Sustainable and responsible investment portfolio performance analysis in Indonesia Stock Exchange

Abstract

This study is intended for knowing the Sustainable and Responsible Investment (SRI) stock portfolio performance in the Indonesia Stock Exchange (IDX). SRI is a concept where the investor is not only considering financial performance, but also non-financial aspects in the company such as Environmental, Social, and Governance (ESG). The main objective of this study is to compare the performance of the SRI portfolio with the performance of comparable portfolios. Is the performance of the SRI portfolio in IDX better than conventional portfolio and Islamic portfolio? To answer this question, the SRI portfolio will be formed from SRI-KEHATI Index (SRI), a conventional portfolio will be formed from the LQ45 index, and the Islamic portfolio will be formed from Jakarta Islamic Index (JII). The performances of those three portfolios will be compared based on alpha value, Sharpe Ratio, Treynor Ratio, and Sortino Ratio. This study result shows that the SRI portfolio performance in IDX is better than the conventional portfolio and Islamic portfolio. That performance occurs because the average of SRI portfolio excess return has positive value during the study period. Abstrak Penelitian ini bertujuan untuk mengetahui kinerja portofolio saham Sustainable and Responsible Investment (SRI) di Bursa Efek Indonesia (BEI). SRI merupakan sebuah konsep dimana investor tidak hanya mempertimbangkan kinerja keuangan, tetapi juga aspek non keuangan dalam perusahaan seperti Lingkungan, Sosial, dan Tata Kelola (LST). Tujuan utama penelitian ini adalah membandingkan kinerja portofolio SRI dengan kinerja portofolio pembanding. Apakah kinerja portofolio SRI di BEI lebih baik dari portofolio konvensional dan portofolio syariah? Untuk menjawab pertanyaan tersebut maka akan dibentuk portofolio SRI dari Indeks SRI-KEHATI (SRI), portofolio konvensional akan dibentuk dari indeks LQ45, dan portofolio Syariah akan dibentuk dari Jakarta Islamic Index (JII). Performa ketiga portofolio tersebut akan dibandingkan berdasarkan nilai alpha, Sharpe Ratio, Treynor Ratio, dan Sortino Ratio. Hasil penelitian ini menunjukkan bahwa kinerja portofolio SRI di BEI lebih baik daripada portofolio konvensional dan portofolio syariah. Kinerja tersebut terjadi karena ratarata excess return portofolio SRI bernilai positif selama periode penelitian.

Determinants Of Investment Portfolio Performance: A Systematics Literature Review

“…Various performance measures can be used to assess the performance of an investment portfolio, such as the Sharpe Ratio, Treynor Ratio, Jensen Ratio, and Sortino Ratio [16]- [18]. Evaluating portfolio performance is important for individual investors and the economy as a whole, can help investors make informed decisions about their investments and contribute to efficient capital allocation [19].…”

“…A number of variables, such as market circumstances, asset allocation, and portfolio makeup, affect investment portfolio performance [18]. Investing diversification and portfolio optimisation allow investors to target both risk management and return maximisation [19].…”

“…It may be applied in two situations: first, when the rate of return on the portfolio is not normally distributed; and second, when assessing the performance of investments from the standpoint of investors who have consistent levels of absolute risk aversion [17]. Normally undistributed returns may be utilised to determine GSR by adjusting the Sharpe Ratio to reflect the investor's desired utility [18] The Sharpe ratio, on the other hand, computes the amount of excess return achieved against each unit of total risk by dividing the average excess return by the standard deviation [19]. It is used to assess portfolio performance and determine if it beats risk-free assets.…”

“…It is one of three often used performance ratios, along with the Jensen and Sharpe ratios. The Jensen ratio accounts for the difference between the portfolio risk premium and the market risk premium, whereas the Sharpe ratio assesses the portfolio's total risk [17], [19].…”

Mapping the research on sustainable stock indices: a bibliometric review from 2001 to 2022

“…as a niche sector (Utz and Wimmer, 2014), but by 2014, it had $6.57tn asset under management (AUM) in the USA and $21.4tn globally. The keyword cluster represents that there are numerous studies been conducted related to the analysis of the risk-return performance of Socially Responsible Investing (SRI) indices and conventional indices (Curto and Vital, 2014; Managi and Okimoto, 2013; Miralles-Quiros and Miralles-Quiros, 2017; Schroder, 2007) as well as examining the sustainable and responsible portfolio performance (Angelica and Utama, 2020; Bodhanwala and Bodhanwala, 2020; Fiskerstrand et al , 2020). The top occurring keywords representing the trending topics in this field are also presented in Table 3 for enhanced understanding.…”