This class exists in these courses :
• IÉSEG > IESEG Degree - Programme Grande École > Semester 1 > 2,00 ECTS

Prerequisites

Portfolio Management and Analysis (strict prerequisite)
Introduction to Bloomberg (strict prerequisite)
Introduction to Financial Markets
Probability and Statistics in Finance

Learning outcomes

1. Identify the approaches involved in the security selection process,
2. Distinguish between different equity investment styles,
3. Construct and monitor portfolios using the portfolio analytics system on Bloomberg (PORT function),
4. Implement equity portfolio management strategies, using fundamental analysis
5. Evaluate portfolio performance against a benchmark, including return attribution.
6. Report detailed portfolio information and commentaries in the portfolio factsheet.

Course description

If equity markets were completely informationally efficient all the time, risk-averse portfolio managers would be only interested in efficient risk diversification. They could just buy and hold a broad-based index that is consistent with their investment style.
By contrast, when the market vacillates between fear and greed, active portfolio managers seek to "beat the market" by skillfully identifying information that is not (totally) reflected in stock prices. They endeavor to construct portfolios that could outperform the market on a risk-adjusted basis. The critical task in this process is to forecast alpha values ahead of time, using fundamental analysis. Ultimately, the optimal risky portfolio should trade-off for alpha (extra return) against the departure from efficient diversification (extra firm-specific risk).

Course outline:

Part I: Passive vs. active portfolio management
1. Index tracking, sampling, buy-and-hold approach
2. The Efficient Market Hypothesis (EMH)
3. Investment policy statement (IPS)
4. Investment styles in equity investing
5. Portfolio performance evaluation, performance attribution, risk exposure

Part II: Fundamental analysis and selection of common stocks: Equity portfolio management strategies
1. Economic analysis and setting capital market expectations
2. Industry analysis and sensitivity to the business cycle
3. Company analysis and the relative valuation of stocks

Part III: Active Portfolio Construction and Revision
1. Asset allocation (active vs. passive portfolio; active securities)
2. Forecast precision, tracking error and restriction of benchmark risk

Class type

Class structure

Teaching methods

• Case study
• Interactive class
• Presentation
• Project work
• Research

Assessment

This course is assessed through a simulation for which students construct their own equity portfolio on Bloomberg, following an investment policy statement. Students extract data from various sources, including Thomson Reuters Eikon, to conduct a sound fundamental analysis. Their portfolio is shared with the Professor and they present midterm and final reports. At the end of the course, each member of the group will turn in its own equity research report, following the recommendations of the CFA (document available on Ieseg-online)

Recommended reading

• Analysis of Investments and Management of Portfolios - Reilly, F.K. and Brown, K.C. (South-Western. 10th edition 2012) -

• Investments- Bodie, Z., Kane, A., and Marcus, A. (McGraw-Hill Education. 10th Global Edition 2014) -

• Running Money. Professional Portfolio Management - Stewart, S., Piros, C. and Heisler, J. (McGraw-Hill. 1st edition -International Edition 2011) -

Internet resources

• IESEG-ONLINE