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, exchangetraded 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).
Investment Management
Investment Management
•
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 riskprofile, 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

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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 4th
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
Who, what and when you can trade
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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.
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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
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•
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European session:6.00 - 14:00 GMT
The US session: 13:30 – 21:00 GMT
Asian Session: 21:00 – 8:00 GMT
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Able to trade 24/5 from Sunday 21.00 to Friday 21.00
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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 .
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The European session is sandwiched between the Asian and the US sessions.
Approximately 50% of the daily forex volume goes through the EU session
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Who, what and when you can trade
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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.
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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.
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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.
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Spread: There is a difference between the buying and selling price per currency called the spread
this can vary according to your broker.
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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
How to turn your pips into cash
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Pip (Percentage in point): 0.0000 or 0.01
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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.
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We will now look at pips and how to convert pip movement into profit or loss
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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
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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).
Leverage & Margin
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.
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.
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
Types of trade
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.
Money management & psychology
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.
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
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Trading has to be on a live Easy-forex account
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At least 15 trades per month per participating trader
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5% maximum risk per trade
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200 risk free trading when you sign up through our link
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Cash price TBC
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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 20th 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:
uh_trading-investment@outlook.com
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