INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Goals:
• Know how to invest directly and indirectly
• Understand pricing principles on financial markets (how can we determine price and (expected)
return and risk of a financial asset?)
• Understand how to construct portfolios
• Be able to evaluate investments (strategies)
Why study investments?
Most individuals make investment decision sometimes:
• Need sound framework for managing and increasing wealth
• Retirementdecisions:importanceofmakinggooddecisions
Compounding effect:
• The total return is a combination of the return of the amount you invested and the return of the
return from the previous year
• If we invest for double the time the return will multiply by 3,65 ➔ Capital will increase more when
the period is longer
If the return triples, the return will multiply by 14,73 ➔ More risk leads to a higher return
Essential part of a career in the field:
• Securityanalystandportfoliomanager
• Stockbrokersandfinancialadvisors/planners
• Chartered financial analyst→type of certificate you can get to be considered a professional in
the sector
1. INTRODUCTION
1.1 SOME RECENT TRENDS
1
,STOCK MARKET AND GOVERNMENT/CORPORATE BOND MARKET: RETURN INDEX AND
RETURN EXPRESSED IN EURO SINCE 2023
Stock market: tend to go up and down
Government bonds: low return of 0,9% → interestrates is laatste Jaren gestegen (ECB)
IR stijgt → Pbonds dealt (inverse relation)
STOCK MARKETS WORLDWIDE: RETURNS (BASED ON MSCI RETURN INDEX IN EURO)
The US has had a very strong positive return. This means that the performance of the world was mostly
powered by the US.
Eurozone has not been doing so well. This can be explained by the energy crisis. The performance over
the year 2022 is strongly negative.
2
,When investing in stocks, it’s best to look into the region you’d invest in.
RETURN PER SECTOR (BASED ON MSCI RETURN INDEX IN EURO)
If the economy is performing well, then the cyclical sectors are usually performing well. (cyclical sectors =
communication, information technology, cyclical consumer goods)
The defensive sectors have been doing very well. These are the sectors who will always be important, for
example health care. This is reflected in the stock return.
Cyclical sectors have a more volatile return, so they have a higher chance of a higher return over a longer
period.
RETURN PER COMMODITY (BASED ON SPOT PRICES IN USD)
Industrial metals: struggling a lot, negative
performance, indication of a regression
Gold: positive return, seen as a save asset, people
are looking for something save but the return is
rather low
GOVERNMENT BOND YIELDS (MATURITY 10 YEAR)
Have been increasing over the last year, this is because the central banks have been increasing the
interest rate.
The interest rate is reflected in the bond yields. This also means that the bond prices are going down.
3
, We see differences between countries, for example Germany and Italy. Germany has a low yield, because
they are very “safe”. You will almost certainly get your money back, low risk.
Why was the yield of Germany negative?
• The ECB buys the bonds, so the price goes up and the yield goes down.
• They have a good credit rating, so low interest rates and low yield.
• Covid-19 made the stock market very uncertain, so people go looking for safe havens. So a lot of
people were buying the German bonds, the price goes up and the yield goes down.
• Inflation was very low, then you accept a low return. When inflation is low you lose purchasing
power, so you want to counter this
What explains the recent increase in government
bond yields?
• Central banks have increased interestrates
• Interestrates on government bonds is going up
→ prices are going down
• today: we expect stable interestrates
BOND RETURNS FOR DIFFERENT CATEGORIES
When you expect that interest rates will go up, then you
should expect the bond return to drop.
US REAL ESTATE HAS PERFORMED WELL FROM A HISTORICAL PERSPECTIVE, BUT …
4
Goals:
• Know how to invest directly and indirectly
• Understand pricing principles on financial markets (how can we determine price and (expected)
return and risk of a financial asset?)
• Understand how to construct portfolios
• Be able to evaluate investments (strategies)
Why study investments?
Most individuals make investment decision sometimes:
• Need sound framework for managing and increasing wealth
• Retirementdecisions:importanceofmakinggooddecisions
Compounding effect:
• The total return is a combination of the return of the amount you invested and the return of the
return from the previous year
• If we invest for double the time the return will multiply by 3,65 ➔ Capital will increase more when
the period is longer
If the return triples, the return will multiply by 14,73 ➔ More risk leads to a higher return
Essential part of a career in the field:
• Securityanalystandportfoliomanager
• Stockbrokersandfinancialadvisors/planners
• Chartered financial analyst→type of certificate you can get to be considered a professional in
the sector
1. INTRODUCTION
1.1 SOME RECENT TRENDS
1
,STOCK MARKET AND GOVERNMENT/CORPORATE BOND MARKET: RETURN INDEX AND
RETURN EXPRESSED IN EURO SINCE 2023
Stock market: tend to go up and down
Government bonds: low return of 0,9% → interestrates is laatste Jaren gestegen (ECB)
IR stijgt → Pbonds dealt (inverse relation)
STOCK MARKETS WORLDWIDE: RETURNS (BASED ON MSCI RETURN INDEX IN EURO)
The US has had a very strong positive return. This means that the performance of the world was mostly
powered by the US.
Eurozone has not been doing so well. This can be explained by the energy crisis. The performance over
the year 2022 is strongly negative.
2
,When investing in stocks, it’s best to look into the region you’d invest in.
RETURN PER SECTOR (BASED ON MSCI RETURN INDEX IN EURO)
If the economy is performing well, then the cyclical sectors are usually performing well. (cyclical sectors =
communication, information technology, cyclical consumer goods)
The defensive sectors have been doing very well. These are the sectors who will always be important, for
example health care. This is reflected in the stock return.
Cyclical sectors have a more volatile return, so they have a higher chance of a higher return over a longer
period.
RETURN PER COMMODITY (BASED ON SPOT PRICES IN USD)
Industrial metals: struggling a lot, negative
performance, indication of a regression
Gold: positive return, seen as a save asset, people
are looking for something save but the return is
rather low
GOVERNMENT BOND YIELDS (MATURITY 10 YEAR)
Have been increasing over the last year, this is because the central banks have been increasing the
interest rate.
The interest rate is reflected in the bond yields. This also means that the bond prices are going down.
3
, We see differences between countries, for example Germany and Italy. Germany has a low yield, because
they are very “safe”. You will almost certainly get your money back, low risk.
Why was the yield of Germany negative?
• The ECB buys the bonds, so the price goes up and the yield goes down.
• They have a good credit rating, so low interest rates and low yield.
• Covid-19 made the stock market very uncertain, so people go looking for safe havens. So a lot of
people were buying the German bonds, the price goes up and the yield goes down.
• Inflation was very low, then you accept a low return. When inflation is low you lose purchasing
power, so you want to counter this
What explains the recent increase in government
bond yields?
• Central banks have increased interestrates
• Interestrates on government bonds is going up
→ prices are going down
• today: we expect stable interestrates
BOND RETURNS FOR DIFFERENT CATEGORIES
When you expect that interest rates will go up, then you
should expect the bond return to drop.
US REAL ESTATE HAS PERFORMED WELL FROM A HISTORICAL PERSPECTIVE, BUT …
4
