Investment Management in a nutshell - Part 1

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En provenance du cours de University of Geneva

Understanding Financial Markets

1827 notes

University of Geneva

Understanding Financial Markets

1827 notes

Cours 1 sur 5 dans Specialization Investment Management

In this course, you will learn what the main financial markets and their characteristics are as well as how they are linked to the economy. Our very diversified team of experts will start by teaching you how the price of stocks and bonds are computed and why they move while you will become increasingly aware of the notion of risk and why it matters when measuring an investment's performance. The focus will then move to less popular markets such as gold, emerging markets, real estate, hedge funds and private markets. These will be analyzed with an emphasis on their particular risks and return opportunities as well as how they can help in building efficient portfolios. Finally, the policies of central banks and their impact on financial markets will be presented to you along with the link between the economy and the price of financial assets. All along these different steps, experts from UBS, our corporate partner, will show you how the concepts you just acquired are effectively applied in a leading global bank. This focus on practicality means you will not only understand what is going on in global financial markets but also start to figure out how you can use them to achieve financial goals, be it a client's or your own.

À partir de la leçon

General Introduction and Key Concepts

Why a specialization on Investment Management? - UBS guest lecturer1:36

A word of welcome - OPTIONAL2:18

Introducing your GFRI team of instructors - OPTIONAL8:06

Investment management can be fun - OPTIONAL4:31

Some common mistakes you will no longer make after this course - Part 110:36

Some common mistakes you will no longer make after this course - Part 26:40

Investment Management in a nutshell - Part 18:50

Investment Management in a nutshell - Part 210:37

Rencontrer les enseignants

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- Martin Hoesli
Professor of Real estate investments
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
Dirk Effenberger
UBS Guest Lecturer, Head CIO Cross-Regional Investment Office
Chief Investment Office, UBS Wealth Management
Mark Haefele
UBS Guest Lecturer, Global Chief Investment Officer
Wealth Management and Wealth Management Americas
Brian Nick
UBS Guest Lecturer, Strategist
Chief Investment Office, UBS Wealth Management Americas
Mike Ryan
UBS Guest Lecturer, Chief Investment Strategist
Chief Investment Office, UBS Wealth Management Americas
Simon Smiles
UBS Guest Lecturer, Chief Investment Officer UHNW
Chief Investment Office, UBS Wealth Management
Themis Themistocleous
UBS Guest Lecturer, Head European Investment Office
Chief Investment Office, UBS Wealth Management
Thomas Wacker
UBS Guest Lecturer, Head CIO Credit
Chief Investment Office, UBS Wealth Management
Chris Wright
UBS Guest Lecturer, Cross-Asset Strategist
Chief Investment Office, UBS Wealth Management
University of Geneva- Tony Berrada
SFI Associate Professor of Finance
Geneva Finance Research Institute

[MUSIC]

Hi everyone.

Investment management in a nutshell.

That's the purpose of this video.

I often get asked whether investment management is an Art or a Science.

Difficult question, to which I generally answer, it's a combination of both.

And you will see throughout this course, that there's a number of tools you can use

to assess whether the markets are fairly valued, over,

undervalued, whether there are some interesting assets you should invest in.

But, it's not an exact science, it's also a question of feeling.

And when we talk about feeling, we talk about emotion.

And that's the interesting thing we have now.

We study so-called behavioral finance, i.e.,

the integration of emotion into a more broader rational thinking.

So by the end of this video, you will know what question you should

ask yourself if you want to be the investor or your customer.

if you want to be In the asset management industry and

you're advising clients as to their wealth management.

And you will also know about which type of risks you should focus on.

Because investment management is a lot about knowing the underlying

risks of the instruments you're using in your asset allocation.

Talking about asset allocation, the key here, and

I will give you some elements on this issue,

is to differentiate what we call strategic from tactical asset allocation.

And you will see in this video what is the difference between the two concepts.

So, investment management is about knowing your needs, your constraint,

your risk tolerance, or that of your customer if you're advising that customer.

Understanding how each asset class, and we'll talk about that in detail.

We'll talk about equities, we'll talk about bonds, about cash,

about hedge funds, commodities, real estate.

How each of this asset class works and

the risks which are inherent in this asset classes.

And last but not least,

you have to decide whether you want to be, what we call an active investor.

And by that, we mean someone who believes that you can actually beat the market,

you can actually do better than the average investor or the market.

Or, if you want to be a so-called passive investor, here you're not aiming

at beating the market but you are aiming at just replicating the market.

Obviously the latter option is cheaper than the previous one.

We'll see that throughout the schools that investment management

is about managing risk.

And that's indeed the key to successful investment management.

There are various types of risks.

Country risk.

A country can be subject to a political problem at some point, and

so the authorities, the government decides to shut the borders.

And also there's some restriction on capital movements,

or the money you've invested actually cannot be exported out of the country.

So, that's what we call the country risk.

Very often, and indeed in this early in January of this year,

we've seen a lot of turmoil emanating from China.

A lot of questions whether the slowdown,

the economic slowdown there will be soft or hard.

And there's some also policy errors, possibly which have been made in China.

We have the renminbi, we have the yuan.

The devaluation is hurting investors' confidence, so there's a lot turmoil.

And it's affecting also markets in developed countries.

And that is the market risk.

Currency risk, also attached to that.

Well does the currency always for instance, we'll talk about Japan.

We'll see that a call often is to go in Japanese equities,

if we talk about the stock market.

But at the same time, hedge against the currency risk, because the policies

that favour the stock market actually impact negatively the currency.

So you should treat them separately.

And you can be positive on the stock market but

negative on the currency because there's a currency risk.

Liquidity risk.

If you're investing in what we call small caps, i.e.,

firms which have a small capitalization on the stock market.

Well, the problem with this is that their liquidity is less.

And when everyone is rushing for

the exit, sometimes everyone wants to sell, and nobody wants to buy.

So these stocks get hurt really badly when there's what we call a bear market.

And you will see what we mean by a bear market.

There's also the inflation risk.

We will see that in details when we talk about bonds.

Clearly, if you're investing in a bond,

you'll get your capital in maybe ten years time.

Maybe you will demand a higher interest rates,

because over the period there may be some inflation down the road

which will impact negatively on your capital when you get it back.

There's also what we call a shortfall risk.

That is the risk that your capital undershoots your targets.

You have some needs.

Maybe you're a retired person and

you have some income needs that's important for you.

And if you're below that,

well it hurts your annual income and that can be a problem.

The key here to manage all these risks is diversification.

Clearly, that's a rule that comes regularly.

If you put all the eggs in the same baskets,

at some point, you'll get a problem, okay?

So, we see that investment management is a two-step approach.

On the one hand, you have your objective, you, as an investor.

Or your client's objective, if again,

you're advising a client on his wealth management.

And that, the profile, the investment horizon, the risk tolerance,

whether you're shooting for income or for growth, all that defines your profile.

And that goes into what we call your strategic asset allocation.

The outcome will be, maybe that you need over a horizon of

five to ten years, the optimal asset allocation is 10% cash,

40% fixed income, and 50% equities.

Once you have defined the strategic asset allocation,

then you move on to the tactical asset allocation.

And here, it's basically something that you will adjust.

We talk about underweighting or overweighting the US market,

the Japanese market, emerging market debts.

Or the various components which enter the asset class.

And you do this by looking at the macro picture, by looking at valuation and

things like that.

And the two combined, the strategic and the tactical asset allocation,

form what we would call portfolio construction.

So, investment management is a lot about knowing yourself

if you're the investor again, or knowing your customer.

What kind of investor are you?

Are you looking for income?

Are you're looking for growth?

Do you want to be implicated in the investment process?

Or would you rather give that to the specialist that works and

does the wealth management for you?

And again, you have these two things that you should differentiate.

You should shoot for a strategic asset allocation for the long run but

then adjust this asset allocation on a tactical basis.

Depending on what you view, the macro picture, some

technical analysis possibly, also that it can be used as a complimentary tool.

Market volatility, market events, and valuation.

Do you believe that US market is too expensive or the European one?

Things like that, that help you adjust the markets and your bets on a tactical basis.

[MUSIC]

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