What you will learn in this module

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Do curso por University of Geneva

Securing Investment Returns in the Long Run

466 classificações

University of Geneva

Securing Investment Returns in the Long Run

466 classificações

Curso 4 de 5 em Specialization Investment Management

In this course, you will learn about the famous dichotomy between active and passive investing, how to appropriately measure and analyze investment performance and what the future trends in the investment management industry are. You will first learn about absolute and relative performance, risk-adjusted returns and how to decompose investment performance. The focus will then shift to the two main categories of investment vehicles, active and passive funds, and what they entail in terms of expected performance. Finally, you will explore the worlds of sustainable finance, neurofinance and fintech, three areas of research that will shape the future of the investment management industry. You will also benefit from the insights of experts from UBS, our corporate partner, on the practical implementation of the various concepts we will develop in this course.

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Investment Vehicles

Welcome to the third module of the course! In this module, we will explore the worlds of active and passive funds and try to address whether or not active fund management provides added value to a portfolio. But before doing so, we will see how to choose the best investment vehicles among both active and passive funds. The module ends with a discussion with our corporate partner on topics that often divides the world of finance between academia on one side and practitioners on the other.

What you will learn in this module4:06

Dimensions in ETF selection - UBS guest speaker6:50

Conheça os instrutores

University of Geneva- Tony Berrada
SFI Associate Professor of Finance
Geneva Finance Research Institute
University of Geneva- Ines Chaieb
SFI Associate Professor of Finance
Geneva Finance Research Institute
University of Geneva- Jonas Demaurex
Teaching Assistant
Geneva Finance Research Institute
University of Geneva- Rajna Gibson Brandon
SFI Senior Chaired Professor of Finance and Managing Director of the GFRI
Geneva Finance Research Institute
University of Geneva- Michel Girardin
Lecturer in Macro-Finance - Project Leader for the "Investment Management" specialization
Geneva Finance Research Institute
University of Geneva- Philipp Krueger
SFI Assistant Professor of Finance
Geneva Finance Research Institute
University of Geneva- Kerstin Preuschoff
Associate Professor of Neurofinance and Neuroeconomics
Geneva Finance Research Institute
University of Geneva- Olivier Scaillet
SFI Senior Chaired Professor of Finance and Vice-dean (research) at GSEM
Geneva Finance Research Institute
University of Geneva- Philip Valta
SFI Assistant Professor of Finance
Geneva Finance Research Institute

[MUSIC]

Hi there.

In this third module we're going to have a look at active funds,

passive funds, and see how we can make a distinction and indeed a selection

between the two types of funds based on the outperformance on alpha.

So, we're going to start with passive funds.

And we're going to see that passive funds make sense if you want to get quick and

fast exposure, and full exposure also to a given market.

Say you see the oil price rebounding from it's lows and

you want to get quick exposures to the oil sector in the U.S.,

so the best idea here would be to take an ETF and we'll see what that means.

That gives you a full exposure to the oil sector in the U.S..

A second example where passive funds may make more sense

is if the market is concentrated on a few large companies.

For instance, we saw in a previous course we talked about Nokia and

it used to represent just before the tech bubble burst,

the largest company in the European equity market index.

And clearly it also represented maybe 70% of the Finnish equity market index.

So clearly in this instance, another example in Switzerland

where you have that the equity index is concentrated within

three companies Nestle, Roche, and Novartis.

So in both instances it make sense to use a tracker and

a passive fund, as opposed to an actively managed fund.

In the second part of this module, we'll talk about active funds and

in particular we'll see that in this debate of active versus passive,

one ratio which I personally am quite keen on is the so called information ratio.

The information ratio, we have the details, but basically the idea is to

compare your outperformance as a fund manager to the latitude you have at your

disposal in deviating from the benchmark and we call this the tracking error.

Because you'll see that more often than not quite a lot of managers

blame the fact that they cannot deviate from the benchmark,

they're given a constraint to respect, to not to have substantial bets

of over or under weighting individual securities within an index.

And this constraint basically hinders the manager to deliver outperformance.

So the information ratio to me

is the best indicator you can find to basically put the two together.

Do your capacity to deliver outperformance as a fund manager

given the freedom you have to deviate from the benchmark?

And in the third part of this module we will have a look at, we'll do a debate.

Active verses passive management.

And we'll label it in search of alpha.

Alpha is the outperformance that you can measure that a fund

manager is supposed to deliver over an index, over a benchmark.

And we'll see that basically it's hard to find

sustainable evidence that a large number of funds,

of actively managed funds, manage to beat the benchmark.

And we'll see why, and what you should do about this.

We will talk about this in a debate with somebody from UBS, and

we'll see the pros and cons of active verses passively managed funds.

[MUSIC]

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