Index Investing - Index Funds, ETF’s, Synthetics and Index Certificates

Duration:
2 days
Location:
Prague, NH Hotel Prague
  • Indexation vs. Active Management
  • Full Replication, Stratified Sampling and Tracking Error Minimization
  • Investing in Index Funds
  • Using Index Futures for Synthetic Investments
  • Bull, Bear, Leveraged and Bonus Certificates
  • Exchange-Traded Funds
  • Investment Strategies with ETFs
Index tracking or passive investment is now well established as a sensible form of investing. Today, indexing can be applied to almost anything and provides investor with a very cost-efficient way of obtaining exposure to equities, bonds, commodities, real estate and other asset classes.

The purpose of the seminar is to give you a thorough introduction to the concept of "indexing" and a good and practical understanding of indexing tools and strategies.

We start with a general introduction to indexing. We contrast with "active management" and compare the relative historical performance of the two approaches to investing. We also give an overview of available indexing strategies and tools and summarize their advantages and limitations.

We then take a close look at how "vanilla" and more advanced indexation strategies can be implemented using dynamic strategies, index funds, exchange-traded funds (ETFs), index futures and index certificates – with and without principal guarantees. Strategies include "classic" index tracking through full replication, stratified sampling and tracking-error minimization as well as more "active" (or hybrid) strategies such as core-satellite investing and enhanced indexing.

We explain how the "cash drag" can be minimized in synthetic replication strategies with index futures, and how index strategies with down-side protection and/or exotic pay-off profiles can be constructed as structured products.

We give a thorough introduction to ETF's and explain how these instruments are created and traded in the primary and secondary markets and how they are used for low-cost index-tracking. We also explain and demonstrate how ETFs are increasingly used to gain exposure to special investment strategies that have been codified into indexes. Such strategies include the use "inverse", or "upside down", index ETFs, "leveraged" index ETFs and swaps-based ETFs.

Finally, we discuss the explicit and implicit risks of using indexation products, including the counterparty risk which is inherent in derivatives-based ETFs.

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Index Investing – General Introduction

  • What is “Index Investing”?
  • Motivations for Index Investing
    • Are markets efficient or not?
  • Passive vs. Active Investing – Historical Returns and Costs
  • Overview of Index Investing Tools and Strategies

“Classic” Index Tracking

  • Full Replication of Index
  • Stratified Sampling
  • Tracking Error Minimization
  • Rebalancing Strategies
    • Constant Mix
    • CPPI
  • Investing in Traditional Index Funds
    • Types of index funds
    • UCITS-compliant funds (EU)
    • Historical returns of index funds
  • Small Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Synthetic Index Investing

  • Advantages/Limitations of Synthetic Investing
  • Overview of Instruments for Synthetic Indexation
    • Index futures and swaps
    • Commodity futures and swaps
  • Minimizing Cash Drag with Equity Index Futures
    • Cost-of-Carry and the fair futures price
    • Replicating the index with cash + future
    • Comparing the returns of cash and synthetic investment
  • Synthetic Commodity Investing with Commodity Futures
    • The importance of the “roll yield”
  • Global Diversification with Synthetic Index Investing
  • Synthetic Index Funds
  • Investing in Index Certificates
    • Bull and Bear certificates
    • Leveraged certificates
    • Bonus certificates
    • Case Studies
  • Small Exercises

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 Exchange-Traded Funds (ETFs): Mechanics and Markets

  • What is an “Exchange-Traded Fund”?
  • Mechanics of ETFs – How they work
  • ETFs Compared to Mutual Funds
  • Types of ETFs
    • Physical ETF’s
    • Synthetic ETF’s
    • Leveraged ETF’s
    • Inverse ETF’s
  • The ETF Creation and Redemption Process
    • Market participants
    • The creation Unit
    • The primary market
    • The secondary market
    • Management and trading costs
  • “Live” Sightseeing Tour of the ETF Markets
    • Equity, bond and commodity ETF’s
  • Current Use of Exchange-Traded Funds by Investment Professionals
  • Do ETF’s Create Systemic Risks

12.00 - 13.00 Lunch

13.00 - 16.00 Investment Strategies with ETFs

  • Asset Allocation with ETFs
  • Enhanced Indexing Strategies
    • Enhanced cash
    • Index construction enhancements
    • Exclusion rules
    • Trading enhancements (algorithmic trading)
    • Portfolio construction enhancements
  • Core-Satellite Investing with ETFs
    • Static and dynamic core-satellite approach
    • Traditional and relative CPPI Approach
    • Controlling the risk of tactical bets with dynamic core-Satellite portfolios of ETFs
  • “Upside-Down” Investing with Inverse and Leveraged ETFs
  • Creating Absolute Return Funds with ETFs
  • Risks of Investing in ETF’s and other Index Products
    • Explicit Risks (Market risk)
    • Implicit Risks (Counterparty and Operational Risks)
  • Small Exercises

Evaluation and Termination of the Seminar

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