Investment Management

Summary

Investment is the process by which a household or firm acquires asset holdings that are suited to their individual needs. Investment theory provides us with deep conceptual insights and powerful quantitative tools for this process. Professional fund managers, financial analysts, financial advisers and wealth managers all rely on these insights and tools. The unit lets you develop key competences for such roles.

Importance to your Programme

Taking part in this unit will enable you to gain maturity in your understanding of portfolio management decisions and it will give you a reliable conceptual and analytical framework for the assessment of concrete investment vehicles. In terms of your MSc studies, the unit also opens up a wide range of relevant topics for your summer dissertation.

Learning Outcomes

After completing this unit successfully, students should be able to:

• analysing portfolio returns in relation to risk factors and client needs;
• evaluating asset-specific information and converting it into portfolio recommendations;
• appraising the performance of a fund manager;
• presenting and interpreting quantitative relationships in conceptual terms.

Content

The unit provides you with a unifying conceptual framework for portfolio decisions, based on the mean-variance and factor-model approaches from Asset Pricing. We focus on the tension between “active investment” (finding sources of superior performance) and “passive investment” (utilising the information-gathering and diversification powers of competitive markets). The key to active management is the processing of specialist information, and we study how such information is translated into buy or sell decisions (Fisher/Black, Black/Litterman, Grinold/Kahn). Based on the underlying optimisation model, we identify suitable measures of a fund manager’s performance. Beyond the active-passive dichotomy, we learn how to construct “factor investing” funds that reflect specific investment styles (such as momentum strategies or value investing).

Our theoretical studies will be accompanied by concrete modelling work in Excel. This builds a highly valued professional skill and prepares you for modelling aspects in possible dissertation projects.