Determinant of Islamic Mutual Fund Performance: A Comparative Study Between Indonesia and Malaysia

This study aims to analyze determinant performance of Islamic equity funds and compare the performance of Indonesian Islamic equity funds with Malaysian Islamic equity funds period 2017-2019. Factors that are thought to affect the performance of mutual funds are past performance and inflation. Mutual fund performance itself is measured using the Sharpe Index. This study uses secondary data and the sample is taken using purposive sampling. Methods of data analysis using Panel Data Regression. This study indicates that simultaneously the variables Past Performance and Inflation affect the performance of Islamic equity mutual funds in Indonesia and Malaysia. Furthermore, it partially shows that Past Performance harms the performance of Islamic equity funds, while inflation positively affects the performance of Islamic equity funds. In addition, this study also shows that there is a significant difference between the performance of Indonesian and Malaysian Islamic equity funds. Malaysian Islamic equity funds were superior to Indonesian Islamic equity funds in 2017-2019.


INTRODUCTION
Investment in Islam is profit-oriented and an activity that has spiritual nuances and is carried out according to sharia norms. Every Muslim to invest in investment products that comply with sharia principles. The potential of Indonesia's Islamic capital market is developing very well, Indonesia's total Islamic financial assets reached IDR 1,359 trillion or contributed 8.7% of the total assets of the national financial industry (Otoritas Jasa Keuangan, 2019). Of the total assets of the Islamic financial industry, the Islamic capital market contributed the most at 56.2%, followed by Islamic banking at 36.3%, and the Islamic non-bank financial industry at 7.5% (Otoritas Jasa Keuangan, 2019).
Islamic mutual funds emerge as a product in the Islamic capital market as an alternative solution based on sharia principles. This occurs because not everyone has the knowledge, ability, information, time and capital to invest. The thing that distinguishes between sharia and conventional mutual funds lies in the investment instrument chosen and the investment mechanism that is guided by the source of the Qur'an. In the concept of Fiqh Muamalah, the mutual fund transaction mechanism uses a wakalah contract, namely between investors and investment managers, as well as a mudharabah agreement between investment managers and companies (Hamid, 2009).
Most distinguish between sharia and conventional mutual funds is the screening process for investment instruments based on sharia rules and the cleansing process to clean up non-halal income or income obtained from illicit activities (Soemitra, 2009). According to Rodoni (2009), there are four types of sharia-based mutual funds that investors can choose for investing: money market funds, equity funds, fixed-income funds, and balanced funds.

The Development of Islamic Mutual Fund in Indonesia
Source: Financial Service Authority (2020) The potential of Islamic mutual funds in Indonesia seems quite promising, especially since Indonesia is the largest Muslim country. This does not necessarily make Indonesia a country that excels in developing Islamic financial instruments and capital markets. Indonesia is a country that is lagging in terms of experience and intensity from Malaysia. Malaysia is supported by a political situation that adheres to an Islamic royal system. Islamic financial instruments and capital markets are the most supported and developed in this country.  A good or bad investment is inseparable from other influencing factors.
The first factor that is thought to influence mutual fund performance is past performance. Past performance can be used as a reference for performance as one of the considerations in mutual fund investment, but it is not the only one (Rudiyanto, 2015). Utami (2014), in his research, states that past performance EQUILIBRIUM, Volume 9, Nomor 1, 2021 does not affect mutual fund performance. Meanwhile, according to Bitomo & Muharam (2016), past performance does not affect mutual fund performance.
The second factor that is thought to affect mutual fund performance is inflation. Inflation is one factor that concerns investment managers in their calculations, especially with the development of the net asset value (NAV) of a mutual fund (Pasaribu, 2014). Adrian & Rachmawati (2019), Afriliasari & Syaharuddin (2016), and Dalimunthe & Lestari (2019) shows that inflation harms the performance of mutual funds. While according to Tanamas (2006) in his research, inflation does not affect mutual fund performance.
This factor is theoretically closely related to the performance of mutual fund portfolios. It is expected to be a strong indicator for investors to determine the performance of Islamic equity funds. Investment players need to know how much influence these factors exert so that investment players in Islamic equity mutual funds in Indonesia and Malaysia can still make more appropriate investment decisions or make further anticipations regarding their investment decisions at the time. There are significant changes in these factors.
Based on the explanation above, this study will test whether past performance and inflation affect the performance of Islamic mutual funds in Indonesia and Malaysia. Then, is there a difference in performance between Islamic mutual funds in these two countries. Thus, this study contributes to measuring and comparing the performance of Islamic mutual funds between Indonesia and Malaysia. (2016)  Shah et al. (2017) and Khajar et al. (2019) show that the Islamic mutual fund's performance is lower than the conventional mutual funds. Nevertheless, Islamic mutual funds are more stable rather than conventional ones. Rao et al. (2015) also show that conventional mutual funds are more volatile than Islamic mutual funds. Besides that, Islamic mutual funds exposed to a lower risk than their conventional counterparts (Naveed & Khawaja, 2020). Atta & Marzuki (2020) show that Islamic mutual funds' selection ability is better than conventional mutual funds. Ahmad et al. (2017) show that turnover, liquidity and new money had a significant impact on the performance of conventional mutual funds. On the contrary, the Islamic mutual funds' performance is worsened by the new money. Fakhrunnas (2018) shows that two factors that make Islamic mutual funds' performance are below conventional because of the unskilled fund manager and regulation.

Rehman and Baloch
Several factors determine the performance of Islamic mutual funds. Septiana & Al Arif (2020) conclude that in the long run, the composite price index (IHSG) and the rate of return have a positive impact on the performance of Islamic mutual funds. The other factors that have an impact on Islamic mutual funds are the inflation rate. Several studies have shown the relationship between the inflation rate and the performance of Islamic mutual funds (Adrian & Rachmawati, 2019;Afriliasari & Syaharuddin, 2016;Dalimunthe & Lestari, 2019). Although some studies show the contrary result, there is no relationship between inflation and Islamic mutual funds (Rachman & Mawardi, 2015;Septiana & Al Arif, 2020). Uddin et al. (2019) show that the seasonal effect has a different impact on various Islamic mutual funds products. The seasonal effect is not significant for the balanced, equity, and cash funds product. Nevertheless, there is a positive relationship between seasonal effect in fixed income funds product.

Empirical Result
Based on the results of the chow test, the Chi-square probability value is 0.0003. These results indicate that the most appropriate model is the fixed effect model (FEM). Then, the Hausman test results show a random cross-sectional probability value of 1,000. This means that the most appropriate model is the random effect model (REM). Based on the lagrange multiplier test, the Breuschpagan probability value is 0.0020. This shows that the most appropriate model is the random-effects model.
Based on the test results of the three models, it shows that the panel data estimation model that is most appropriate to use in this research is the Random Effect Model (REM). Because REM uses the Generalized Least Square (GLS) method, there is no need to perform classical assumption tests.  Islamic equity mutual funds. Past performance has a negative effect, meaning that if past performance increases, the performance of Islamic equity mutual funds will decline. Inflation has a positive effect, and this shows that if inflation increases, the performance of Islamic equity mutual funds will also increase.

Discussion
Past performance harms the performance of Islamic equity funds. This result shows a negative correlation, so it can be concluded that the higher the past performance, the lower the performance of the managed Islamic equity funds.
This result is undoubtedly following the object of this study, namely stock mutual funds. Stock mutual funds are a type of mutual fund with a high-risk category, so they have a more volatile performance movement when compared to other types of mutual funds. These results indicate that the excellent performance of Islamic equity funds in the past does not always make these stock mutual funds good in the future.
The results of this study support previous research conducted by Utami (2014). That past performance has a significant effect on mutual fund performance.
However, the results of this study contradict previous research conducted by Bitomo & Muharam (2016), where past performance variables simultaneously affect mutual fund performance. While partially past performance variables do not significantly affect mutual fund performance.
The results of this study also indicate that inflation affects the performance of Islamic equity funds. This result shows a positive correlation so that it can be concluded that the higher the inflation, the higher the performance of managed Islamic equity funds. This result means that when there is an increase in inflation, people will choose to maintain the value of their money by purchasing Islamic equity mutual funds instead of holding money whose real value decreases with inflation.
From the issuer's point of view, price increases in inflation classified as low or mild during the study period were not immediately followed by an increase in workers' wages, so that profits would increase. This brings benefits to producers; if the income earned is higher than the production costs, the producers will be encouraged to double their production. Increased profits will attract investors to invest; when investors increase their investment, the productivity of the issuer will increase; as a result, the performance of Islamic equity funds will also increase.
This study supports research conducted by Maulana (2013) that shows that inflation affects the performance of equity funds in Indonesia. The results of this study are also following research conducted by Hermawan & Wiagustini (2016), Setyani & Gunarsih (2018), Setiawan and Wati (2019), and Kurniawan (2019), which show that the inflation variable affects the performance of equity funds.
However, this result is different from several previous studies, which show no influence between the inflation rate and Islamic mutual funds (Tanamas, 2006;Rachman & Mawardi, 2015;Septiana & Al Arif, 2020 is one of the things that determine the performance of Islamic mutual funds (Setiawan & Wati, 2019). Second, the government must develop and promote the sharia economic ecosystem, including the Islamic fund market, to attract investors to invest in Islamic mutual funds. Campbell & Vuolteenaho (2004) and Hou et al. (2015) suggest that fund managers should invest more in growth stock than in value ones for the Islamic mutual funds. Mulyawan (2016) advises investors to choose mutual funds with a long trading age and significant managed funds.

CONCLUSION
The results of this study indicate that partially past performance variables have a significant adverse effect. In contrast, the inflation variable has a significant positive effect on the performance of Islamic equity mutual funds in Indonesia and Malaysia in 2017-2019. Meanwhile, the dummy variable shows that the performance of Indonesian and Malaysian Islamic equity funds has a significant difference at each level of past performance and inflation in 2017-2019.
Investors are expected to consider past performance variables and inflation as a reference for investing in Islamic equity mutual funds in Indonesia and Malaysia. The government and sharia economic activists must intensify the socialization of Islamic mutual funds to the general public so that Islamic mutual funds are not only known by certain groups. Increasing literacy about the Islamic economy in the community is expected to accelerate the Islamic financial industry and capital market development.
The limitation of this study is that the period is not too long. Namely, three years only uses one mutual fund performance measurement tool, namely the Sharpe index. Future research is expected to extend the research period, use one performance measurement tool, and increase the researched mutual fund categories.