Heuristic Based Low Volatility Portfolio For Retail Investors In Malaysian Stock Market

Heuristics based low volatility portfolio construction is a straightforward investment strategy
that could be implemented by retail investors in the stock market. This study examines the
performance of low volatility portfolio for Shariah and conventional stock portfolios. Specifically,
this study back tests the profitability of low volatility portfolio using 15 Shariah and conventional
stocks that are listed on Bursa Malaysia using data from January 2014 until December 2018.
Combination of large, mid, and small capital firms are included in the study to highlight the
difference in portfolio concentration within firm size classification. The results show that, the
return of conventional portfolio and shariah compliant portfolio is not statistically different.
However, the risk in shariah compliant portfolio is statistically higher than the conventional
portfolio. Both portfolios give better annualized return and holding period return than their
respective benchmark. Thus, retail investor could take advantage of the strategy to generate
abnormal return. For investors that focus on shariah compliant investment only, even though the
portfolio has slightly higher risk than the conventional counterpart, this strategy is still worth
considering. However, it is advisable for investor to monitor portfolio risk regularly to avoid
excessive risk taking and to include more shariah compliant large cap stocks in the portfolio.

Keywords: Low Volatility Portfolio, Shariah Compliant Stock, Retail Investor.