysis to choose 49 Green Sharia stocks, which are listed on both the Sharia stock index
and the ESG-based stock index.

TAGUCHI LOSS FUNCTION SECTORAL ANALYSIS

Genichi Taguchi (1949) GDP Projection for 2024 – GDP Growth 2013 - 2023
Genichi Taguchi initially developed the Taguchi Loss Function method as an operational management
tool for the manufacturing industry in 1949. Athvale and Band later applied this method to stock
To determine if these stocks are part of industries that can withstand
global changes, it’s necessary to conduct a fundamental analysis of
selection in 2008. They selected stocks based on a target benchmark determined by market
the sector This analysis involved estimating the projected GDP for
capitalization 2024 and evaluating the industry risk (standard deviation).

Application on This Research

The TLF approach selects equities based on their loss level compared to a target BASIC MATERIALS TRANSPORTATION TELECOMUNICATION HEALTHCARE SERVICE
stock. Financial measures such as ROE, ROA, DAR, DER, PER, and PBV are used
to calculate loss levels. This study employs a 25% loss level with TLKM as the
target stock (represent the biggest capital market of green sharia stocks).
ELECTRICITY AUTOMOTIVE MINING
ROA ROE DAR DER PBV -- > E-
Views 12
Result of Analysis TLF 20 STOCKS OUT OF 37 STOCKS
Out of the initial 49 green sharia stocks, 37 stocks met the criteria set by
the TFL method at a 25% tolerance level. INTP ANTM INCO SMGR SMDR TLKM AKRA
TLKM SMSM UNTR DMAS JTPE ACES SCMA PRDA MAPA ICBP BTPS SCMA MNCN BMTR ERAA PRDA KLBF
MNCN MPMX KLBF HEAL POWN SMDR AKRA SIDO MAPI MIKA AUTO PGAS
SIDO MIKA HEAL POWR UNTR
INCO CITRA AALI SMGR DSNG BMTR BSDE PGAS IMPC
SMSM

Portfolio Optimization for Green Sharia Stock: Unlocking Indonesia Sustainable Islamic Finance Potential
STEP 2 : PORTFOLIO OPTIMIZATION
Markowitz Model
The Markowitz model aims to minimize risk while maximizing returns by focusing on a portfolio
of just 10 stocks. This reduces the chance of large return fluctuations and avoids over-
diversification bias. Using Excel’s Solver, we calculate the proportion of each stock, creating the
Efficient Frontier (EF) curve when plotted. Risk-free assets will create the Capital Allocation Line
(CAL).
Return portfolio 12% and the standard deviation is 22%

Composition:
ANTM (7,1%) TLKM (25,6%) SIDO (8,7%) INTP (8,3%)
PGAS (9,2%) KLBF (10,9%) SMGR (9,1%)
UNTR (9,8%) AKRA (6,9%) INCO (4,4%)

Single Index Model

Besides the Markowitz Model, a simpler method for portfolio formation is the Single Index Model.
The process of forming an optimal portfolio involves calculating ERB, the Ci value, and the C*
value. Stocks that qualify are those with an ERB value greater than C*.
Return portfolio 25,23% and the standard deviation is 20,45%
Composition:
SMDR (26,41%) PRDA (9,27%) ERAA (17,56%) MIKA (9.13%) SIDO (15.28%) KLBF (14.95%)
SMGR (7.4%)

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STEP 3 & 4 : RISK INVESTMENT ANALYSIS AND PORTFOLIO PERFORMANCE

EVALUATION

CONDITIONAL VALUE AT RISK PORTFOLIO EVALUATION

An investment risk analysis was conducted using conditional value at risk In addition to conducting a risk analysis to determine which
(CVaR). The CVaR method was selected due to its ability to predict extreme model (Markowitz vs Single Index) presents higher risk, it’s
losses, surpassing the predictive capabilities of Value at Risk (VaR). The essential to evaluate portfolio performance to identify the
CVaR values were computed based on historical loss data over the return optimal model. Portfolio performance is assessed using:
levels during January 2018 to December 2023 (1494 days).

Markowitz Model Single Index Model Sharpe Ratio Treynor Ratio Jensen’s Alpha

Investment (Rp) 100,000,000 100,000,000

No. of days 1494 1494
Confidence Interval (CI) 0.99 0.99
Markowitz Model Single Index Model
Probability (alpha) 0.01 0.01
Sharpe Ratio 0.2541 0.9209
VaR (%) -4.069% -3.521%
Treynor Ratio 0.0477 0.2174
VaR (Rp) 4,069,156 3,521,207
No. of days applicable given for CI 15 15
Jensen's Alpha 0.0010 0.1463
CVaR (%) -5.272% -5.411%
CVaR (Rp) 5,271,835 5,411,329

Portfolio Optimization for Green Sharia Stock: Unlocking Indonesia Sustainable Islamic Finance Potential
 The 5th Asia-Pasific Management Research Conference

CONCLUSION
CONCLUSION & IMPLICATION LIMITATION & RECOMMENDATION
- Only two models were used for optimal portfolio formation: the
Conclucion :
This study reveals a discrepancy between two risk measurement Markowitz and Single Index Models. Future research is expected to

methods: Standard deviation and CVaR. According to previous use other models such as Fama French, Black Litterman, etc.

calculations, the Markowitz Model has a standard deviation of 22%

- Using the period from 2018-2023. Tuture research can be
with a CVaR of 5.27%, whereas the Single Index Model has a
standard deviation of 20.45% with a CVaR of 5.41% conducted by shortening or extending the research period.

Implication: - Using TLKM as the target stock in TLF selection. Future research is
This study provides recommendations on selecting an optimal expected to consider factors other than market capitalization when
portfolio based on ESG-Sharia. The Single Index Model is suitable selecting target stocks.
for aggressive investors who are willing to accept relatively higher
risks, while the Markowitz model is suitable for moderate investors - This research uses the CVaR risk measurement technique with
who prefer not to take excessively high risks. historical data simulation. Future research could calculate CVaR
using other methods such as Monte Carlo
In the future, Indonesia, as the country with the largest Muslim population, is expected to be
able to compete in the global Islamic finance world like Malaysia, which is widely known as an
Islamic finance hub.

Portfolio Optimization for Green Sharia Stock: Unlocking Indonesia Sustainable Islamic Finance Potential
THANK YOU!
Presentation by Ghina Aufa

Staying invested while taking a reasonable risk is more

important
If you’re 25 years today, you have least 60 years ahead you.
And the world looks uncertain as ever

- wokesalaryman