[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]