Portfolio optimization of equity mutual funds : Malaysian case study

Abstract

This study focuses on the equity mutual funds of Public Bank Berhad, CIMB and Malayan Banking Berhad. The equity mutual funds or equity trust is grouped into four clusters bases on their characteristics and categorized as either inferior funds, stable funds, good performance funds and aggressive funds based on their return rates, variance and treynor index. Based on the cluster analysis, the return rates and variance of Cluster 2 and Cluster 3 are represented as triangular fuzzy number to reflect the uncertainty of financial market. To find the optimal asset allocation in each cluster, we develop a hybrid model of optimization and fuzzy. This done by maximizing the fuzzy return for a tolerable fuzzy risk and minimizing the fuzzy risk for a desirable fuzzy return separately at different confidence levels.