Presentation on theme: "Seminar Series: Introduction to Investment Management Created by Harry Radburn Investment Banking and Investment Management Coordinator University of Hertfordshire."— Presentation transcript:
Seminar Series: Introduction to Investment Management Created by Harry Radburn Investment Banking and Investment Management Coordinator University of Hertfordshire Trading & Investment Society 2013/14
Investment Management £40 trillion industry The management of investor funds through securities such as bonds, stocks, commodities, currencies, mutual funds, exchange- traded funds and many more products and derivatives in order to achieve investment goals (usually greater returns than the overall market – the s&p 500 or Ftse 100 being benchmarks).
At the end of 2012, around 50% (£19.2 trillion) of global assets under manager were under the control of active investment managers i.e. invested in the financial markets. The financial crisis, and turbulent markets that accompanied it, caused a reversal in the growth of actively managed funds. Recent stock market returns are likely to have improved this situation.
What do they do? Depending on the security, they will adopt an investing philosophy such as growth or value investing, and develop a strategy around this idea. Many factors influence the portfolio decisions of managers, from diversification requirements and risk- profile, to technical and fundamental analysis. Every firm varies, but fund managers are expected to outperform the market using their own, or the firms, strategy – and the best talent is frequently headhunted by the top firms.
Value Investing Value investors conduct fundamental analysis in order to find companies who’s assets and earning capabilities are currently undervalued by the market i.e. they are trading below their intrinsic value. This contradicts the theory of efficient capital markets; yet it still exists as a successful investing strategy. Some causes of this situation are that markets are subject to speculation, information asymmetry, and ‘trends’ which can cause temporary undervaluation that investors can capitalise on.
Growth Investing The most basic of investing philosophies, growth investing involves identifying companies – through fundamental analysis – that are likely to experience above-average earnings and profitability growth in an industry and economic environment that will also experience solid growth. NOTE: value investing and growth investing are not diametrically opposed ideas, in fact, many famous investors have used them together such as Peter Lynch with the ‘growth at a reasonable price’ (GARP) investing strategy.
Creative Investing Strategies The previously mentioned strategies are just two examples of a wide range. New concepts, and ways of thinking about investing can generate equal or better returns than the value or growth investment techniques. “Invest in what you know” is a technique aimed at using local knowledge to provide better insight into a companies performance that the financial statement alone can. Don’t get this confused with insider trading which is illegal!
Who are the biggest firms? The top 20 firms account for approximately £15.65 trillion (39.1%) of the industry, with the top 10 firms’ assets under management (AUM) increasing at a greater rate than their smaller counterparts.
Types of Managers/Products Hedge Funds Mutual Funds Pension Funds Collective Investment Schemes (CIS’s) Various trading firms and wealth managers Also worth mentioning: Private Equity/Venture Capital firms Prime Brokerages Private Bankers
How they make money Two Parts: Management Fee A fixed charge for any assets under management. Prior to the financial crisis, the industry standard was 2% of AUM. Since the downturn in asset prices caused poor returns by many managers, this figure was challenged by investors more and more. Performance fee A variable fee linked to the performance of the fund managers. If a positive return is achieved, the fund will take a percentage of those positive returns – usually 20% depending on the type of product the fund specialises in. The standard fee structure is shortened to “2 & 20” when talking about investment managers fees. This varies by manager and product, and is constantly under pressure from competition for investor capital.
Scope Unlike traders & trading firms, most asset managers assign long-term gains as their priority. Good investment managers understand that exceptional returns are rarely sustainable due to the law of arbitrage and market competition. Put simply, if someone is able to make extraordinary returns within the regulatory framework – what is to stop every other investment manager from doing so?
Portfolio Decisions Portfolio decisions are based on a few relatively simple factors: 1. The funds overall investment objective; 2. The amount of risk that the manager is ‘allowed’ to take on; 3. The opinions of the fund manager regarding current information; 4. The investing philosophy adopted by the manager; 5. Portfolio requirements i.e. X% in equities, Y% in bonds and Z% in cash (an interest yielding bank account).
Types of investments Equities (Stocks) Shares of a certain business that entitles the owner to a share of earnings (dividend) and voting rights on company issues. Market Capitalisation is the total value of the shares of a publicly listed company. The market cap gives an indication of the size and value of a business. The price earnings ratio (P/E) is the market price of a share divided by the earnings per share of that company. This ratio gives a basic indication of market expectation for that company. For example, at the time of writing LinkedIn (NYSE: LNKD) is trading at a PE ratio of 823.8 for the trailing twelve months (ttm). This means that the share price is trading at 824 times the earnings attributable to that share – a ridiculously high ratio that reflects investors’ belief that the company’s earning will increase very rapidly in the future. High PE ratios indicate that a company is a ‘growth’ investment whereas a low PE ratio could indicate a ‘value’ investing opportunity where the market has undervalued a company for some reason, and will soon correct this with an upward movement in price.
Types of investments Bonds These are a type of security that act as a loan for governments, institutions, companies and other organisation that allow these agents to raise capital in return for a rate of interest payable at fixed dates. Sovereign Bonds Specifically bonds issued by government, usually in a range of maturities; 1 year T-bills in the US, to 30 year bonds such as gilts in the UK. The major ratings agencies (Standard & Poor’s, Moody’s and Fitch) assess the safety of investments in all types of bonds, and rate them so that investors can decide which bonds are suitable for their investment requirements (AAA is the safest). Corporate Bonds These are bonds issued by corporations who wish to raise capital by other means than equity issuance (as bonds are usually non-dilutive). The area of bonds is a huge topic of study and offers many rewarding investment opportunities – but also some complicated legal implications.
Types of investments Currencies (Forex) Tunia will present about this topic immediately following my presentation
Types of investments Options An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties. 1. A call option gives the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires. 2. A put option gives the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.
Types of investments Exotics A lesser know area of investing involves structured finance, which includes securitised products created by combining assets to form a tradable security. These ‘collateralised’ assets can then have their returns divided into tranches – allowing investors to select the amount of risk they wish to take on (directly linked to return of course). Prior to the 2008 crisis, CDO’s and ABS’s were hugely successful and highly traded securities, but as investors realised banks had been lending to individuals who had no means of paying back their debt (sub-prime) – Mortgage Backed Securities (MBS’s) quickly lost most of their value and became illiquid. This led to the destabilisation of massive financial institutions such as Lehmann Brothers, Fanny Mae, Freddie Mac, RBS, Lloyds and more.
Investing Success Warren Buffet – Berkshire Hathaway Ranked as the richest man in the world in 2008, and currently 4 th with a net worth of $53.5 billion (source: Forbes Rich List). He follows the value investing philosophy, whereby he uses fundamental analysis to identify publicly traded companies that are currently undervalued by the market. He is also an active investor, having taken managerial positions within companies he invests in to help them realise their intrinsic value – earning his portfolio greater returns.
Careers In order to become an investment manager, you must specialise in an area that you are truly interested in. The industry is massive and ever-changing, so new talent is always in demand and genuine interest and knowledge are ranked highly. It is also one of the most competitive industry's in the city, and thousands of students every year apply to the large firms’ spring weeks, summer internships, placements and graduate schemes
Careers Within each firm, their investment management division will be split into specialisations (desks). One division will specialise in bonds (in specific regions), one in equities (and specific sectors) and so on. As a graduate analyst or summer intern, you will be expected to have a good knowledge of your specialisation of interest, strong quantitative and qualitative abilities, a high level of commercial awareness, and a willingness to learn the tedious skills involved in software packages such as PowerPoint and Excel. You must also know why you are applying to particular firms, as candidates who do not do this will not be successful due to poor organisational fit (HR term).
Careers Finally, networking is massively important. From first year you should be building up a list of contacts who you can approach. Be aware of upcoming events at the investment managers’ offices in the city and of application dates. If you want to be an EMEA TMT Analyst/Trader, you need to know what you’re supposed to be analysing. UHTIS will be sending out information on as many of these opportunities as possible but there are so many that the responsibility rests with you to improve your own chances of being successful.
Brief Q&A Any questions before we move on to the Introduction to Forex with Tunia
Seminar Series: Introduction to the Forex Market Created by Tunia Paul Founder and Chairman University of Hertfordshire Trading & Investment Society 2013/14
4 trillion is being traded through the forex market every day worldwide. Institutions such as banks,corporate organisations. Individuals traders make up 1.4 trillion of the 4 trillion being traded everyday. A market maker or broker such as easy forex provide us the facilitates such as a online trading platform to trade on. offering a buying or selling for different currencies pairs European session:6.00 - 14:00 GMT The US session: 13:30 – 21:00 GMT Asian Session: 21:00 – 8:00 GMT Able to trade 24/5 from Sunday 21.00 to Friday 21.00 When two session such as the euro and the us overlap there is a higher amount being traded this means there are more opportunities to buy and sell. The European session is sandwiched between the Asian and the US sessions. Approximately 50% of the daily forex volume goes through the EU session Who, what and when you can trade
Majors: EUR/USD GBP/USD USD/JPY USD/CHF. These are the four major currency's also known as majors because they are traded the most and have a high level of demand. You can also trade a large variety of other currency pairs from different countries. These are known as exotic currency pairs. When trading currency's you don’t take possession of the actual currency. Rather, you open and close deals and make either a proﬁt or loss which is reﬂected in your account. Your account is in a local currency where you live. E.G GBP. This is the currency you will buy or sell currencies with and also receive winnings or pay your loses with. Spread: There is a difference between the buying and selling price per currency called the spread this can vary according to your broker. When you look at an easy-forex graph you may see the EUR/USD with a buying price of 1.3245 this is the exchange rate for 1 Euro and means you can buy 1 euro for 1.3245 dollars. EUR/USD have a 3 pip spread on easy-forex so you will see the selling price at 1.3242. You will only profit when your selling price exceeds the rate then you bought in at. E.G Selling at 1.3247 = 2 pips profit Who, what and when you can trade
Pip (Percentage in point): 0.0000 or 0.01 currency pairs tend to have an exchange rate of 5 decimal places and look some pairs only have 3 decimal places such as USD/JPY. You can proﬁt from forex trading by correctly deciding whether one currency in a currency pair will strengthen or weaken compared to the other currency in the pair. We will now look at pips and how to convert pip movement into profit or loss Let’s look at an EUR/USD example: If you buy EUR/USD at an exchange rate of 1.2873 and it declines to 1.2853 it has gone down by 20 pips. EUR/USD : 1.2873 – 1.2853 = 20 pips (Down example) USD/JPY : (up example) 97.8 + 20 pips = 99.8 Pips provide an easy way to calculate the proﬁt or loss (also known as the P&L) on a trade. To turn that pip movement into a proﬁt or loss, all you need to know is the size of your deal and the amount of pips that have decreased or increased. For example a 100,000 EUR/USD position, a 20-pip move equates to $200 (€100,000 ×0.0020 = $200). How to turn your pips into cash
Leverage: When buying into trades you see large sum you are able to purchase such as 10,000, 50,0000 100,000 thousand. These are the amounts your leverage allows you to trade as long you can cover your margin otherwise known as your potential losses. Calculate the margin: Deal size / leverage = margin Example: Leverage 1:200 Deal size = 100,000 Divide 100,000 by 200= 500 Margin = $500 $500 is your margin. Or In other words the margin is the actual amount that you are risking to lose if the trade goes against you. You will need to consider how much you can afford to set your margin before placing your trade in case the trade goes against you. Leverage & Margin
How profit is made Remember when you buy a pair you are buying the base currency and selling the counter and when you sell a pair you are selling the base and buying the counter Example: EUR/USD EUR (Base) USD(Counter) You simply decide whether to buy or sell a currency pair through assessing the news and carrying out technical analysis and wait for the for your currency pair to inflate or depreciate in your favour. You also gain buy out signals through technical analysis.
You gain indicators from carrying out technical and fundamental analysis. Technical analysis is the use of charts and other statistical measures to predict future price movements based on past prices, Fundamental analysis looks at how macro-economic data releases, news announcements and other reports may cause rates to change. www.Investing.com Easy Forex research and analysis Analysis will help you to determined whether you should go long or short. Long = buy Short = sell Technical analysis
A day trade: An order to buy or sale at the best available price normally carried out immediately or on the same day Limit order: This is an order to open a day trade at a rate that you find suitable when and if the market reaches this rate. limit orders will remain open until the market rises or falls to a desired price. SMS alert : Can be used as an alternative for a limit order. Forward deal: A forward deal is where you agree to buy or sell a currency or assets with the intention of selling the currency pair or assets within a time period in the future. For example you may buy the EUR/USD at a low rate this month because you expect it to rise in the next two months All three types of trades allow a tailored stop loss and take proﬁt in order to help you manage your risk & profit. Types of trade
Managing Profit: A trap profit (limit order) is a target you place on a graph that taps you out of a trade when the market has reached your desired rate. Managing loss: A stop loss minimizes your risk by ensuring you can put a limit of your choice on the amount you can loose. A good trader will have a set percentage of his overall trading account he or she is willing to risk this tends to be no more then 5 %. You should risk only what you can afford to loose and this should be in proportion to the amount within your account. Psychology: Psychology is a major part of trading a good trader will never sell or buy because of there own greed or fear. You are supposed to set yourself self a set of rules that you always abide by and never break for e.g. never risking more then 5% of your over account. Trading plan: The rules you choose to abide by and never break should be documented. Most traders refer to this as a trading plan which is a set of rules for different trades and trading in general that should no means be broken. Money management & psychology
Trading plan A trader will plan his/her trade and trade their plan; not buy out of impulse. A trading plan tends to developed through trading and learning from your mistakes. As a beginner you are likely to make mistakes, make sure you document them and also document how to prevent the mistake you made. Eventually you will build a set of rules that will prevent you loosing trades unnecessarily.
Easy- forex benefits Minimal calculation Easy-forex, like to keep things simple for you, and all transaction-related calculations are automatically done for you by the easy- forex platform. No fees or bills You do not pay a sign up fee, monthly bill or service charge. With Easy-forex you only have a fixed spread of 2 pips per trade you place this means that for every trade you place they earn 2 pips worth. This is something to keep in mind when trading with easy forex. Regular trading news updates Easy forex supply all of their members morning news feeds on what is currently taking place they expect to take place in the market please Account manager With Easy-forex you also have access to a account member who will be at your service during trade hours and offer you one to one training and advice and help in all areas of trading
Forex Trading Team & Competition Trading has to be on a live Easy-forex account At least 15 trades per month per participating trader 5% maximum risk per trade 200 risk free trading when you sign up through our link Cash price TBC Don’t be deterred by lack of experience this is a chance to learn & practice Trading team meet up TBC Sign up online via Study net or uhtis.wordpress.com Sign our Trading team register as you leave.
Insight Into Industry Event David Dukes – T Squared Trading Previous experience includes: Analyst at Accenture Proprietary Trader Visiting Lecturer at UH And now Managing Director of T Squared Trading: a professional trading firm that is part of the Tower Trading Group (TTG) Wednesday 20 th November 18:00pm-19:30pm De Havilland Campus Created by Tunia Paul & Harry Radburn University of Hertfordshire Trading & Investment Society 2013/14
Thank You Make sure you have signed up with the society at the students’ union office to enjoy the benefits of membership. Contact via email: firstname.lastname@example.org Come along to other seminars in the UHTIS Seminar Series to find out more about the financial services industry. Created by Tunia Paul & Harry Radburn University of Hertfordshire Trading & Investment Society 2013/14