Type of Credit: Required
Credit(s)
Number of Students
This course is to prepare students for familiarity with the theory and practice relevant to investment decisions and management. The primary emphasis of the course is on investment strategies and management, but other investments will be included.
The major topics treated are:
能力項目說明
The main objective of this class is to teach you these three elements:
Students should acquire and be familiar with knowledge of investment theories and models, financial instruments, markets, and the relevant models from the class
This class prepares students for familiarity with analytical skills in investment management and strategy.
The class teaches students to do case studies and practice the application of investment theories to practical investment decisions and strategies.
| 教學週次Course Week | 彈性補充教學週次Flexible Supplemental Instruction Week | 彈性補充教學類別Flexible Supplemental Instruction Type |
|---|---|---|
a. Introduction to Sustainable Investing, Stock Selection Strategy, the Investment Process and Portfolio Constructure (lectured by Portfolio Manager, Manulife Investment Management)
b. Group Discussion: Discuss and plan how to analyze the fundamental business of the company and refer to the methodology for measuring sustainable performance. And discuss and develop relevant metrics to evaluate how sustainable activities affect the company’s financial performance. Once going through the relevant analyses, you should make your decision to select 3 companies on the basis of applying the concept of sustainable competitive advantage to enhance the investment return performance. Discuss periodically your investment management and strategy with your team group, keep tracking your performance and present your investment process and performance report on the final class.
To simulate a sustainable investment and management, each group should preview the investment environment as well as the impact factors and present your preview report in the class. The report has to include:
(1) current market environment and relevant events
(2) identifying major impact factors including sustainable metrics
(3) possible investment potentials and risks
(4) your investment objective and possible allocation
(5) looking for current feasible investment targets and building up an investment strategy
(6) suggested relevant theories and models
(7) reference sources
(8) conclusion
Reading Materials:
Case Study:
Harvard Case : Asset Allocation at the Cook County Pension Fund, Emil Nuwan Siriwardane, Juliane Begenau and Yuval Gonczarowski, 2019 (revised), 218030-PDF-ENG (with spreadsheet supplement)
Discussion Questions:
1. Build a model to simulate the solvency of the pension fund through 2040. Use the market value of the fund at the end of 2016 as the starting point for your simulation. Next, simulate the market value of the fund through the end of 2017. To do so, you will need to account for:
a. Deductions from the pension fund that will be made in 2017 to pay out benefits to current retirees. To compute 2017 deductions, use the amount of 2016 deductions provided in the case and assume it grows by a constant annual growth rate.
b. Contributions that will be made to the fund in 2017. In your projections, separate the supplementary contributions made by Cook County from required contributions by the county and its employees. For example, in 2016, total contributions to the fund were $659.3 million (Exhibit 8). Of that $659.3 million, $270.5 million was a supplementary contribution made by Cook County and the remaining $388.8 million came from required contributions by the county and its employees.
c. Investment returns by the fund. Assume that annual returns are normally distributed. First build your simulator by assuming an arbitrary mean and standard deviation; then adjust the inputs afterward. In addition, assume that investment returns are realized before any contributions and deductions are made in 2017.
Once you simulate the end-of-2017 asset value for the fund, redo your analysis for 2018, 2019, and all the way out to 2040. Under what assumptions does the fund become insolvent, meaning the value of its assets falls below zero?
2. Historically, what have been the risks and rewards of the asset classes that Hackett can invest in? Use standard deviation to measure of risk and average return to measure reward.
3. Assume that historical performance is a good indication of future performance. Based on your simulation, how does investment into each asset class impact the probability of fund survival?
4. Is it reasonable to assume that past performance is a good indication of future performance? Why or why not?
5. What should Hackett do with the portfolio? Are there other options that Cook County should explore?
6. Sustainable Investing (03/27)
Reading Materials:
a. ESG and financial performance: aggregated evidence from
more than 2000 empirical studies, November 2015, Journal of Sustainable Finance & Investment, Gunnar Friede, Timo Busch & Alexander Bassen, Vol. 5, No. 4, 210–233
b. Integrating ESG into valuation models and
investment decisions: the value-driver adjustment approach, 2016, Journal of Sustainable Finance &
Investment, Willem Schramade, Vol. 6, No. 2, 95–111
Case Study:
Harvard Case : CLP Group: Environmental, Social, and Governance Factors and Their Effects on Valuation (A), Entela Benz and Ellen Orr, May 6, 2018, ST52A-PDF-ENG (with Excel file)
CLP Group: Environmental, Social, and Governance Factors and Their Effects on Valuation (B), Entela Benz and Ellen Orr, May 6, 2018, ST52B-PDF-ENG
Discussion Questions:
Case (A)
1. What is the CLP core business? Its history?
2. What are the implications of the Paris Climate Change Agreement?
3. What are the macro trends in the industry that CLP should be aware of?
4. Describe CLP’s sustainability policy.
5. Project the ESG KPIs on business core drivers and/or valuation metrics using Exhibit 9A or 9B of the case, Part A.
6. Are all the three dimensions (environmental, social, and governance dimensions) equally important?
7. What are the most material KPIs in the electric utility industry using the materiality matrix?
8. Where does CLP stand on ESG, relative to its industry peers?
Case (B)
1. What are the possible ways to project ESG KPIs into financial drivers?
2. Are ESG factors reflected in the base case valuation?
3. How should analysts integrate ESG into share valuation models?
4. Should you adjust only the WACC or growth as well?
5. If you were an equity analyst, what would be your recommendation on CLP’s shares?
6. What are the shortfalls of ESG valuation?
7. 校際活動週 (停課一日) (04/03)
(Topic and speaker: TBA)
Reading Materials:
Case Study:
Harvard Case: Yale University Investments Office: February 2015
Discussion Questions:
Arcano Partners: Scaling Impact With a Fund of Funds (A)，Nicolas Mo Umpierre and Fabrizio Ferraro, Apr, 2022, IES889-PDF-ENG
11. Factor Investing (05/01)
a. Factor-based investing, April, 2015, Scott N. Pappas and
Joel M. Dickson, Vanguard Research
b. The Asset Manager’s Dilemma: How Smart Beta Is
Disrupting the Investment Management Industry, 2016,
Financial Analysts Journal, Ronald N. Kahn and Michael
Lemmon, https://doi.org/10.2469/faj.v72.n1.1
Case Study:
Harvard Case: Smart Beta Exchange-Traded Funds and Factor Investing, May 31, 2018, Phillip A. Braun, KEI 069 (with excel file)
Discussion Questions:
A. What are Fama and French’s findings from their five-factor model? How do you reconcile their empirical findings with the CAPM model?
B. Characterize smart beta ETFs.
C. What is meant by factor or smart beta investing, and what is the rationale behind it?
D. This set of questions asks you to compare portfolios created from the MSCI factor indexes and standard market capitalization–weighted iShares ETFs, along with the MSCI USA Diversified Multiple-Factor Index and the MSCI US large-mid-cap index (the MSCI USA Index).
a. Using the data in Exhibit 3, in one chart, plot the minimum-variance frontiers constructed from:
• The four MSCI individual factor indexes
• The iShares large-mid-cap Russell 1000 ETF and iShares small-cap Russell 2000 ETF
Include in the diagram data points for the MSCI USA Diversified Multiple-Factor Index and the MSCI USA Index.
b. What do you conclude about the value added from an investment perspective of the combination of the individual factor indexes (which are proxies for iShares’ smart beta individual factor ETFs) over traditional value-weighted investing? How does the multifactor index compare to traditional investing? How does it compare to the combination of the factor indexes?
E. This set of questions asks you to compare and contrast minimum-variance portfolios created from iShares’ bond ETF (AGG) combined with various MSCI indexes.
a. Using the data in Exhibit 4, in one chart, plot the minimum-variance frontiers constructed from the iShares bond ETF (AGG) with, respectively:
• The four MSCI individual factor indexes together
• The MSCI USA Diversified Multiple-Factor Index
• The MSCI USA Index
Include in the diagram data points for the MSCI USA Diversified Multiple-Factor Index and the MSCI USA Index.
b. Beyond Question 5, does your answer to 6a provide any additional insights into the value added of the four MSCI factor indexes (which are proxies for iShares’ smart beta individual factor ETFs)? What about the MSCI multifactor index (which is a proxy for iShares’ potential smart beta multifactor ETF)?
F. Should iShares introduce the new US multifactor large-mid-cap ETF? Why or why not?
G. Do you currently invest in smart beta ETFs? Why or why not?
H. Go to iShares’ website and look at the list of smart beta ETFs offered today. Would any of these smart beta ETFs be an interesting addition to your investment portfolio? If so, which ones?
12. Fundamental Analysis and Investment Decision (05/08)
Reading Materials:
a. New Constructs: Disrupting Fundamental Analysis with
Robo-Analysts, Jun 25, 2021, Charles C.Y. Wang and
Kyle Thomas, Harvard Business School,
118068-PDF-ENG
Case Study:
Ivey Case: The Walt Disney Company’s Stock: Buy, Hold, or
Sell? Feb 18, 2020, Stephen R. Foerster, Shuran and Freya
Yang, W20097-PDF-ENG (with spreadsheet
supplement)
Discussion Questions:
1. Consider the strategy used by Century 23 Global Fund.
What key criteria should Crowley apply when making her
investment decisions?
2. Size up the economy, as well as the media and
entertainment industry. What are the growth prospects,
competitive position, and key success factors?
3. How would you evaluate Disney’s financial performance,
both on an absolute basis and relative to its peers?
4. How would you assess Disney’s prospects compared with
the consensus analysts’ forecasted revenue and profits? How
would you assess the future performance of its peers?
5. In the place of Crowley in December 2019, what action, if
any, would you take with respect to the Century 23 Global
Fund’s position regarding Disney’s stock? Defend your
position.
13. fundamentally-oriented Investing (05/15)
Reading Materials:
a. Indexing and active fund management: International evidence, 2016, Journal Financial Economics, p. 539-560.
b. In Defense of Active Investing, 2015, Charles D. Ellis, Financial Analysts Journal, 71:4, 4-7
Case Study:
Harvard Case: The Fidelity Growth Company Fund, Feb. 2019,
Sara L. Fleiss and Samuel G. Hanson, 9-218-090
Discussion Questions:
1. What does it mean to be a fundamentally-oriented growth investor? Are there identifiable psychological biases or other market efficiencies, which create opportunities that skilled growth investors can exploit?
2. Do you think that Steve Wymer has an edge in picking growth stocks? If so, is his edge sustainable?
3. Is the Fidelity Growth Company Fund too large, in terms of its assets under management? Why does the fund have so many small positions? How would you determine the “capacity” of the fund’s strategy?
4. Would you invest in the Fidelity Growth Company Fund?
14. Hedge Fund (05/22)
Reading Materials:
a. The Hedge Fund Industry, April 7, 2010, William E. Fruhan, Harvard Business School, 208126-PDF-ENG
b. Man vs. Machine: Comparing Discretionary and Systematic Hedge Fund Performance, Summer 2017, Campbell R. Harvey, Sandy Rattray, Andrew Sinclair, and Otto van Hemert, The Journal of Portfolio Management, p. 55-69
Case Study:
a. SMU Case: Asia Alpha Management (A): Tackling a Volatile
Market, Jul 17, 2019, Philip Zerrillo and Matthew Dearth, SMU523-PDF-ENG
b. SMU Case: Asia Alpha Management (B): Tackling a Volatile
Market, Jul 17, 2019, Philip Zerrillo and Matthew Dearth, SMU523-PDF-ENG
Discussion Questions:
CASE (A)
1. How has AAM performed recently? Why is it important to know that this is a hedge fund and not a mutual fund?
2. What is AAM’s investment process? What happens to funds as they grow? Do you thi nk growth impacts the performance of a fund?
3. What challenging positions does the company have today?
a. What are the pros and cons to each position?
b. What information not included in the case would you like to see in order to help Lim
make better decisions?
4. What options are available to AAM? What should Lim do?
CASE (B)
5. What decision traps do you think Lim and his team have fallen into in each of these three positions?
6. Which of these traps do you think Lim and the team are most vulnerable to?
7. How would you suggest AAM overcome these biases?
15. Derivatives and Risk Management (05/29)
Reading Materials:
a. The Value Added from Investment Managers: An Examination of Funds of REITs, September 2000, Jarl G. Kallberg, Crocker L. Liu, and Charles Trz, Journal of Financial and Quantitative Analysis, VOL. 35, NO. 3
b. The Case for REITs in the Mixed-Asset Portfolio in
the Short and Long Run, 2005, Stephen Lee and Simon Stevenson, Journal of Real Estate Portfolio Management, 11:1,
55-80,
Case Study:
SMU Case: Singapore REITS: Low Risk Investments for Stable Returns, Or Are They? Feb 6, 2017(Revised: May 31, 2017), Benedict Koh, Nandini Vijayaraghavan, SMU324-PDF-ENG
Discussion Questions:
1. What factors should Sally consider when evaluating whether the four REITs described in the case study constitute fundamentally sound investment propositions?
2.Suggest a ratio to evaluate the returns generated by the REITs’ investment property portfolio sand evaluate the REITs performance on the basis of this ratio.
3. Assess the sponsor profile the four REITs described in the case study.
4. Compare the business profiles of the four REITs described in the case study.
5. Analyze the financial profile of the four REITs described in the case study.
6. Assess the stock market performance of the four REITs described in the case study.
7. Based on your responses to questions 1 to 6, recommend which REIT units should be allocated to PAMC’s Prudent Equity Fund, Balanced Equity Fund and Wealth Accumulation Fund.
8. What industry and financial risks is each of the four REITs exposed to?
9. Do you agree with the statement made in PAMC’s promotional material? Explain your answer.
16. Present and turn in the evaluation report of sustainable investing (06/05)
17-18. Case Study: Factor Investing: The Reference Portfolio and Canada Pension Plan Investment Board, May 14, 2012, Andrew Ang, CU62-PDF-ENG (with excel files) (06/12-06/19)
18. Turn in your case study report (06/19)
There are three main components to the grade in this class: class participation, two case study reports, and an evaluation report of sustainable investment and management. This class requires the full commitment of students including pre-class preparation and in-class participation. The weighting of class participation will be 40%. Students have to conduct two case studies and an investment evaluation report in the class. The cases are assigned in the syllabus. The weighting of case study reports will be 30%. The remaining 30% of the course grade involves an sustainable investment evaluation report. The report should evaluate your investment process and performance. The students will work in team groups.
On the day when we have a case study, your case group has to turn in your answers to the case questions provided to you beforehand. I will randomly examine your answers, but I will not return your homework to you. I reserve the right to have a final examination. If the students perform well during the semester, then the final examination will be waved.
Assigned cases and reading materials are listed in the syllabus.
Reference Books