Asset Allocation Strategy to Create Superior Portfolio from Equity Mutual Funds

Abstract

There are many factors that cause an investor's success or failure in investing. One of the most decisive factors is the strategy to allocate investment assets. Therefore, investors need to allocate his or her assets such that an optimal return is achieved. This study discusses three strategies of asset allocation, namely buy and hold, instalment plan, and rebalancing. Three rebalancing processes are applied; quarterly, semi-annually and annually. Thirty active equity mutual funds from 2008 to 2014 have been used as research sample to calculate the superior portfolio. This study uses the Sharpe ratio to calculate portfolio return. The research result shows that strategic asset allocation with rebalancing strategy is considered the best strategy to be applied by investors. This finding can be used by investors as reference to invest in equity mutual funds to enhance returns.