Exchange Traded Funds are now firmly established in the investment world. But how do they actually work? Originally designed as simple, user friendly and passive Equity Index tracking vehicles, their evolution has created several different types of product, across the Asset Classes, with each one requiring different approaches in due diligence. While the external ‘packaging’ might look similar, the risks underneath vary considerably, and potential Investors need to know these.
On the other hand, the (relatively small) Hedge Fund community has the dubious honour of attracting disproportionately high levels of publicity in the financial and political press. In the wake of the financial crisis the Regulatory rules are being rewritten, despite this group not being identified as at the root of the problem.
This can partly be explained by an ongoing lack of understanding of what the Managers are actually doing on behalf of their investors. This course is designed to demystify the industry and break down some of the barriers which to date have appeared impenetrable to outsiders
While all Hedge Fund Managers’ objective has always remained the same – to deliver a positive return in all market environments – the range of strategies pursued to deliver this is vast, ranging across the full suite of available Financial instruments. Some are what are termed ’Directional’, some ‘non-Directional’; some use leverage, some do not; some use Derivatives, some do not. All will be explained.
By the end of this course participants will have attained a clearer understanding of the following:
- The differences between ETFs and conventional Mutual Funds
- The reasons why Active Managers failed to outperform Passive Tracker Funds
- The full range of ETFs available across the Investable universe
- The different replication mechanisms
- The Redemption and Creation process
- Pricing, Parity and Arbitrage opportunities
- How to decide between Tracking ‘Difference’ and ‘Error’
- Understanding Leveraged and Inverse ETFs
- An Appreciation of the difficulty of replicating Commodity performance and the implications of this
- An understanding of Hedge Fund Lock-ups, Gates, Side Pockets and Drawdowns
- An appreciation of the significance of these Funds’ External Relationships – Prime Brokerage, Custodians, Fund Administrators
- An understanding of the tools for the Analysis of Financial Risk – From VaR to Stress Testing
- An understanding of the Margin calculations underlying Short Selling
- An understanding of how Leverage translates into Market exposure
- An understanding of how Performance Fees are calculated
- An understanding of the difference between Directional and non-Directional Hedge Fund Trading Strategies
An Introduction to Exchange Traded Funds
- The Active vs Passive investing debate – a look at the evidence
- ETFs and traditional Index Funds compared
- Understanding ETFs, the different replication mechanisms – Physical or Synthetic?
- Primary (Redemption, Creation process) and Secondary markets
- Authorised Participants, Portfolio Composition Files
- Real time pricing and Arbitrage opportunities, Tracking error causes
- Case Study – How do Institutional Investors use ETFs exactly?
Exchange Traded Funds in practice – an evolving universe
- Deciding on which ETFs to employ – structure, transparency, cost, liquidity
- Core vs Satellite investing
- ETF Variations on a theme – Inverse, Leveraged, Thematic, Active
- ETFs on Commodities, Currencies, Bonds
- Commodity ETFs – Issues to consider – Futures or Physicals?
- Roll Yields, Contango and Backwardation
The Latest Trend in ETFs – The adoption of Smart Beta
- ‘Beta’ and the Efficient Market
- What if Markets are Not Efficient?
- Smart Beta Defined. Evaluation and Adoption by Investors
- Factor Investing; to achieve what objective exactly?
- A look at some details of ETF products on the Markets today
Introduction to the Hedge Fund universe
- Hedge Funds defined. Lock-ups, Gates, Hurdle Rates, Side Pockets
- The pursuit of Absolute Return and Performance Fees
- How large is the Hedge Fund Universe? The numbers in context
- Where are they? Domicile, Onshore vs Offshore
- Asset Class performance or Manager value-added? The search for Alpha
- External Relationships – Prime Brokerage, Custodians, Fund Administrators
- Case Study – How do Investors choose a Hedge Fund Manager?
- Wrap-Up Quiz
Issues for Hedge Fund Investors
- Rationale for Hedge Funds in an Investors’ Portfolio. Is it still there?
- The non-correlated Asset Class, Survivorship Bias, Drawdown
- The changing Investor base – Institutions are now the target market
- Leverage, Risk and Transparency
- Risk-adjusted performance measurement
- Case Study – What really puts off Investors?
Hedge Fund Investment Styles – Directional
- Overview of Style variations – From Low to High Market Exposure
- Long-Short Equity – Short Selling and Securities Lending
- Distressed Debt – The illiquid end of the marketplace
- Global Macro – Trading Interest Rates, FX and Commodities
- Managed Futures – Technical Analysis at work
Hedge Fund Investment Styles – Non-Directional
- Market Neutral and Relative Value Arbitrage – Equity and Fixed Income
- Event-Driven and Risk Arbitrage
- Convertible Bond Arbitrage
- Case Study – Hedge Fund Style Index Performance and Volatility data
- A look at the details of some Hedge Funds available in today’s Market
Risk Management for Hedge Funds
- Market, Leverage and Credit risk
- Political and Legal risk
- Gap and liquidity risk, Mark-to-market risk
- Why do Hedge Funds fail? Do not forget Operational Risk
- Tools for the Analysis of Financial Risk – From VaR to Stress Testing
- Wrap-up Quiz
This programme will be conducted along workshop principle and will include a formal presentation, case studies and interactive worked examples. Each learning point will be reinforced with practical exercises.
Who Should Attend
The programme is ideal for Professionals working in the following roles within the Financial Markets:
- Fund Management
- Fund Sales
- Middle Office – Risk & Operations
- Fund Accounting
- Fund Administration