Abstract
Robo-advisor is one of the most prominent innovation in the wealth management industry, and its success in Indonesia has been evident in the case of Bibit. Therefore, wealth management companies need to employ Robo-Advisor to overcome their competition. This research aims to give recommendation on asset allocation method and asset class selection for Robo-Advisors in Indonesia using Sharpe Ratio Analysis. Then, the author will analyze the robo-advisor’s performance during equity market downturn. Finally, The Robo-Advisor’s actual performance will be tested in 2018, 2019, and 2020. The Sharpe ratio analysis result showed that Robo-Advisors seeking higher risk-adjusted return should choose mean-variance optimization over risk parity for asset allocation method, and the inclusion of gold and bitcoin in a portfolio of stock mutual fund and bond mutual fund increases the risk-adjusted return of the portfolio. The proposed robo-advisor’s portfolio protected investors from equity market downturn in 2011-2010 in 83,3% of the case. Finally, the proposed robo-advisor’s portfolio generated better return for the conservative, moderate and aggressive investor during 2018, 2019, and 2020 when compared to LQ45.
Highlights
According to KPMG’s report (2021), the wealth management industry in Asia Pacific is going to experience a high level of growth caused by digital innovation within the industry
In Indonesia, Indonesian bonds tend to have comovement with stocks, and fails to act as a safe haven during market downturn (Siahaan & Robiyanto, 2019). This makes Indonesian wealth manager faces threat from foreign wealth managers, which are attractive because of their global capabilities and their access to international market and products (KPMG, 2021), which may become a hedge especially during equity market drawdown. This problem might be solved by incorporating gold in the investment portfolio, which acts as a safe haven during equity market drawdown for investors in emerging countries such as Indonesia (Gürgün & Ünalmis, 2014); and by incorporating cryptocurrency that has high return and can increase the Sharpe ratio of a portfolio (Hougan & Lawant, 2021)
AND ARGUMENT The investment product used in this research are LQ45 to represent stock mutual fund, Bahana ABF Indonesia Bond Fund (ABFI) to represent bond mutual fund
Summary
According to KPMG’s report (2021), the wealth management industry in Asia Pacific is going to experience a high level of growth caused by digital innovation within the industry. In Indonesia, Indonesian bonds tend to have comovement with stocks, and fails to act as a safe haven during market downturn (Siahaan & Robiyanto, 2019) This makes Indonesian wealth manager faces threat from foreign wealth managers, which are attractive because of their global capabilities and their access to international market and products (KPMG, 2021), which may become a hedge especially during equity market drawdown. This problem might be solved by incorporating gold in the investment portfolio, which acts as a safe haven during equity market drawdown for investors in emerging countries such as Indonesia (Gürgün & Ünalmis, 2014); and by incorporating cryptocurrency that has high return and can increase the Sharpe ratio of a portfolio (Hougan & Lawant, 2021)
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