Editie 5 Investment Strategy

Investment Strategy 14th Volume August 2012 issue #5 Column J. G. Groeneveld IAS 19R Interview Cees Smit CEO Today’s Groep XVth FSR Board Introduction p36 p30 p52


Editie 5 Investment Strategy

Transcript of Editie 5 Investment Strategy

Page 1: Editie 5 Investment Strategy

Investment Strategy

14th VolumeAugust 2012issue #5

Column J. G. GroeneveldIAS 19R

Interview Cees SmitCEO Today’s Groep

XVth FSR BoardIntroduction

p36p30 p52

Page 2: Editie 5 Investment Strategy

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Investment Strategy


Dear readers,

In front of you lies the fifth and final edition of the FSR Forum of this year. The theme of this

edition is Investment Strategy, which is a broad theme compared to former editions. So don’t

expect to find an overview of all the different investment strategies that can be applied, but the

more striking or successful ones will be discussed in this edition. Every day investors deter-

mine or revise their investment strategy. This process all comes down to a tradeoff between the

risk and return their portfolio generates. Lately you can see that partly because of the financial

crisis certain products or strategies are being under attack, because of the high risk involved

with these investments. It of course all started with the financial crisis, but also due to more

recent cases such as Vestia the discussion arises whether certain high-risk products should be

forbidden. In this edition we will further discuss the trade-off between risk and return and how

to make this trade-off in a responsible manner.

The articles in this edition also cover a wide range of investment strategies: from the influence

of social media on financial markets to investments in hedge funds. The first article by Harry

M. Kat discusses the different approaches to hedge fund replication. As explained by mister Kat

hedge fund replication ‘is about generating hedge fund-like returns by mechanically trading

traditional asset classes’. Besides the reduction in costs and the improvement of investment

returns, hedge fund replication would also improve transparency and other flaws that come

with investments in hedge funds.

The second article is based on research done by Xue Zhang, Hauke Fuehres and Peter A. Gloor,

who have investigated if the movement of the financial market can be predicted by analyzing

Twitter posts. In this case Twitter posts are a measurement for the sentiment in the market.

Personally I find this article one of the most refreshing ones, because normally sentiment is

measured by for instance volatility or trading volume. This research could be a very good

design for future research.

The last article by Geetesh Bhardwaj is all about investment in commodities. It explains the dif-

ferent features of commodities and it discusses the attractiveness of a well diversified portfolio

of commodity futures. To be able to analyse the attractiveness of investments in commodity

futures, mister Bhardwaj has constructed commodities return series extending back in history

to August 31, 1959.

As for every edition we have interviewed an expert on the related theme. This time we have

interviewed Cees Smit CEO from Today’s Groep, a brokerage and asset management firm

founded in 2003. In 1986 mister Smith started as a stockbroker at ABN AMRO bank and hasn’t

stopped trading ever since. In this interview he shares his extensive knowledge and explains

more about his own strategy: the Fallen Angels Strategy. Fallen Angels are former market leaders,

such as Nokia. Besides more information about recent developments and new strategies, the

interview has made me look differently at so-called high-risk investments and the role of spec-

ulators on the financial market.

fsrforum • volume 14 • issue #5

2 • Preface

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As I have mentioned before risk and return are crucial when an investor determines its strategy.

Professor Van der Sar from the Erasmus School of Economics has this time written the ‘Professors

Column’ in which he discusses why it is important to diversify your portfolio and thus to spread

your risk. Later on he explains what the optimal amount of stocks in a portfolio should be. This

explanation is based on his working paper from 2012.

Since this is the final edition of the 14th volume it is time to review our portfolio from the News

Update in the first edition. The funds in this portfolio have been selected at random and the

goal of this portfolio was to see if randomness could outperform the market. For the results see

page 41. Besides the other usual columns such as this News Update and the column of mister

Groeneveld, you can also find the introduction of the 15th FSR Board and a letter from the

Alumni Association in this edition.

The introduction of the new FSR Board means that our year has come to an end. Looking back

at last year I think we can be very proud on what we as the FSR and as editorial committee have

accomplished. At the start of this academic year you don’t know what to expect, but now I can

truly say that the knowledge you gain during a year at the FSR is a very valuable asset. I would

like to thank everyone who has contributed to the realisation of the 14th volume of the FSR

Forum, but of course a special thanks goes to editor Jeroen van Oerle who’s contribution has

been very valuable.

For now I hope you will enjoy reading this last edition and I wish you all the best in the devel-

opment of your future career!


Anne van Driesum

Editor in Chief FSR Forum

FSR board 2011-2012

Preface • 3

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Table of contents

ColofonFSR FORUM appears five times a year and is an edition of the Financial Study Association RotterdamKvK Rotterdam no: V 40346422VAT no: NL 805159125 B01ISSN no: 1389-0913

14th volume, number 5, circulation 1680 copies

Editor in chiefAnne van Driesum

Editorial department Jeroen van Oerle

Editorial advisoryDr. M. B. J. SchautenDr. W. F. C. VerschoorDrs. R. Van der Wal RA

With the cooperation ofG. BhardwajH. FuehresP.A. GloorH.M. KatX. ZhangDrs. J.G. Groeneveld RA RV C. SmitN. L. van der Sar

Editorial addressEditiorial office FSR Forum, Erasmus Universiteit Rotterdam Room H14-06Postbus 1738, 3000 DR RotterdamTel. 010 408 1830E-mail: [email protected]

Alternative Routes to Hedge Fund Return Replication: Extended versionHarry M. Kat (2007)Driven by a desire to reduce costs, improve investor return and to avoid the many other drawbacks

surrounding hedge fund investment, the market has recently seen several attempts to “replicate”

hedge fund index returns. This paper discusses its attractiveness and the different approaches to

hedge fund replication. 6

Predicting Asset Value Through Twitter BuzzXue Zhang, Hauke Fuehres, Peter A. Gloor (2012)This paper describes the fundamental properties of commodities to help institutional investors

evaluate the case of investing in them. Our aim here is to describe the basic properties of com-

modities, and not to provide an investable alternative to existing commodity indexes 14

Investment case for commodities? Myths and realityGeetesh Bhardwaj, Vanguard Research (2010)Commodities are one of the least understood asset classes. This paper describes the fundamental

properties of commodities to help institutional investors evaluate the case for investing in

them. 22

Investment Strategy

4 • Table of contents

fsrforum • volume 14 • issue #5

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SubscriptionEUR Students through membership FSR; costs e 5,00. Others through subscription. To obtain information, contact the editorial department; costs e 27.50 (including VAT and postage).



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No portion of the information in this magazine may be reproduced in any form or by any means without the prior written consent of the editorial board. Although the information is with great care collected, the correct functioning is in no manner guaranteed.

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Interview Cees smit 30

Founder/CEO Today´s groep

Column Joost Groeneveld 36

IAS 19R; een plank in een boekhoudvloer

Column professor 39

N.L. van der Sar

FSR News

Word of the Chairman 40

News update 41

FSR former board member 42

FSR member 43

Activity reports 45

Introduction XVth board 52

FSR Alumni Association 55

FSR Activity Calendar 56

Company Presentations Accon AVM 12www.werkenbijacconavm.nlBDO 22www.werkenbijbdo.nlAhold 34career.ahold.eu

Table of contents • 5

Page 8: Editie 5 Investment Strategy

Alternative routes to hedge fund return replication

Harry M. Kat (2007)

IntroductionDriven by a desire to reduce costs and improve investor

returns, as well as to avoid the many other drawbacks sur-

rounding hedge fund investment, such as illiquidity and lack

of transparency, the market has recently seen several

attempts to “replicate” hedge fund index returns. The latter

have received quite some attention in the media and among

practitioners, but without detailing the workings of the various

approaches and their shortcomings. In this paper we high-

light the differences and similarities between the different

approaches and comment on the attraction of the resulting

investment products as portfolio diversifiers.

Judging from the various comments made at conferences

and on the internet, there seems to be some confusion

among practitioners about what drives hedge fund return

replication and what it is meant to achieve. Put simply, hedge

fund return replication is about generating hedge fund-like

returns by mechanically trading traditional asset classes. The

idea is not, as some commentators seem to think, to replicate

the performance of the best hedge funds in the business.

More modestly, the goal is to replicate the average.

The driving force behind hedge fund replication is the real-

isation that the majority of hedge fund (of funds) managers

do not have enough skill to make up for the fees that they

charge. If this is true, investors basically allow hedge fund

managers to make an extremely good living using their

money, while ending up with deflated after-fee performance

themselves. This makes it worthwhile to replace the managers

in question with a synthetic hedge fund. Synthetic hedge

funds produce no pre-fee alpha, but they don’t cost a for-

tune to run either and may therefore very well produce

significant after-fee alpha. In addition, synthetic hedge

funds come with great improvements in liquidity, transpar-

ency, capacity, etc.

Who should invest in synthetic hedge funds? In the end, it all

depends on how confident an investor is of his ability to find

those truly skilled hedge fund (of funds) managers (and talk

them into allowing him invest with them). Investors who are

confident they have enough skill to successfully identify

those managers that will more than make up for the fees that

they charge, should do so. Synthetic hedge funds are not for

them. However, for those who realise how good one’s manager

selection skills will need to be, to be successful, synthetic

hedge funds are an alternative well worth considering.

Hedge fund replication products will help investors focus on

the facts. Investors will become more critical and require

more substantial “proof” of superior skills before agreeing to

pay “2 plus 20”. Managers that are unable to substantiate

their claim of superior skills will be forced to lower their fees,

while managers that can, will prosper. When investors start

to distinguish more clearly between managers with and

without (the ability to claim) skill, this will make money flow

towards the ones that can. If these funds want to maintain

their status, however, they will have to close for new money

quite quickly,2 which will allow low-cost replication products

to absorb a substantial part of investors’ diversification demand.

6 • Alternative routes to hedge fund return replication

fsrforum • volume 14 • issue #5

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Although on a smaller scale, this process is not dissimilar to

the spectacular rise of index funds over the past 20 years.

Roughly speaking, we can distinguish between three different

approaches to hedge fund return replication:

A. Factor models

B. Mechanical trading rules

C. FundCreator

All three approaches aim to generate hedge fund-like returns.

However, they do so in significantly different ways.

A The Factor Model Approach The factor model approach dates back to the early 1990s.3

The idea is straightforward. The return on a particular fund

or index is attributed to a number of risk factors, such as the

return on some large cap or small cap stock index, the return on

some government bond index, the return on some commodity

index, changes in credit spreads, etc. Once the relevant risk

factors have been identified, the fund’s sensitivity to these

factors is estimated from historical return data. Given these

sensitivities, we can construct a portfolio of stocks, bonds,

and other securities, with the same set of factor sensitivities

as the fund.

Although the above sounds straightforward enough, which

explains part of its popularity, in practice the factor model

approach encounters a number of problems. Here are some

of them:

1. Missing Factors. In practice we often have little or no idea

how a hedge fund’s returns are actually generated. As a

result, it is not at all clear which risk factors to use.

2. Lack of dynamic trading. One of the most striking differ-

ences between hedge funds and traditional investment

managers is that, instead of following largely static invest-

ment strategies, hedge funds dynamically trade in and out

of markets, either explicitly or implicitly through the use

of derivatives. In a standard factor model it is extremely

difficult to capture this important element of hedge fund

behaviour, as factor sensitivities are typically estimated

from 2 or 3 years of historical data.

3. Assumption of normality. Stripped down to the basics the

typical factor model is nothing more than a multiple


4. Costs of Execution. The effort and costs associated with

putting the factor-replicating portfolio together and main-

taining its sensitivities over time may be far from trivial.

Do the above problems stand in the way of accurate replica-

tion? Of course, one can speculate about this forever, but, as

always, the proof of the pudding is in the eating. Factor model-

based replication can be evaluated in three different ways:

1) Model fit - how much of the variation in fund or index returns

is explained by the model, i.e. what is the models R-squared? ‘

2) Out-of-sample prediction - given next month’s risk factors,

how well does the model predict next month’s fund or

index return?

3) Backtest on historical data - when executing the replication

strategy, starting at some point in the past, do the returns

on the replicating portfolio actually match up with the

actual fund or index returns?

In what follows we investigate how factor model-based repli-

cation scores in terms of the above evaluation criteria.

1) Model Fit.From table 2 it is clear that, despite the much higher system-

atic component in the index returns, the factor model used is

unable to accurately replicate the returns on the above indices.

As to judge from the correlation between the index return

and the replicating return, the best results are obtained for

long/short equity and event driven. Given the straightforward

nature of these strategies, this is not really surprising. More

complex strategies, like fixed income and convertible arbitrage

for example, do a lot worse, however.

Table 1: Average percentage of individual hedge fund return variationexplained. Source: Hasanhodzic and Lo (2006, Table 5).

Strategy Group Average Variation Explained

Convertible Arbitrage 17.3%

Emerging Markets 19.4%

Equity Market Neutral 10.4%

Event Driven 19.5%

Fixed Income Arbitrage 14.9%

Global Macro 14.8%

Long/Short Equity 21.6%

Table 2: European hedge fund index return replication. Source: Schneeweis et al. (2003, Exhibit 2a-2f).

Index Replica

Strategy Mean StDev Mean StDev Corr. index and replica

Composite -2.97% 3.35% -7.07% 7.92% 43%

Fixed Income 7.87% 2.96% 2.89% 2.58% 16%

Long/Short -0.98% 3.83% -9.99% 7.13% 46%

Event Driven -2.67% 4.79% -6.34% 6.97% 90%

Convertible Arb 8.28% 1.82% 1.88% 1.54% 17%

Note that a high correlation between index return and repli-

cating return does not guarantee that the replicating and

index returns exhibit similar statistical properties. Looking

at the standard deviations for event driven in table 2, we see

that, despite the 90% correlation, the standard deviation of

the replicating returns is 46% higher than that of the index

return. Obviously, this could cause major problems in port-

folio risk management where the replica will typically be

assumed to have properties similar to the target.

Table 3: Percentage of HFRI return variation explained. Source: Jaeger and Wagner (2005, Table 1).

HFRI Index Variation Explained

Managed Futures 34.3%

Equity Market Neutral 35.3%

Fixed Income Arbitrage 40.5%

Global Macro 49.7%

Merger Arbitrage 52.9%

Convertible Arbitrage 54.0%

Distressed 68.4%

Long/Short Equity 88.5%

The Schneeweis et al. (2003) results are not unique. Table 3

shows to what extent the factor model used in Jaeger and

Wagner (2005) was able to explain the variation in the well-

known HFRI indices over the period Jan 1994 - Dec 2004.

The message we get from table 3 is not different from what

we saw before in table 2. Relatively straightforward strategies,

like long/short equity, score quite well, but more complex

strategies, like managed futures and equity market neutral,

come out a lot worse.

2) Out-Of-Sample-Prediction Figure 1 shows to what extent the factor model used in

Jaeger and Wagner (2005) was able to predict the returns on

the HFR Equity Market Neutral indices over the period

Alternative routes to hedge fund return replication • 7

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March 2003 - August 2005. The graphs show the replicated

return (RFS) and the HFRI (non-investable) and HFRX

(investable) equity market neutral index returns.

Figure 1: Monthly returns HFRI (non-investable) and HFRX (investable) Equity Market Neutral indices versus predicted replica return (RFS). Source: Jaeger and Wagner (2005, Figure 8).

From figure 1 it is clear that in both cases the replication is

not very accurate and the difference between the predicted

and the actual index return can be quite large at times. Also

note that figure 1 clearly shows that investable and non-

investable indices, even from the same index provider, can

produce completely different returns at times. We discuss

this phenomenon in more detail in Kat and Palaro (2006b).

3) Backtests on Historical Data A number of investment banks have recently launched hedge

fund replication products. In September 2006 Merrill Lynch

launched its Factor Index (Bloomberg MLEIFCTR). In

December 2006 Goldman Sachs announced its Absolute

Return Tracker (ART) Index (Bloomberg ARTIUSD), while in

February 2007 JP Morgan announced the upcoming launch

of its Alternative Beta Index (ABI). Although the marketing

gimmicks differ, both the Factor Index and the ART Index are

essentially factor model-based and aim to replicate a highly

diversified hedge fund index. Merrill’s Factor Index aims to

replicate the HFRI Fund Weighted Composite index, which

contains over 2000 funds. Goldman’s ART Index aims to rep-

licate an unnamed “Fund Universe” said to consist of over

1000 funds. In terms of fees both products are similar as well.

Merrill and Goldman both charge a flat 100bps/annum.

Figure 3 shows the evolution of the HFRI Composite, the

HFRI Fund of Funds index and Merrill’s Factor Index. Figure

4 shows the same for Goldman’s ART Index. At the time of

writing JP Morgan’s ABI had not been finalized yet and per-

formance details are therefore lacking.4 Both graphs make it

clear that, despite the different ways in which these products

are being advertised, there is not much difference between

them. Both appear to have serious difficulty tracking the

HFRI Composite, but track the HFRI Fund of Funds index

quite accurately.

Figure 3: Evolution HFRI Composite and Fund of Funds indices and Merrill Lynch Factor Index, Jan 2003 � Mar 2007.

Figure 4: Evolution HFRI Composite and Fund of Funds indices and GoldmanSachs ART Index, Jan 1997 � Mar 2007.

It is sometimes suggested that the period over which the

above replication products have been backtested is too short

and that in a different environment replication accuracy

could be much lower. This argument is flawed, however, as

the main reason why replication accuracy is so high does not

depend on the market environment at all. It is technical. Mix

up enough different strategies and most alternative risk will

diversify away.

Why don’t these replication products outperform the HFRI

Fund of Funds index? Funds of funds charge fees that are a

multiple of the 100bps charged by the providers of these

products. If the majority of fund of funds managers indeed

had little or no skill, one would therefore expect them to

underperform by quite a wide margin. The solution to this

The majority of hedge fund managersdo not have enough skill to make up for the fees that they charge.

8 • Alternative routes to hedge fund return replication

fsrforum • volume 14 • issue #5

Page 11: Editie 5 Investment Strategy


conundrum lies in the upward biases present in the index. As

a result, the HFRI Fund of Funds index significantly over-

estimates the return on the average fund of funds. A similar

reasoning, together with the loss of the one layer of fees,

explains why the HFRI Composite does so well.

Conclusion Factor Model Replication Overall, it seems safe to conclude that the factor model

approach has serious difficulty producing accurate replicas

for individual hedge funds and most hedge fund indices. To

obtain accurate replication, the factor model approach needs

to be applied to an extremely well diversified index, where

essentially everything that makes hedge funds interesting,

and thereby causes factor models to fail, has been diversified


B The Mechanical Trading Rule ApproachThe above replication products all concentrate on one par-

ticular market or type of risk: FX, volatility, etc. One could,

however, also combine a number of mechanical rules cover-

ing different markets or risks into one single product. This is

the approach taken by Partners Group in their Alternative

Beta Strategies (ABS) fund, which was launched in October

2004.7 Unlike the Merrill Lynch and Deutsche Bank products,

ABS is a collection of 18 different mechanical rule-based

strategies, similar to a multi-strategy hedge fund. The Part-

ners Group website explains it as follows: “Our Alternative

Beta Strategies fund invests in a diversified, liquid portfolio

of financial instruments, based on our proprietary quantita-

tive investment models. Different sub-strategies of the funds

seek to replicate several hedge funds strategies, including

equity market neutral, equity hedged, managed futures, fixed

income arbitrage, volatility arbitrage and event driven.” The

similarity with multi-strategy hedge funds doesn’t end here.

Unlike other hedge fund replication products, which charge

a flat fee, the ABS fund charges a management fee of 1.25%

plus a 15% incentive fee. From figure 5 we see that the ABS

fund behaves in a similar way as both HFRI indices, but

exhibits a stronger upward drift and significantly higher vol-

atility. To correct for this, we deleveraged the ABS fund by

40% to obtain a sample return volatility of around 5%.8 The

result is also shown in figure 5. The graph shows that, cor-

rected for leverage, the deleveraged ABS fund has more or

less tracked the HFRI Composite.

Figure 5: Evolution HFRI Composite and Fund of Funds indices, PartnersGroup ABS fund, and 40% deleveraged ABS fund, Jan 2000 � Jan 2007.

Figure 5 also shows that over the past few years the perfor-

mance of the ABS fund has been lagging the HFRI Composite

and Fund of Funds indices quite significantly. Since these are

exactly the years during which the fund has been live, this

strongly suggests the presence of a significant data-mining

element in the fund’s strategy.

Conclusion ABS fund From an intellectual perspective, the

ABS fund makes for a more appealing story than factor

model-based products. Unfortunately, this does not appear to

translate in more appealing returns. In a way this makes

sense. The ABS fund mechanically replicates a number of

hedge fund trades and then combines these into one single

portfolio. Because it mixes a variety of strategies, however,

the ABS portfolio will be quite similar to the hedge fund

portfolios that factor model-based products aim to replicate.

C The Fund Creator ApproachSimilar to factor models, FundCreator-based replication

strategies concentrate on replicating a target’s risk profile.

The basic philosophy is the same therefore: match the risk

profile and you will match the return. Unlike factor models,

however, FundCreator concentrates on the risk characteris-

tics of the bottom-line return and skips over the individual

risk factors operating in the background. The replication

horizon is different as well. Factor models aim for strict

replication of month-to-month returns. FundCreator on the

other hand may generate significantly different month-to-

month returns as the fund or index to be replicated, as it

completely ignores the actual return generating process. In

this sense the replication goal of FundCreator is substan-

tially less strict than that of the factor model approach.

Alternative routes to hedge fund return replication • 9

Page 12: Editie 5 Investment Strategy

The basic observation underlying the FundCreator approach

is that in most applications, strict replication of month-to-

month returns is not required. Investors invest in hedge

funds for their return properties, i.e. their low volatility, low

correlation with stocks and bonds, etc. It is therefore suffi-

cient to produce returns with these particular properties. As

long as the returns generated exhibit the desired characteristics,

the sequence in which they arrive is of no real importance. Of

course, implicitly the factor model approach also aims to

generate returns with the same statistical properties as the

target fund or index. However, methodologically this is not

an explicit goal, as it is in the FundCreator approach. With

factor models it therefore fully depends on the quality of the

replication whether the statistical properties of the target

and the replica indeed match up. With FundCreator on the

other hand that match is exactly what it is all about.

The FundCreator approach, as a hedge fund replication tech-

nique as well as a synthetic fund creation technique, has

been extensively backtested out-of-sample in Kat and Palaro

(2005) and Kat and Palaro (2006a, 2006b). All three studies

strongly confirm the practical viability of the approach. Table

7 shows the sample properties of the monthly returns of a

number of HFRI indices as well as the FundCreator-based

synthetic funds designed to replicate their statistical proper-

ties over the period March 1999 ñ October 2006.9 Correlation

refers to the correlation between the index or synthetic fund

returns and a portfolio consisting of 50% S&P 500 and 50%


From table 7 we see that, over the period studied, FundCrea-

tor has been able to replicate the statistical properties of the

various indices quite accurately. All risk parameters match

up very well and in 7 out of 10 cases the average return on

the synthetic fund is even higher than that on the index to be

replicated. The average correlation between index and syn-

thetic fund is only 0.44, however, which underlines that

although the statistical properties were replicated accurately,

the month-to-month returns were not. It is interesting to

see that, over the period studied, synthetic funds beat both

the HFRI Composite and Fund of Funds indices. This reflects

not only the low license fee, but also the highly efficient

nature of the FundCreator trading strategies.

Table 7: Sample properties HFRI index and synthetic fund returns, March 1999 - October 2006. Source: Kat and Palaro (2006b, table 3).

HFRI Index Fund Creator synthetic fund

Index Mean StDev Skew Corr Mean StDev Skew Corr

Composite 10.70% 8.17% 0.43 0.62 10.98% 8.59% 0.78 0.64

Funds of Funds 8.40% 7.25% 0.66 0.50 11.27% 7.46% 1.50 0.49

Convertible Arbitrage 8.59% 5.53% 0.00 0.20 7.13% 5.42% -0.01 0.22

Distressed Securities 13.27% 7.72% 0.32 0.48 12.00% 8.10% 0.43 0.49

Emerging Markets 18.63% 16.94% 0.09 0.67 22.29% 18.14% 1.12 0.67

Long/Short Equity 11.50% 10.74% 0.88 0.57 13.02% 11.28% 1.06 0.59

Equity Market Neutral 6.24% 2.93% 0.60 -0.01 6.71% 2.98% 0.27 -0.07

Global Macro 9.05% 6.50% 0.53 0.30 10.02% 6.75% 0.60 0.30

Merger Arbitrage 8.03% 4.10% -1.67 0.38 7.05% 3.71% -0.27 0.35

Short Selling 4.15% 23.37% 0.05 -0.56 23.67% 26.64% 0.73 -0.53

Product Evaluation Having discussed the details of the various approaches to

hedge fund replication, it is time to make some comparisons.

One criterion that is typically put forward by the main product

providers is replication accuracy. It is, however, difficult to

see why replication accuracy would be of any importance to

investors. From an investment perspective it is not particularly

relevant whether a product accurately replicates some fund

or index or not. What matters for an investor is whether the

product in question makes a valuable addition to his existing

portfolio, irrespective whether it provides an accurate replica

or not. The emphasis that product providers place on replication

accuracy is therefore misplaced.

Some product providers have pointed at the involvement of

well-known academics as a reason why their product is to be

preferred over that of their competitors. Typically, these aca-

demics’ involvement is quite limited, however, and might

well consist of nothing more than a position on a mysterious

“Index Oversight Committee”. Obviously, this is a marketing

gimmick with little practical relevance. LTCM had two Nobel

Laureates on board and we all know how that story ended.

To arrive at a rational conclusion as to the attraction of the

various hedge fund replication products we have to ignore

the alternative beta and hedge fund replication wrapper that

the providers of these products are so fond of and evaluate

them in the exact same way as we would evaluate any other

new diversifier.10 This means we need to look at their mar-

ginal return properties and their dependence with other

asset classes. The estimated marginal properties of the vari-

ous multi-strategy replication products can be found in

tables 4-6. Apart from some negative skewness, none of these

appear to be unusual. Table 8 shows the sample correlations

between the S&P 500 and the HFRI Composite and Fund of

10 • Alternative routes to hedge fund return replication

fsrforum • volume 14 • issue #5

Page 13: Editie 5 Investment Strategy

Funds indices, as well as the various multi strategy replica-

tion products.

From table 8 it is clear that the various multi-strategy repli-

cation products tend to be quite heavily correlated with the

stock market. With correlations with the S&P 500 of 0.8 and

even higher, none of them is therefore likely to make a par-

ticularly good diversifier. In fact, as discussed before, this is

exactly the reason why these multi-strategy products are able

to replicate the HFRI indices with such high accuracy. If the

index contained more “alternative risks”, factor model-based

replication would almost surely fail.

Table 8: Sample correlations S&P 500 with HFRI Composite and Fund of Funds indices and multi-strategy replication products.

HFRI Indices Replication Products


1997 0.70 0.74 NA 0.83 NA NA

1998 0.93 0.70 NA 0.93 NA NA

1999 0.74 0.64 NA 0.69 NA NA

2000 0.49 0.31 NA 0.16 NA -0.10

2001 0.88 0.71 NA 0.86 NA 0.09

2002 0.79 0.46 NA 0.50 0.28 0.49

2003 0.82 0.59 0.92 0.70 0.52 0.77

2004 0.81 0.73 0.78 0.70 0.56 0.68

2005 0.76 0.65 0.77 0.79 0.90 0.69

2006 0.74 0.76 0.81 0.81 0.87 0.76

What about FundCreator? FundCreator is not a fixed product

but a risk management tool, which allows investors to design

trading strategies that generate returns with predefined sta-

tistical properties. Doing so, investors create their own ideal

diversifier, not necessarily available anywhere else in the

market. Kat and Palaro (2006a) provide a number of exam-

ples of such synthetic tailor-made diversifiers. The perfor-

mance of three of them over the period March 1995 - April

2006, together with the performance of a portfolio of 50%

S&P 500 and 50% T-bonds, is summarized in table 10. Fund

1 is a synthetic fund aiming for 12% volatility, zero skewness

and zero correlation with a portfolio of 50% S&P 500 and

50% T-bonds. Fund 2 is similar, except that it aims for sub-

stantial positive skewness of +2. Fund 3 is also similar to

fund 1, but aims for a correlation of -0.5, instead of zero.

From table 10 we see that in all three cases the sample prop-

erties match up quite well with the chosen target values.

From the Sharpe ratios it appears that on a stand-alone basis

the synthetic funds may not be too interesting. However, this

skips over the positive skewness in fund 2 and all three funds’

low correlation with stocks and bonds, which in a portfolio

context is a highly attractive feature.

Table 10: Summary examples Kat and Palaro (2006a), Mar 1995 - Apr 2006.

50/50 Fund 1 Fund 2 Fund 3

Mean 9.71% 11.42% 9.52% 6.81%

StDev 8.34% 12.35% 12.80% 12.21%

Skew -0.19 0.21 2.23 0.21

Corr 50/50 1.00 -0.05 -0.01 -0.48

Sharpe ratio 0.68 0.59 0.43 0.22

ConclusionWith average hedge fund performance steadily deteriorating

and equity markets picking up again, interest in hedge fund

return replication as a cheaper means of obtaining hedge

fund-like returns is growing steadily. Currently, there are

various products on offer. Compared to real hedge funds (of

funds), all of them offer improved liquidity, transparency,

capacity, etc. and thereby solve a range of problems sur-

rounding hedge fund investment. There are, however, sub-

stantial differences in terms of their attraction as portfolio

diversifiers. The multi-strategy replication products offered

by Merrill Lynch (Factor Index), Goldman Sachs (ART Index)

and Partners Group (ABS fund) exhibit a strong correlation

with the stock market. This severely limits these products’

attraction as portfolio diversifiers.

FundCreator does not necessarily replicate any specific fund

or index, but allows investors to design their own diversifier

from scratch. This gives investors a unique opportunity to

create new tailor-made diversifiers with characteristics that

are optimal given their existing portfolios. Clearly, this

makes FundCreator-based synthetic funds much more

attractive than the various multi-strategy hedge fund repli-

cation and alternative beta products currently on offer.

FundCreator is not a fixed productbut a risk management tool.

Alternative routes to hedge fund return replication • 11

Page 14: Editie 5 Investment Strategy

Onze klanten zijn zonder uitzondering ondernemende mensen. Harde werkers met veel energie en stevige verantwoordelijkheden. Dat vraagt om een fl inke dosis inlevingsvermogen. Je moet hun wensen, zorgen en plannen begrijpen. En soms moet je je aanpassen aan hun werkritme. Ook al kost het wat slaap. Iets voor jou? Ga naar werkenbijacconavm.nl dichtbij kom je verder

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147778_210x197.indd 1 08-11-11 17:01

Page 15: Editie 5 Investment Strategy

accon■avm biedt mij de ruimte om te ontwikkelen, dichtbij mijzelf én dichtbij de klant

Norma Bonten, werkzaam als assistent-accountant in de controlepraktijk bij accon■avm

Norma Bonten (26) startte na haar diploma Accountancy aan

de HEAO, met de Master of Science in Accountancy aan de

Nyenrode Universiteit. Tevens ging zij aan het werk bij een

groot accountantskantoor. Na één jaar werken bij dit kantoor

kwam ze tot de conclusie dat ze het ‘persoonlijke klantcon-

tact’ en het ‘net dat beetje meer kunnen betekenen voor de

klant’ miste.

“Ik ging op zoek naar een bedrijf wat de kansen en mogelijk-

heden biedt van een groot kantoor, maar waar je ook net dat

beetje meer klantcontact kunt hebben. Dit alles vond ik bij

accon■avm adviseurs en accountants. Hier werk ik nu ruim

een jaar met veel plezier als assistent-accountant in de controle-


VerantwoordelijkhedenBinnen accon■avm adviseurs en accountants kent men ver-

schillende functieniveaus, tevens allemaal doorgroeifuncties!

Ik startte als assistent-accountant en ondanks mijn weinige

ervaring was ik gelijk een volwaardig teamlid.

Ik ging gelijk mee naar de klant en het mooiste is dat niet

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dat ikzelf ook gesprekken mag voeren. Mijn ervaring is dat je

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Dichtbij de klant!accon■avm adviseurs en accountants heeft vele diverse

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helpen. Hierdoor wordt de klant ontzorgt en het geeft mij

een prettig en fijn gevoel om net dat beetje meer te kunnen

betekenen voor een klant.

Carrière bij accon■avmBinnen accon■avm krijg je voldoende gelegenheid om jezelf

te ontplooien. Uiteraard heb je een persoonlijk aanspreekpunt

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binnen accon■avm. Daarnaast heeft accon■avm een eigen

Academy, waar je cursussen en opleidingen kunt volgen. Álle

mogelijkheden dus!

SfeerDe sfeer binnen accon■avm is gezellig, informeel en persoonlijk.

Je voelt je snel welkom. Ik heb leuke en diverse collega’s,

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Verder studeren veel van mijn collega’s nog, waardoor het op

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zelf blijven en dit is belangrijk bij accon■avm, want als je

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ToekomstbeeldIk sta nu nog aan het begin van mijn carrière bij accon■avm

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het doorgroeien naar de functie van asprirant-controleleider.

Company presentation

fsrforum • volume 14 • issue #5

Companypresentation • 13

Onze klanten zijn zonder uitzondering ondernemende mensen. Harde werkers met veel energie en stevige verantwoordelijkheden. Dat vraagt om een fl inke dosis inlevingsvermogen. Je moet hun wensen, zorgen en plannen begrijpen. En soms moet je je aanpassen aan hun werkritme. Ook al kost het wat slaap. Iets voor jou? Ga naar werkenbijacconavm.nl dichtbij kom je verder

voor de agenda

van je klant?


147778_210x197.indd 1 08-11-11 17:01

Page 16: Editie 5 Investment Strategy

Predicting Asset Value Through Twitter Buzz

Xue Zhang, Hauke Fuehres, Peter A. Gloor (2012)

14 • Predicting Asset Value Through Twitter Buzz

fsrforum • volume 14 • issue #5

Page 17: Editie 5 Investment Strategy

1 IntroductionRecently, a lot of research has been done on prediction with

data from social networks and web searches. Gayo-Avello et

al. [1] clearly pointed out that follow-ing what people are

blogging about or what they are searching about can give us

some intuition on the collective psyche and lead us to under-

stand what is currently happening in society before it is actually

happening. Sometimes people refer to this phenomenon as

the “wisdom of the crowd”, that is, taking into account the

opinion of the society as a whole, instead of the opinion of

the expert.

A group of researchers is applying this novel methodology to

stock market pre-diction. Antweiler and Frank [2] determined

correlation between activity in Inter-net message boards and

stock volatility. Gilbert and Karahalios [3] used over 20 million

posts from the LiveJournal website to create an index of the

US national mood, which they call the Anxiety Index. They

found that when this index rose sharply, the S&P 500 ended

the day marginally lower than is expected. Choud-hury et al.

[4] modeled contextual properties of posts in SVMs (support

vector machines) and trained it with stock movement. The

result shows about 87% accu-racy in predicting the direction

of the movement.

As one of the most popular social networking websites, Twitter

is drawing more and more attention from researchers from

different disciplines. There are several streams of research

investigating the role of Twitter. One stream of re-search

focuses on understanding its usage and community structure

[5,6,7,8]. Other researchers are more interested in its prediction

power and potential applica-tion in other areas. It has been

demonstrated that by tracking tweet numbers re-lated to

certain topics, both box-office revenues of movies and political

elections could be successfully forecasted [9,10]. Also, Twitter

has been used in tracking the spread of epidemic disease [11].

Twitter buzz was also employed in predicting the stock

market movement. By analyzing the sentiment of a random

sample of tweets, Bollen et al. [12] found that public mood

can be used to predict the stock market. Furthermore, stock-

related tweets with a specific hashtag “$” were collected and

studied in detail in [13], where it was found that these tweets

contain valuable information that is not fully incorporated in

current market indicators. In previous work [14], we also

pre-sented very preliminary results that the number of emo-

tional tweets, which contain words such as “hope”, “fear” or

“worry” correlated with stock market indicators. In this

paper, further tests and analysis to predict valuation of trad-

able assets will be described.

2 Data

2.1 Twitter Data CollectionWe collected a large set of tweets submitted to Twitter in the

period from Novem-ber 15, 2010 to April 20, 2011. In order

to get a better picture of the opinion and emotional state of

the US investors, we only filter for emotional retweets that

come from the United States. In other words, all the data we

collected meets the following conditions:

Retweets only. Structurally, retweeting is the Twitter-equivalent

of email for-warding where users post messages originally

posted by others. As an integral part of the Twitter experience,

the retweeting phenomenon has been explicitly studied in prior

research [7]. It is generally believed that the more a topic is

being picked up and retweeted by others, the more it is rele-

vant and widely recognized. Al-though there is no universally

agreed-upon syntax for retweeting, “RT @user mes-sage” is

the prototypical formulation where the referenced user is the

original author and message is the original tweet’s content,

therefore we choose “RT @” as our indicator of retweets.

Containing the emotion words “hope”, “fear” or “worry”.

Emotional state greatly influences human decisions, which

obviously include the appropriate choice of an investment

strategy [15,16,17,18,19]. When people are pessimistic or

uncertain about their future, they will be more cautious to

invest and trade. There-fore capturing the collective mind –

especially people’s mood – becomes one pos-sible way to predict

the future. To be consistent with and further test previous

work, we only take into account the retweets that contain the

words “hope”, “fear” or “worry”, because we had found in

earlier work [14] that these words are excellent indicators of

emotion-laden tweets.

Originating from the US. The goal of this paper is to analyze

whether Twitter buzz can be helpful in forecasting selected

economic indicators of the US econ-omy. For the purpose of

better capturing the opinion and emotional state of the US

population, we intentionally limit the targeted tweets to the

Twitter is drawing more and more attention from researchers from different disciplines.

Predicting Asset Value Through Twitter Buzz • 15

Page 18: Editie 5 Investment Strategy

ones originating from within the continental United States

without Alaska. Tweets were collected within four 2000-kil-

ometers circles with centers in Pittsburg, Atlanta, Las Vegas

and Boise respectively. As Figure 1 shows, these circles cover

the contiguous United States and parts of Canada and Mexico.

Over the duration of five months, 3,809,437 retweets posted

by approximately 961,000 users were collected and each

tweet has a unique identifier, time of sub-mission and the

textual content. Table 1 summarizes the daily number of

retweets related to each emotional word. As we can see, the

daily retweet rate of each emo-tion word is highly variable,

for example, the hope-retweets range from 6453 to 34805 per

day. Even more interestingly, the number of hope-retweets is

much higher than the fear or worry ones, almost six times on

average, which might sug-gest that people prefer using opti-

mistic words when they express their feelings, even when

they are worrying or in fear.

Fig. 1 Geographical origin of Twitter data: A is Pittsburg, B is Atlanta, C is Las Vegas and D is Boise

Table 1 Daily number of emotional retweets

Average per day Min per day Max per day

Hope-retweet# 20613 6453 34805

Fear-retweet# 3710 853 7555

Worry-retweet# 3653 1071 7397

Total# 27977 11395 46209

2.2 Generating public opinion time seriesIn this section, we further discuss how to extract posts in

regard to economic top-ics from our emotional retweets

dataset. As twitter users can share only short tex-tual mes-

sages with no more than 140 characters per post, there is

always only one topic in one tweet.

Inspired by this property, a list of words related to economy

was selected as a clue for economic tweets. This list of key-

words includes “dollar”, “$”, “gold” “oil”, “job” and “economy”.

Then we measured collective opinion on each day by counting

how many retweets contain these words. As the total number

of retweets varies highly from day to day, a normalized

number was chosen as a measurement of public opinion on

day t. For example, we counted the number of retweets

containing the word “dollar” and normalized it by the total

retweet num-ber on the same day t, this normalized retweet

number is listed as “dollar%t ”.

Figure 2 below illustrates all 6 public opinion time series.

Fig. 2 Public opinion time series

2.3 Market DataIn this section, we look at different categories of assets

including the gold price, crude oil price, currency exchange

rates and stock market indicators. For our anal-ysis we have

taken the daily price of gold (dollars per ounce), WTI Cushing

crude oil price (dollars per barrel), currency exchange rates

(USD/CHF), Dow Jones In-dustrial Average (DJIA), NASDAQ

and S&P 500 all collected during the same period as the Twit-

ter data.

Obviously, all these market time series are non-stationary. To

meet the re-quirement of stationarity in time series analysis,

data are processed in the follow-ing way. Taking DJIA as an

example, the stock movement at a day t is defined as the nor-

malized change in stock close price from the past day, which

can be ex-pressed as

16 • Predicting Asset Value Through Twitter Buzz

fsrforum • volume 14 • issue #5

Page 19: Editie 5 Investment Strategy


Dt = DJAIt-DJAIt-1



where DJAItis the close price of day t. Similarly, we determine

the other inde-pendent variables. Using these new relative

variables, we not only can tell the change direction of the

market which is indicated by the sign of the number, but also

measure how much it changed compared to the previous day.



(2) St = S&Pt-S&Pt-1



Ot = Oilt-Oilt-1


(4) Gt = Goldt-Goldt-1



Ut = USDt-USDt-1



3 Methods and Results

3.1 Correlation between public opinion and market time seriesTo obtain a first indication whether the Twitter information

might help forecast the asset value, we analyzed the correlation

between the two time series. Tables 2 to 4 illustrate correlation

coefficients between market movement on day t and Twitter

buzz of day t-i (i=1,2,3) separately.

In Table 2, we observe a relatively strong correlation between

stock market re-turn and “dollar%t-1” (r = 0.308**, 0.203 and

0.259*, p-value = 0.004, 0.058 and 0.015). In addition, not

only “oil%t-1” but also “economy%t-1” is strongly correlated

with oil price changes of day t (r = 0.295** and 0.214*,

p-value = 0.006 and 0.046). Even more interestingly, we

found that the correlation between “gold%t-1” and Gt is weak,

but “gold%t-1” is significantly correlated with Ut (r = 0.213*,

p-value = 0.016), indicating a relationship between the gold

price and the strength of the US dollar. Furthermore, it is

worth noticing that all the correla-tion coefficients men-

tioned above are positive, which implies that an increase in

economic topic retweeting seems to indicate an increase in

the value of the corre-sponding asset on the next market day.

In contrast, the relationships between market movement

and time series “$%” and “job%” are not that significant in

this period. Additionally, the Twitter buzz of two or three

days before seems to have less influence on the market move-

ment of day t (see Tables 3 and 4).

Table 2 Correlation coefficient between market movement and Twitter buzz 1 day before








.308** .203 .259* .012 -.112 -.055


.108 .062 .116 .004 -.080 -.122


.122 .055 .088 -.034 -.053 .213*


.022 .018 .054 .295** .108 .072


-.035 .000 -.013 -.165 -.203 .167


-.142 -.186 -.147 .214* -.011 -.021

Table 3 Correlation coefficient between market movement and Twitter buzz 2 day before








.106 .040 .065 -.148 -.078 .122


.040 .025 .033 -.099 .077 -.131


-.032 -.013 -.041 .020 .089 .064


.004 -.039 -.019 .201 -.004 -.123


.094 .101 .108 -.151 -.116 .081


-.073 -.068 -.030 .121 .020 -.039

Table 4 Correlation coefficient between market movement and Twitter buzz 3 day before








.018 .010 .026 -.013 -.273* -.088


-.198 -.179 -.176 -.109 -.048 -.142


.020 .024 .007 -.033 .030 .133


.033 .077 .069 .039 -.039 -.017


.126 .156 .130 -.132 -.141 .093


-.086 -.025 -.029 .031 .152 -.118

3.2 Granger-causality AnalysisIn this section we apply Granger causality analysis to the

daily time series of public opinion vs. financial market move-

ment. Granger causality is a statistical con-cept of causality

that is based on prediction. According to Granger causality, if

a signal X “Granger-causes” (or “G-causes”) a signal Y, then

past values of X should contain information that helps pre-

dict Y above and beyond the information contained in past

values of Y alone. Its mathematical formulation is based on

lin-ear regression modeling of stochastic processes (Granger

1969). It is noteworthy that in spite of its name, Granger cau-

sality is not sufficient to imply true causality. If both X and Y

are driven by a common third process with different lags, X

might erroneously be believed to “Granger-cause” Y. However,

in our project, we are not testing the actual causation but

simply whether one variable provides predictive information

about the other one or not.

Granger causality requires that the time series have to be

covariance stationary, so an Augmented Dickey-Fuller test

has been done first, in which the null hy-pothesis H0 of non-

An increase in economic topic retweeting seems to indicate an increase in the value of the corresponding asset on the next market day.

Predicting Asset Value Through Twitter Buzz • 17

Page 20: Editie 5 Investment Strategy

rency fluctuation, and the underlying lack in confidence in

the national economy influence the eagerness of buyers to

invest into the “safe haven” gold.

Table 5 Statistical significance (p-value) of bivariate Granger causality correlation between Twitter buzz and financial market movement (p-value < 0.05: *, p-value < 0.01: **)

Lag Dt







n=1 .0039** .0494* .0165* .9588 .2877 .3131

n=2 .0203* .2405 .124 .3174 .3301 .1014

n=3 .0272* .3869 .1803 .4251 .0527 .0802


n=1 .3309 .5538 .2966 .9033 .4887 .2315

n=2 .9919 .9864 .9849 .7672 .6766 .357

n=3 .2369 .3818 .3967 .8694 .7855 .3395


n=1 .286 .5908 .4459 .7685 .5943 .0053*

n=2 .3047 .7991 .572 .8669 .7787 .0306*

n=3 .3267 .8883 .7072 .9317 .9964 .0518


n=1 .9036 .7989 .6828 .0164* .2359 .6347

n=2 .8657 .4439 .7809 .0096** .3672 .6156

n=3 .9102 .5801 .864 .0225* .3668 .3782


n=1 .7542 .9812 .9222 .1668 .0413* .1167

n=2 .2322 .3358 .204 .3986 .194 .3919

n=3 .4879 .5408 .4544 .3697 .0896 .6271


n=1 .1978 .0819 .183 .0558 .8752 .591

n=2 .6916 .297 .5575 .1293 .9446 .7235

n=3 .6592 .4267 .6904 .1896 .4743 .3417

4 DiscussionsIn this paper, we investigated the relationship between Twit-

ter buzz and financial market movement. Our results statis-

tically show that public opinion measured from large-scale

collection of emotional retweets is correlated to and even

predic-tive of the financial market movement. Except “$%t”,

all other five public opin-ion time series are identified in a

Granger-causal relationship with selected asset valuation

movements. The changes in the volume of economic topic

retweeting seems to match the value shift occurring in cor-

responding next market day.

However, there are still a number of important factors not

acknowledged in our analysis to be studied in future work.

First, unlike the prior work of [12] and [13], when we

extracted the public opinion from Twitter, we neither con-

strained our da-ta to those stock-related tweets which have a

specific hashtag nor use sentiment analysis tools to measure

the public mood from a random sample of tweets. We chose

a few keywords to identify the emotional retweets talking

about economic activity, then use volume change to track

the public opinion. This method is sim-ple and useful. It

however does not linguistically analyze the content of tweets,

which might offer additional valuable information. Advanced

stationarity was rejected at the 0.05 confidence level. Again, all

Twitter buzz and market movement time series were verified

to be stationary.

To test whether public opinion time series “Granger-cause”

the changes in fi-nancial market valuation, two linear regres-

sion models were applied as shown in equations 7 and 8. The

first model (M1) uses only n lagged values of market data to

predict Yt, while the second model (M2) also includes the

lagged value of pub-lic opinion time series, which are

denoted by Xt-1, ... , Xt-n. In order to find an appropriate

number of lags, we set the lag parameter n equal to 1, 2 and

3 sepa-rately.

M1 : Yt-α+ΣβiYt-i+εt i=1



M2 : Yt-α+ΣβiYt-i+ΣγjXt-j+εti=1 j=1

n n (8)

After establishing the linear regression equations, a statistics

f is defined as

ƒ = nSSR1-SSR2




where SSR1 and SSR2 are the two sum of squares residuals of

equations 7 and 8; m is the number of observations. Theo-

retically, ƒ ∼ F(n,m-2n-1). Thus, the ques-tion whether X

“Granger-causes” Y could be solved by simply checking the


From Table 5 we can easily draw the conclusion that Twitter

buzz indeed has some information that can be used in pre-

dicting financial market movement. We observe that

“dollar%t” has the highest Granger causality relation with

stock market return, especially with the DJIA return (p-value

< 0.01 when n=1 and remains significant when n=2 and 3).

Also, the “oil%t” time series “Granger-causes” the changes in

oil price (p-value is always less than 0.05 when lag varies

from 1 to 3 days). The other two predictive variables are

“gold%t” and “job%t”, which have Granger causality relation

with Ut and Gt separately. However, the most interesting

aspect is that the “goldt” time series failed in explaining the

price change in the gold market, but could help predict the

currency exchange rates (USD/CHF). We speculate that cur-

Twitter buzz indeed has some information that can be used in predicting financial market movement.

18 • Predicting Asset Value Through Twitter Buzz

fsrforum • volume 14 • issue #5

Page 21: Editie 5 Investment Strategy

sentiment analysis could be employed in future work to

improve our results. Second, the analyzing methods we used

in this paper, both the correlation and Granger causality

analysis, are based on the assumption that the relation

between variables is linear, which is hardly satisfied for finan-

cial market movement. More advanced tools that can bet-ter

characterize the non-linear relationship between variables,

such as Neural Networks and Support Vector Machines,

should also be explored in future work.

Predicting Asset Value Through Twitter Buzz • 19

Page 22: Editie 5 Investment Strategy

omdat mensen tellen.

In onze dienstverlening draait het om mensen. Voor ons bestaat accountancy en advisering uit meer dan alleen regels en cijfers. We luisteren, denken mee en geven onze klanten integer en objectief advies. Dat vraagt van jou als accountant, fiscalist of consultant meer dan alleen vakkennis en branchekennis. Het vraagt om betrokkenheid, ambitie en passie voor het vak en je klanten.

BDO biedt jou professionele uitdaging en verdiepingsmogelijkheden. We willen voor onze medewerkers de ruimte creëren om hun eigen passie te vinden en hun talenten te ontdekken, te ontwikkelen en vervolgens optimaal te benutten.

Wat mag je als BDO’er van ons verwachten? Een informele en toch zakelijke werkomgeving waarin we respectvol met elkaar omgaan; Uitdagende werkzaamheden met de mogelijkheid om een goede, zakelijke relatie met je klanten op te bouwen; Een team van betrokken en toegankelijke partners; Een eerlijk en transparant Talent Ontwikkel- en Performance (TOP) programma, waarin we open met elkaar praten over je doelen, de voortgang en de verwachtingen ten aanzien van je persoonlijke ontwikkeling, prestaties en ambities; De BDO Talentacademie om professionele ontwikkeling en persoonlijke groei te realiseren; Waardering voor de rol die je voor onze klanten en de maatschappij vervult. Dit vertaalt zich in een passend pakket aan arbeidsvoorwaarden; Een open houding ten aanzien van feedback.

KernwaardenOnze kernwaarden geven de manier aan waarop we invulling geven aan onze ambitie. Ze vormen ons DNA en geven richting aan ons dagelijks doen en laten. Niet alleen naar onze klanten, maar ook naar onze medewerkers en op maatschappelijk terrein. Het is de specifieke BDO manier van werken: persoonlijk, met passie, professioneel en pragmatisch. En iedere BDO’er geeft hier op zijn eigen manier invulling aan.

Benieuwd hoe dit alles in de dagelijkse praktijk tot uiting komt? Neem dan contact op met Bouchra Laghzaoui, Recruiter, via (010) 242 46 00 of [email protected]


Omdat mensen tellen.

dat telt.

Page 23: Editie 5 Investment Strategy

omdat mensen tellen.

In onze dienstverlening draait het om mensen. Voor ons bestaat accountancy en advisering uit meer dan alleen regels en cijfers. We luisteren, denken mee en geven onze klanten integer en objectief advies. Dat vraagt van jou als accountant, fiscalist of consultant meer dan alleen vakkennis en branchekennis. Het vraagt om betrokkenheid, ambitie en passie voor het vak en je klanten.

BDO biedt jou professionele uitdaging en verdiepingsmogelijkheden. We willen voor onze medewerkers de ruimte creëren om hun eigen passie te vinden en hun talenten te ontdekken, te ontwikkelen en vervolgens optimaal te benutten.

Wat mag je als BDO’er van ons verwachten? Een informele en toch zakelijke werkomgeving waarin we respectvol met elkaar omgaan; Uitdagende werkzaamheden met de mogelijkheid om een goede, zakelijke relatie met je klanten op te bouwen; Een team van betrokken en toegankelijke partners; Een eerlijk en transparant Talent Ontwikkel- en Performance (TOP) programma, waarin we open met elkaar praten over je doelen, de voortgang en de verwachtingen ten aanzien van je persoonlijke ontwikkeling, prestaties en ambities; De BDO Talentacademie om professionele ontwikkeling en persoonlijke groei te realiseren; Waardering voor de rol die je voor onze klanten en de maatschappij vervult. Dit vertaalt zich in een passend pakket aan arbeidsvoorwaarden; Een open houding ten aanzien van feedback.

KernwaardenOnze kernwaarden geven de manier aan waarop we invulling geven aan onze ambitie. Ze vormen ons DNA en geven richting aan ons dagelijks doen en laten. Niet alleen naar onze klanten, maar ook naar onze medewerkers en op maatschappelijk terrein. Het is de specifieke BDO manier van werken: persoonlijk, met passie, professioneel en pragmatisch. En iedere BDO’er geeft hier op zijn eigen manier invulling aan.

Benieuwd hoe dit alles in de dagelijkse praktijk tot uiting komt? Neem dan contact op met Bouchra Laghzaoui, Recruiter, via (010) 242 46 00 of [email protected]


Omdat mensen tellen.

dat telt.

Page 24: Editie 5 Investment Strategy

Investment case for commodities? Myths and reality

Geetesh Bhardwaj, Ph. D., Vanguard Research (march 2010)

Basics of commodity investment

Determining the futures priceHow can long-only investors consistently earn a risk premium

in the market of commodity futures? The only way this is

likely to happen is if the futures price, on average, is set

below the expected spot price that obtains at maturity. We

would expect this to occur if there are sellers of commodity

futures in the market that are willing to systematically

accept a lower-than- expected price for the underlying com-

modity, in exchange for the futures buyers’ assurance of a

certain price at maturity. These sellers are willing to pay a

premium to insure against the price risk. This premium can

be thought of as equaling the difference between the futures

price at which they sell in the futures market, and the future

spot price they would otherwise expect to be paid. Much aca-

demic work has been done on this concept since the 1930s,

when both Keynes (1930) and Hicks (1939) developed the

theory of “normal backwardation,” which holds that futures

prices are set below expected future spot prices. The “normal

backwardation” theory implicitly assumes that the number

of producers requiring hedging outweighs the number of

consumers requiring similar hedging in the market.

Confusion about terminology. Backwardation and another

term, contango, have often been used to characterize the

current state of the futures market. Yet, use of these terms

has resulted in some confusion. Contango commonly refers

to a market in which futures prices are higher than the current

spot price—that is, the term structure of the futures curve is

“upward sloping.” In backwardation, futures prices are lower

than the current spot, and the term structure of the futures

curve is “downward sloping.”

Further, given the preceding definitions of contango and

backwardation as relative to the current spot price, the natural

state of virtually all (historically, this has actually occurred close

to 70% of the time) commodity futures markets is reasonably

expected to be in contango. This is implied by the existence

of a “cost of carry,” according to which those holding a physical

commodity must pay for storage and other expenses, coupled

with a simple arbitrage.

Historical data and construction of commodities return seriesUnfortunately, a long historical data series on the performance

of commodity futures as an asset class is not available. Yet, we

believe that to fully understand an asset class’s fundamental

properties, longer-term historical data are necessary. Therefore

we have constructed a commodities return series extending

back in history to August 31 1959, as can be seen in Figure 1.

Our commodities return series is an equally weighted aver-

age of these 30 commodities; the series is well-diversified and

represents the broad commodity market. Given the return

series’ diversified nature, no single commodity or sector can

drive the results. To derive the total returns that would result

from holding a fully collateralized commodity futures position

(we ruled out use of leveraging), we incorporated the 3-month

U.S. Treasury bill return into the price return.

22 • Investment case for commodities? Myths and reality

fsrforum • volume 14 • issue #5

Page 25: Editie 5 Investment Strategy


Figure 1. Commodity futures and coverage data for our commodities return series

Name Contracts start date

Sector Cumulative annualized

excess returns (inception

through April 30, 2009 )


Aluminum 6 /1/1987 Industrial metals –2.7% – 0.02

Coal 7/12/2001 Energy – 6.1% – 0.18

Cocoa 7/1/1959 Softs – 0.4% 0.98

Coffee 8 /16 /1972 Softs 0.4% 1.17

Copper 7/1/1959 Industrial metals 7.7% 2.83*

Corn 7/1/1959 Grains – 5.4% – 0.89

Cotton 7/1/1959 Industrial materials –1.2% 0.47

Crude oil 3 / 30 /1983 Energy 6.4% 1.78

Feeder cattle 11/ 30 /1971 Animal products 1.5% 1.08

Gold 12/ 31/1974 Precious metals –1.4% 0.15

Heating oil 11/14/1978 Energy 5.5% 1.76

Lean hogs 2/28 /1966 Animal products 2.5% 1.49

Live cattle 11/ 30 /1964 Animal products 4.4% 2.21*

Lumber 10 /1/1969 Industrial materials –7.9% – 0.81

Natural gas 4/4/1990 Energy –13.5% – 0.08

Nickel 4/23 /1979 Industrial metals 0.9% 1.04

Oats 7/1/1959 Grains – 6.3% – 0.58

Orange juice 2/1/1967 Softs – 0.4% 0.89

Palladium 1/ 3 /1977 Precious metals 0.3% 1.08

Platinum 3 /4/1968 Precious metals 0.5% 1.03

Propane 8 /21/1987 Energy 13.5% 2.16*

Rough rice 8 /20 /1986 Grains –7.8% – 0.89

Silver 6 /12/1963 Precious metals –1.7% 0.66

Soybean meal 7/1/1959 Grains 3.8% 1.88

Soybean oil 7/1/1959 Grains 0.9% 1.13

Soybeans 7/1/1959 Grains 4.6% 2.01*

Sugar 1/4/1961 Softs –3.6% 0.83

Unleaded gasoline 12/ 3 /1984 Energy 11.2% 2.33*

Wheat 7/1/1959 Grains – 4.4% – 0.52

Zinc 1/ 3 /1977 Industrial metals – 0.5% 0.54

Notes: The second column provides the date when price quotes were first available for various commodities. The fourth column reports cumulative annualized excess returns (over the 3-month Treasury bill return). The last column reports t-statistics for testing the statistical significance of the average excess return (the five commodities found to have significant excess returns are denoted by an asterisk).

Bursting the commodities bubbles?Some investors hold that commodities’ high historical returns

can be attributed primarily to two commodity bubbles, and

that, outside of those periods, returns are unattractive. This

section’s discussion reveals that this argument is false, based

on an analysis of the historical record.

For the period August 31, 1959, through April 30, 2009, com-

modity futures (i.e., our commodities return series) have

produced an average annual return of 9.8%, which is compa-

rable to the 9.0% average annual return for U.S. equities for

the same period. Figure2 plots the cumulative real returns

(net of inflation) of commodities and equities for August 31,

1959, through April 30, 2009.

Figure 2. Cumulative returns of long crude oil futures versus long crude oil (log scale): April 30, 1983, through April 30, 2009

Identifying historical subperiods for the commodities return series To isolate historical episodes for commodity returns, we

divided the 51-year period covered by our commodities

return series into five subperiods, to capture the different

cycles experienced by the commodity futures markets.

Figure 3 plots these subperiods and the corresponding

annual returns for investors. You can see that in the periods

January 31, 1972, through December 31, 1973 and January

31, 2004, through June 30, 2008 and July 31, 2008, through

April 30, 2009 the return of the commodities is largely different

from the return on equity.

Figure 3. Cumulative real returns of historical commodity futures and equities (inflation-adjusted): August 31, 1959, through April 30, 2009

Note: Equity returns for this and subsequent figures in this paper are based on the following equity series: pre-1971: Standard & Poor’s 500

Index; 1971 through April 22, 2005, Dow Jones Wilshire 5000 Index; April 23, 2005, through April 30, 2009, MSCI US Broad Market Index.

The ’bubble’ of the early 1970sAs stated, it has been argued that two of the five subperiods

—1972–1973 and 2004–2008 — are commodity bubbles.

The theory of “normal backwardation”: futures prices are set below expected future spot prices.

Investment case for commodities? Myths and reality • 23

Page 26: Editie 5 Investment Strategy

Figure 4. High historical real returns for commodities: A result of two commodity bubbles? (August 31, 1959, through April 30, 2009)

The first period, January 31, 1972, through December 31, 1973,

can be associated with two major events in the history of finance.

The first event was the fall of the Bretton Woods monetary the

equally weighted commodities return series in 1972–1973.

The other major historical event of 1972–1973 was the first

oil shock: In October 1973, members of the Organization of

Arab Petroleum Exporting Countries (OAPEC, consisting of

the Arab members of OPEC plus Egypt and Syria) proclaimed

an oil embargo. Again, as in the case of gold, no energy

futures were traded in the 1970s; as indicated in Figure 1,

crude oil contracts were not available until 1983. Thus, to

claim that the high prices of gold and energy were responsible

for commodity futures returns in the period is incorrect.

To better understand the period, we looked at the average

annual returns of individual commodities for the two years

(see Figure 4). As the figure shows, no single commodity

caused the high returns. Wheat garnered the best return, but

other grains also experienced unusually high results. Gorton,

Hayashi, and Rouwenhorst (2008) postulated that these high

returns were generated by broad inventory shortages in a

number of commodities, which led to higher uncertainty in

the market, greater risk for long investors to insure, and

temporarily higher risk premiums for long investors. Thus,

according to this theory, these exceptional returns were the

result of fundamental factors, and were not speculative in

nature. Supporting the view that this isolated period of rocketing

returns was not a “bubble” is that there was no corresponding

correction, no subsequent crash in returns to support the

notion of a “bubble” to begin with.

The bubble of the early 2000sOver the second historical period (January 31, 2004, through

June 30, 2008), commodities experienced annual returns of

19.5%. Figure 5 reports selected commodity-level average

annual returns for this period. Clearly, the returns were

dominated by the energy sector; however, copper, oats, soy-

bean oil, silver, and platinum also had impressive returns. In

contrast to the 1970s, commodity futures returns underwent

a dramatic correction during the period July 2008 through

April 2009, which strongly suggests that there was a significant

bubble component to the 2004–2008 returns. Nevertheless,

if we ignore the period of the first “bubble” (January 31,

1972–December 31, 1973), commodity futures produced a

solid average annual return of 8.7% for the period August 31,

1959 –December 31, 2003. If we further ignore both “bubbles”

from the sample (while retaining the recent 2008 –2009 cor-

rection), commodity futures have produced an average

annual return of 7.1% for the period August 31, 1959,

through April 30, 2009 (taking out 1972–1973 and January

31, 2004, through June 30, 2008). These data support the

view that high historical returns for commodities cannot

just be attributed primarily to two commodity bubbles, and

that, outside of those periods, long-only investors still have

earned significant positive returns.

Figure 4. High historical real returns for commodities: A result of two commodity bubbles? (August 31, 1959, through April 30, 2009)

Commodity Average annual returns (January 31, 1972, through December 31, 1973)

Silver 52%

Platinum 18%

Live cattle 17%

Lean hogs 46%

Feeder cattle 36%

Corn 51%

Soybeans 70%

Soybean oil 82%

Wheat 113%

Soybean meal 81%

Oats 29%

Cocoa 81%

Coffee 4%

Sugar 38%

Orange juice 16%

Cotton 99%

Lumber 56%

Copper 59%

Commodity futures versus equities: Comparing returns and volatilityAs the preceding analysis suggests, there is little validity to

the claim that a few historical periods have determined

returns for commodities futures. In fact, investors can point

to a long period of substantial returns from commodities

futures. Clearly, the early 1970s was a unique time for

fsrforum • volume 14 • issue #5

24 • Investment case for commodities? Myths and reality

Page 27: Editie 5 Investment Strategy


commodities. Although we have refuted the notion that 1972

and 1973 represented a bubble, one still has to question

whether that kind of return can happen again.

If we ignore the high returns of the 1970s, the period January 31,

1980, through April 30, 2009, provided average annual com-

modity returns of 6.2%, as opposed to 10.3% for U.S. equities;

however, during this period, our analysis shows that com-

modities had 25% lower volatility than equities (sources: cal-

culations based on Commodity Research Bureau; Datastream,

Thomson Reuters). This brings us to a more in-depth look at

returns and volatility for commodity futures versus equities.

As reported in the previous section, average annual historical

returns for commodity futures (9.8%) and U.S. equities

(9.0%) are comparable. To compare the performance of the

two asset classes more closely, Figure 6 plots their historical

12-month returns from May through April. The figure reveals

that both commodities and equities have had multiple years of

returns in the 20% – 40% range. These multiyear runs con-

tradict the view that one has to endure zero returns for decades

before experiencing any positive returns in commodities.

This graph is also important to address the myth that “com-

modities have returns only once in 20 years, and then only

poor returns for the next 20 years.

Figure 6. Twelve-month returns for commodity futures versus equities: May 31, 1960, through April 30, 2009

Figure 7 plots a histogram of monthly returns for commodi-

ties and equities, and Figure 8 shows summary statistics of

the monthly data.

Figure 7. Twelve-month returns for commodity futures versus equities: May 31, 1960, through April 30, 2009

Potential diversification benefits of commodity futuresAdvocates of commodity futures have argued that commodities

provide diversification because of their low correlation with

equities and bonds, while critics point out that the historical

diversification argument is no longer valid, since the correla-

tions have increased significantly; further, they claim there

are no diversification benefits during deep recessions.

Figure 8. Comparing commodity futures andequity monthly returns: Summary statistics (August 1959 through April 2009)

Commodity futures Equities

Monthly average returns 0.85% 0.82%

Standard deviation 3.70% 4.40%

Skewness 0.26 – 0.66

During negative shocks for equitiesThis section first addresses the potential diversification ben-

efits of commodities during negative shocks for equities,

when the diversification benefits really matter. Figure 9

reports the average monthly returns for domestic equities,

commodities, and international equities for months when

these securities experienced extreme negative and /or positive

shocks. The analysis covers two time periods: the full histor-

ical sample from August 31, 1959, through April 30, 2009

(the figure doesn’t include international equity returns for

this period), and the final decade starting January 31, 1999.

For the longer historical period, while the average monthly

return for the worst 12 domestic-equity months was –12.6%,

commodities futures declined at a much smaller average

monthly rate of –1.1%. The relative picture is not as clear

over the final decade: The worst 12-month average monthly

return for domestic equities was –9.6% (international equi-

ties, –9.7%), while for the same 12 months, commodities lost

an average of –2.7% per month.

Figure 9. Average monthly returns for domestic equities, commodity futures, and international equities during their 12-worst and 12-best months (selected periods)

Worst 12 equity months Best 12 equity months

Period Domestic equity


Commodity futures returns


equity returns

Domestic equity


Commodity futures returns


equity returns

August 31, 1959–April 30, 2009

–12.6% –1.1% — 11.7% 0.7% —

January 31, 1999–April 30, 2009

–9.6% –2.7% –9.7% 7.5% 1.6% 6.6%

Worst 12 commodity futures months Best 12 commodity futures months

Period Domestic equity


Commodity futures returns


equity returns

Domestic equity


Commodity futures returns


equity returns

August 31, 1959–April 30, 2009

–4.0% –9.8% — –1.4% 12.2% —

January 31, 1999–April 30, 2009

–4.9% –7.4% –7.1% –0.1% 6.9% 1.5%

Notes: International equities are represented by the MSCI EAFE + EM In-dex. As this index does not go back to the 1950s, the international equity returns are reported only for the more recent sample.

Correlation of U.S. equities with commodities versus international stocks The results of our analysis— in Figure 10 —show that the

historical correlation of U.S. equity and commodity futures

returns has been very low; for the period August 31, 1959,

through April 30, 2009, the correlation was only 0.13. How-

ever, the correlation has risen steadily over time. For January

31, 2001, through April 30, 2009, the correlation was much

higher, at 0.37. Many investors confidently include exposure

to international equities for diversification purposes; how-

ever, the correlation of international equity returns with U.S.

equities has also increased over time. From January 31,

2001, through April 30, 2009, the correlation of international

equity returns with U.S. equities was 0.90, far higher than

the 0.37 for commodity futures. The purpose of this analysis

is not to suggest that investors should abandon international

stocks as potential diversifiers in favor of commodities; after

all, commodities have been experiencing increasing correla-

tion with equities over time.

Commodity futures can lessen volatility of all-equity and stock/bond portfolios Another way to characterize the diversification benefits of

commodity futures is to analyze the impact of including

commodities futures on the historical volatility of a diversified

Investment case for commodities? Myths and reality • 25

Page 28: Editie 5 Investment Strategy

portfolio. Figure 11 reports the average annualized change in

portfolio volatility as commodity futures are added to the

asset mix. We considered two hypothetical base portfolios,

one all equities and the other 60% equities/40% bonds (in

the second example, as we added commodities to the portfo-

lio, we assumed the mix of stocks and bonds in the rest of the

portfolio was left constant, at 60%/40%). Figure 11 is based

on data from January 31, 1974, through April 30, 2009 (how-

ever, results are similar for the full historical period begin-

ning in 1959). For this exercise, we excluded the market con-

ditions of the early 1970s to show that, as with returns,

diversification benefits are not dependent on a few historical

periods. In our hypothetical example, adding commodities to

the portfolio clearly had the potential to reduce the portfo-

lio’s volatility. Even for the 60% stocks/40% bonds portfolio,

which has much lower volatility than the all-equity portfolio,

significant diversification gains could have resulted from

adding commodities. For example, adding 10% –20% com-

modities would potentially have reduced volatility in the

60%/40% portfolio by about 1 percentage point and almost

twice that for the all-equity portfolio (see Figure 11).

Figure 10. Comparing correlation of domestic equities with commodities, international equities (selected periods)

Figure 11. Average annualized change in portfolio volatility as a result of adding commodities: January 31, 1974, through April 30, 2009

Corporate bond returns for this and subsequent figures in this paper are based on the following series: before 1968, Standard & Poor’s High Grade Corporate Index; 1969–1972, Citigroup High Grade Index; and January 1, 1973, through April 30, 2009, Barclays Capital U.S. Credit Bond Index.

Figure 12reports the hypothetical impact of a 20% exposure

to commodities on portfolio returns and volatility. In this

hypothetical example, the effect on performance of adding

commodities to the portfolio was marginal; average returns

improved by roughly 50 basis points. However, the potential

impact on volatility was highly significant. Adding commodi-

ties to the all-equity portfolio increased the Sharpe ratio

from 0.29 to 0.35. Another interesting comparison is 100%

equity exposure versus 80% exposure to the 60% equity/40%

bond portfolio and 20% commodity exposure. The returns of

the two portfolios are comparable (equity portfolio returns

are potentially higher by 11 basis points), while the diversi-

fied portfolio potentially has 41% less volatility.

Figure 12. Effects on portfolio returns and Sharpe ratios of adding com-modities to portfolio: August 31, 1959, through April 30, 2009

60% equities/

80% equities/ 80% (60% equities 40%


100% equities 40% bonds 20% commodities 20% commodities

Total return 9.05% 8.45% 9.51% 8.94%

Standard deviation 15.34% 10.46% 12.86% 8.98%

Sharpe ratio 0.29 0.31 0.35 0.40

To further understand the fundamental source of diversifica-

tion benefits of commodity futures, we compared the equity

and commodity futures returns during different stages of the

business cycle.

Adding commodity futures can benefit during different stages of business cycleIt is also instructive to look at the relationship of commodity

futures’ returns and equities over a typical business cycle. As

identified by the National Bureau of Economic Research (NBER),

the business cycle can be divided into four stages: late expansion,

early recession, late recession, and early expansion. Figure

13 illustrates these patterns using the historical record.

Figure 13. Potential diversification benefits of integrating commodities with equities during different stages of business cycle

Commodities have been experiencing increasing correlation with equities over time.

26 • Investment case for commodities? Myths and reality

fsrforum • volume 14 • issue #5

Page 29: Editie 5 Investment Strategy

As shown in Figure 13, during late expansion and before the

onset of recession, the equity market has tended to experi-

ence low returns, which continue during the early part of the

recession. Further, because equities are a leading indicator of

the business cycle, equity markets tend to recover before a

recession is over; also, during the late-recession period, equi-

ties have typically experienced higher returns. Commodities

futures, however, have behaved very differently from equities

over the course of the business cycle. Commodity futures

returns are plausibly linked to the state of inventories in the

economy, and their returns can therefore be expected to be a

lagging indicator of recession.

Thus, during the late-expansion period (anticipating a reces-

sion), while equity markets tend to experience relatively poor

returns, low inventory levels would imply that commodity

futures are experiencing higher-than-normal returns. Fur-

ther, because of inertia in inventories, it is not until a reces-

sion sets in that commodities experience low returns. As

stated, coming out of a recession, equities have tended to

revive before the recession ends, while commodities futures

returns have tended to improve only after the early expan-

sion period has begun.

To define early and late recession, we divided each of the eight recessions from 1959 through2009 into two equal halves. For example, for the 2001 reces-

sion that lasted from April to November, we defined the

period of April 2001 through July 2001 as early recession,

and August 2001 through November 2001 as late recession.

For the current recession, we defined the first 12 months

(January 2008 through December 2008) as early recession,

and January 2009 through April 2009 as late recession. For

the expansionary period, the 12 months before a recession

were defined as late expansion, and the 12 months after a

recession as early expansion.

Figure 14 reports equity and commodity futures returns

during the different stages of the business cycle: We analyzed

the eight recessions since 1959, and we also segregated the

last three recessions (all three occurring after 1990 ). During

the late-recession period, the average annual return for equi-

ties was 32.39%, while commodities declined –1.14%.

During the late-expansion period, although equities had

started their decline and experienced average annual returns

of –1.72%, commodity futures markets were actually boom-

ing, with average annual returns of 22.67%. These results

were robust, and the pattern persisted for the shorter period

of three recessions since 1990, including the current reces-

sion. In the current recession, equities peaked in October

2007, before the start of the recession, and commodities

peaked in June 2008, six months after the economy was in

recession. For the period November 2007 to June 2008, the

average monthly return for equities was –1.98%, while that

for commodities was 3.11%.

Figure 14. Business cycle and diversification benefits of commodities

Eight recessions since 1959 Last three recessions, since 1990

Equities Bonds Commodities Equities Bonds Commodities

Late expansion –1.72% 1.01% 22.67% – 5.40% 7.84% 10.74%

Early recession –25.04% 3.03% – 4.48% –27.88% 1.57% –18.05%

Late recession 32.39% 20.30% –1.14% 14.62% 9.41% –14.74%

Early expansion 13.68% 8.64% 5.48% – 0.09% 9.37% 7.91%

The results of this section suggest that commodities can

have diversification benefits because commodities behave

fundamentally differently than equities at different stages of

the business cycle. Note, however, that this analysis can only

become clear in hindsight. Predicting periods of outper-

formance or underperformance for any asset class can be

extremely difficult, if not impossible.

ConclusionThis paper has addressed the attractiveness of a broadly

diversified portfolio of commodity futures as an asset class. A

historical analysis of commodities futures’ return patterns

suggests there is little merit in the argument that relatively

high long-term average commodities futures returns are

solely a result of a few brief “abnormal” periods of high

returns. Commodities futures have experienced long periods

of significant returns for investors, as well as sequences of

booms and busts similar to equities.Future correlations

between equities and commodity futures could remain rela-

tively low, offering potential diversification benefits to inves-

tors who are willing to accept the unique risks and opportu-

nities of this asset class.

Investment case for commodities? Myths and reality • 27

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© 2011 KPMG N.V., alle rechten voorbehouden.

-04257_210x297_garage_OF.indd 1 05-01-2011 16:06:32

In de laatste fase van je studie begint de zoektocht naar een werkgever die bij je past. Tjebbel en Margit vertellen over de kennismaking en waarom hun keuze op KPMG is gevallen. De cultuur, uitdaging in het werk en ontwikkelingsmogelijkheden waren doorslaggevend. En ze zijn nog steeds erg blij met hun keuze!

Scan de QR-codes voor de volledige interviews.

KennismakingTjebbel: “Ik heb getwijfeld over de richting die ik na mijn studie op zou gaan. Binnen accountancy leer je veel en de carrière mogelijkheden zijn groot. Vanuit mijn bestuursfunctie bij de Financiële Studie vereniging Amsterdam kwam ik met veel werkgevers in contact, waaronder KPMG.”Margit: “Ik wist dat ik wilde werken in de consultancy, maar had KPMG niet direct overwogen. Naast de auditpraktijk is er ook een grote en ambitieuze advies-praktijk. Hiermee heb ik kennisgemaakt tijdens het wervingsevenement Fast Forward Friday.”

CollegialiteitTjebbel: “Onderlinge collegialiteit ende snelle doorgroeimogelijkheden zijndoorslaggevend geweest in mijn keuzevoor KPMG. Daarbij kan ik mijn werk goed combi neren met mijn activiteiten voor de lokale gemeentepolitiek.”

Margit: “De ondernemende cultuur en de mensen hebben mij getriggerd. Samen gaan we voor het beste resultaat.”

Snel lerenTjebbel: “Als trainee bij KPMG zie en doe je veel. Je krijgt een ‘kijkje in de keuken’ van veel organisaties en krijgt inzicht in hoe bepaalde fi nanciële transacties gemonitord en bestuurd worden.”Margit: “Je kunt zelf richting geven aan je loopbaan. Door de diversiteit aan op drach ten en teams is je leercurve steil en krijg je al snel meer verantwoordelijk-heid.”

Internationale teamsTjebbel: “Ik werk in teams met jonge en met meer ervaren collega’s. Het zijn allemaal ambitieuze professionals en dat vind ik prettig samenwerken.”Margit: “Omdat je onderdeel bent van het grote internationale netwerk van KPMG, werk je ook samen met collega’s uit andere units en landen. Het zijn allemaal gedreven mensen met passie voor het vak.”

OntwikkelingTjebbel: “Je performance manager is nauw be trokken bij je ont wikkelings-doelen en je carrière-pad. Naast de postdoctorale opleiding tot registeraccountant

zijn er talloze opleidings mogelijkheden.”Margit: “Je kunt rekenen op goede coaching en begeleiding. Jouw groei staat centraal. Naast ‘training on the job’ volg je opleidingen en cursussen die aansluiten op je ontwikkelbehoeften.”

ToekomstTjebbel: “Ik wil zo snel mogelijk door-groeien. Als je iets wilt en je blijft jezelf continu ontwikkelen, is bijna alles mogelijk.”Margit: “Ik wil het maximale uit mezelf blijven halen en meer van de wereld zien. Op termijn hoop ik aan een project in het buitenland te kunnen werken.”

Tjebbel Maris


Bachelor Economie en master Accounting en Control aan de VU in AmsterdamFunctie:

Trainee KPMG Audit sinds 2010

Lees verder op www.gaaan.nu/tjebbel

Margit van Opstal


Master International Business aan de

Universiteit MaastrichtFunctie:

Junior adviseur KPMG Advisory

sinds 2011

Lees verder op www.gaaan.nu/margit


12 K











en master Accounting Universiteit Maastricht



123105_1 Gaaan ADV-AA-TM.indd 1 07-06-12 14:57

Page 32: Editie 5 Investment Strategy

Interview with Cees SmitFounder/CEO Today's groep

By: Jeroen van Oerle and Anne van Driesum

In 1986 Cees Smit started as a stockbroker at ABN AMRO Bank after which he continued his career in Options and Futures at Bank Mees & Hope , which later became MeesPierson. Between 1996 and 2002 he had worked on structured Product for several banks: Wesselius, Rabo Securities and Dexia. After this period he decided to start day-trading at home in which he became very successful. So his acquaintances started to ask him to trade for them. This success has led him to start up his own company. In 2003 he founded Today’s Groep, an asset management and brokerage firm that nowadays has 33 employees. Mr. Smit is one of the first asset managers with a transparent portfolio. Furthermore, he was able to predict the CDO crisis and he made money out of the financial crisis while others went bankrupt.

This interview is about investments and strategies. How would you define the concept investments and is each investment based on a certain strategy?In my opinion every investment should be based on a strategy.

There should be an idea behind every investment, because

spending your money on a product without having a specific

strategy in mind is merely a gamble than an investment.

Going to a casino and gambling on high or low outcomes is

not an investment, but spending that same amount on, for

instance, an index product for the long term can be called an

investment. So the amount that you spend and the type of

product on which you spend it is irrelevant. It is about having

a long term idea about how you are going to spend your

money. Retaining your cash deposits for the long term can

also be called an investment. A strategy then does not only

consist of an entry, but it also consists of an exit. If it appears

that your idea doesn’t work anymore then you should decide

to get out. That is also why this exit could be both positive

and negative.

What is your main investment strategy?I am known to be a big bear, but I am also a bear who dares

to take a long position. That means I am not purely negative

about the market. I would describe my strategy as an active

asset manager who specifically applies a core-satellite-strategy.

This strategy consists of a fixed part, the core, and a flexible

part, the satellite. My core strategy is that of the Fallen

Angels. With the Fallen Angels strategy you invest in former

market leaders, such as Nokia. Everyone nowadays expects

Nokia to go out of business. The fund has declined 97 percent

since its peak. It could go further down to zero, but I expect

such brands to make a recovery. For instance Apple used to

be a market leader before Microsoft took over. So Apple

almost went down, but now they are fully back on track.

Besides the investments in Fallen Angels I also invest in a

couple of good investment ideas which together form the

core strategy. As a satellite above the core strategy I alternate

upward and downward investments.

How do you determine your strategy?To determine my strategy I use both technical and funda-

mental analysis. I used to also use quantitative analysis, but

this analysis proved not to work. I don’t believe that markets

are efficient. I rather believe that like people in general, markets

move in trends. At first, a certain stock is popular among

fsrforum • volume 14 • issue #5

30 • Interview

Page 33: Editie 5 Investment Strategy


traders who know the product very well and later on its popularity starts to gain until the stock

is being traded on a regular basis. The best time to get in is when you notice that the stock

starts to gain popularity within the mass, you are already too late when the mass is investing in

the stock. Good examples of these trend movements and moments to get out are the investments

in World Online and KPN-UMTS. It proves that the mass is not rich and in my opinion the mass is

to a certain extend foolish. The investors who dare to go against the mass, are the brightest ones.

Which strategy is according to you not successful in practice?Always investing in the same product does not work. You should always adapt your strategy to the

conditions of the market. For example, the last years it has been profitable to invest in dividend

paying shares. On the other hand, in the period between 1999 and 2003 it was profitable to

invest in IT shares who don’t pay dividend but who had a large growth potential. However, I do

believe that you should not always perform a long only strategy. But within that strategy you

should also rotate between investments in different types of sectors. So, in other words, your

strategy should be flexible, because markets have proven to have both upward and downward


The only alternative to a flexible strategy is to invest in an Index tracker, but only for a long term

investment of at least five years. Since the funds in an Index change regularly, you automatically

have variation in your investment. Yet I do believe that a strategy based on a simple technical

analysis would already generate higher profits, also in case of a Japan scenario.

Do you notice a certain trend concerning strategies or products among your clients?At Today’s Groep we have two types of clients: the asset management clients and the brokerage

clients. Of those two types the brokers are more sensitive to trends. They tend to follow the

trends and invest in products that are popular among the mass. As I have mentioned before the

best time to step out is when a product is very popular among the mass. We try to teach those

clients by providing them with, for instance, trading courses when to enter or exit a certain

strategy or product.

Looking at the market as a whole you can see that investors start to become more risk averse.

More investments are being made in bonds than in stocks and the ratings related to those

bonds are starting to become more important. Investors distinguish between bonds from for

instance Spain, France or Germany.

Ratings could play an important role in making a difference between bonds from different countries or companies. Do you consider ratings to be important in making investment decisions?The idea behind these ratings is good, but the problem with ratings is that they contain infor-

mation from the past instead of information about the current or future situation. In other

words the ratings are being adapted too late. And since the ratings are being followed by many

investors, a sudden warning leads to the situation of a self fulfilling prophecy. After a rating

agency has downgraded a certain country or fund, investors start to sell these ‘more risky’ assets.

Sometimes it can be difficult to predict how the market is going to develop in the future, but

in other cases it is very clear. I could for instance predict the Collateralized Debt Obligation

(CDO) crisis, which the rating agencies failed to do. If you would have looked at the statistics

back then it was very easy to see that for example about 5% of the people in America could not

The investors who dare to go against the mass, are the brightest ones.

Interview • 31

Page 34: Editie 5 Investment Strategy

pay their houses anymore, but the bonds that were related to this housing or mortgage market

kept their triple A status. The reason for this is that these bonds had a certain guarantee, because

they were hedged by CDOs. But if you took a closer look, the market of these CDOs was larger

than the original mortgage market, because products were built on other products. At the end

a decline in the prices of a benchmark of houses had a huge impact on the market. This is

something the rating agencies could have seen coming.

However, there are analysts who I do follow. These analysts do not only look at numbers or balance

sheets, but they actually visit companies and thus deliver a more accurate report. The problem

with only looking at numbers is that the pricing of assets, for instance real estate, can be very

subjective when based on solely a balance sheet.

It is often said that the aggressive investment strategy of speculators has aggra-vated the financial crisis leading to socially undesirable outcomes on several markets. What is your opinion on this?I completely disagree, because speculators just like investors play an important role in the eco-

nomic environment. A speculator is the counterpart of the mass and has a different opinion from

the rest. You can’t blame speculators of aggravating the financial crisis, because it is the society

as a whole who have done that. People started to borrow and spend more money until the risk

of not being able to pay back those loans became too high. Speculators have had no influence

at all on this process.

Speculators seek for opportunities to make money by going against the market. Greece for

example joined the Euro unfairly. It was very clear that the Greeks have used swaps to improve

their balance sheet, but no one had checked sufficiently if Greece was credit worthy. So Greece

entered the Euro zone on a debt level that was too high and that is when speculators started to

speculate against Greek bonds. These speculators are again not to blame and just found an


However I do think that the level of speculations should be restricted to some extend to prevent

situations of self fulfilling prophecies. The ECB could for instance implement bandwidths, such

as a maximum Greek interest rate of 10 % and a minimum German interest rate of 1%. Every

speculator who subsequently tries to increase the interest rate above the margins set should be

punished. So I don’t think speculators are to blame, because you can easily solve these issues

with regulations. Though situations in which speculations are 100 percent of the market or

when the market becomes larger than the product itself are dangerous.

Alternative products such as options, turbo’s and trackers are often seen as high-risk products. Are those products becoming less popular since people are becoming more risk averse?You can still use those products to hedge your risk. I also use those products for my own portfolio.

The nice thing about an option, turbo or a speeder is that you can make large profits because

of the leverage but you can never lose more than your original investment. A nice example is

the investment I made in a put options on the AEX when the AEX stood around 600 points. I

bought the option with an exercise price of 300 for a dime. The put option had a maturity of 5

years and within those 5 years the stock market (AEX Index) went from 600 to 180. This means

that the intrinsic value of the option for which I paid a dime was already 120 Euros.

fsrforum • volume 14 • issue #5

32 • Interview

Page 35: Editie 5 Investment Strategy

Additionally I also don’t agree with these alternative products being seen as very risky. Just

because some investors don’t know how to use these products in a responsible manner, does

not mean that those products are too risky. Vestia for example has managed its portfolio very

irresponsible. They had a housing portfolio of approximately one billion which they hedged

against 10 billion to protect themselves against the risk of increasing interest rates. However

since the difference is 9 billion this is not hedging but it is simply speculation. It would have

been hedging when the amount that was being hedged against would have been proportional

to the size of the portfolio. Moreover, these housing associations should not be 100 percent

hedged. Their core business is not making money on the interest rate market, but the renting

of houses. It is a shame and very unnecessary that because of this misbehavior of a few investors

the trust in the financial markets is being undermined.

Do you think that every client can perform its own strategy or do you think that this should be restricted to a certain level of risk or capital that the client owns?Almost every investment fund has implemented certain margins. An investment fund calculates

these margins for clients who want to take on new risk. When this risk exceeds the calculated

margin, a divestment will take place or the client can’t make the investment. Besides these

margin calculations I am also a proponent of a so-called investment license that focuses on the

experience and knowledge an investor has. By doing so it determines if the investor is allowed

to take on a certain risk. Such licenses avoid situations such as in ‘98 when many investors

bought call and put options at the same time. This was thought of as a risk averse strategy, but

firstly the market went up so they lost a lot on their calls and secondly the market went down

and they lost a lot on their puts. These investors made investments without having the right

knowledge about how much risk they were taking.

The government and its supervisors such as the AFM have already improved regulation in this

area, but still improvements can be made. For instance wealthy investors are less protected

than other investors. In the Netherlands you are, regardless of your knowledge or experience,

free to invest in any product when your investment is above e100.000. In my opinion everyone

deserves and needs the same protection.

What has been the best investment strategy the past 10 years and what is it going to be the next 10 years?You would have earned the most in downward markets with shorts. For example in 2008 my

portfolio stood at +235 percent. If you would have bought put options at the beginning of that year

when the volatility was still low, you would have been able to earn a hundred times your investment.

For the future I still believe that the financial crisis is going to get worse. Especially the real

estate market is still overpriced. I expect this market to decrease by half, which will cause

severe troubles at several banks. It is also going to get worse in the rest of Europe. Sometimes

you need to support the market when things tend to go wrong. For example in the banking

industry, since the bankruptcy of one bank can easily cause other banks to go bankrupt as well.

But in case of the current situation I think we should have let the market collapse a long time

ago. Countries such as Greece, but also investors in general have become spoiled by institutions

such as the ECB.

For now the right strategy would not be to go short but to make a portfolio of fallen angels,

such as SNS Reaal. Some of those funds will go bankrupt and on others you probably will be

Speculators just like investors play an important role in the economic environment.

able to earn a lot because they are going to make a great

recovery. Furthermore it could be wise to stay out of some

sectors. For example, you should not invest in real estate at

the moment because of the expected decline in prices.

Interview • 33

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Coffee? Kaffee? Káva?Ready for an international career in retail


0035 Bord-2x1m (1).indd 1 12-03-12 17:37

Coffee? Kaffee? Káva?Ready for an international career in retail


0035 Bord-2x1m (1).indd 1 12-03-12 17:37

Coffee? Kaffee? Káva?Ready for an international career in retail


0035 Bord-2x1m (1).indd 1 12-03-12 17:37

Page 37: Editie 5 Investment Strategy

Coffee? Kaffee? Káva?Ready for an international career in retail


0035 Bord-2x1m (1).indd 1 12-03-12 17:37

About Ahold EuropeAhold represents more than 200,000 colleagues and 2,900 stores in the world. In 2011 we had

a net turnover of e 30.3 billion worldwide. We are the largest retailer in The Netherlands and

are one of the largest on the east coast of the United States. Our goal is to be the world’s best

food provider while maintaining a solid focus on our customers. We are represented in several

countries throughout Europe under the name Ahold Europe. In The Netherlands we hold the

retail organizations Albert Heijn, Etos , Gall & Gall, Bol.com and we provide the Albert online

delivery service. In The Czech Republic and Slovakia we hold the Albert supermarket chain and

the Hypernova superstore format. Our retail organization ICA is one of the most important in

Northern Europe with stores in Sweden, Norway and the Baltic States. The largest supermarket

chain in Portugal is our Pingo Doce and in 2011 we opened the first Albert Heijn stores in Belgium.

We also enter the German market in 2012 with our AH-to-go formula.

International Graduate TraineeshipWould you like to have an impact on the daily lives of our customers and employees and

become one of Ahold Europe's future leaders? You are bursting with talent and ambition? Inno-

vation is second nature to you and you will do whatever you can to achieve your personal ambitions?

You can prove yourself at our company. We will assist in making sure you gather the knowledge

and skills required to achieve your objectives.

In our International Graduate Traineeship you will develop important skills, gain valuable

experience and receive beneficial coaching that will contribute towards your accelerated pro-

fessional development and your future leadership roles. It offers the opportunity to fully come

to know our organization due to the different roles and disciplines you will experience during

your traineeship.

You can choose from four different disciplines during your two year traineeship at Ahold

Europe: Commerce, Finance, HR or Operations. Are you interested in another discipline? You

are also welcome to apply. Please elaborate on that in your motivation letter. You can find more

information about other disciplines within this organization on our website.

As a trainee you will be given responsibility for your own job as from the very first day. This will

be in line with your skills and ambition and throughout this period you will receive intensive

supervision. In the second year you will be given the opportunity to learn about our store opera-

tions as you will become one of our Assistant Store Managers. The idea is that you start working

in the discipline of your choice after your two year traineeship. This will ensure that you can

continue developing in this discipline in practical terms and with your training.

We believe in working with people from different backgrounds and nationalities and as a retailer

with international ambitions, we also give you the opportunity to work on international assign-

ments. The International Graduate Traineeship is open to talented and driven people from all

University disciplines. The most important aspects are your personality, your passion for retail

and your motivation for the discipline in which you are interested.

What we offerOur business revolves around people: the millions of customers who put their confidence in us

for their daily shopping, our stockholders and our employees. People are the key to our success.

Therefore they take a central position within our vision.

At Ahold Europe we look after our employees. In addition to a good salary, we offer excellent

employment conditions such as profit-sharing, many vacation days, a good work-life balance, a

good pension plan, salary and life-course savings plans, an attractive bonus plan and a discount

on your shopping! We even have a Fit & Fun program that helps to maintain a healthy lifestyle.

We also implement new working formats whenever possible and, therefore, you can perform

your tasks location-independently. We actively stimulate your development with innumerable

opportunities to expand your professional knowledge by offering programs at every level, for

every discipline. We also offer many opportunities for personal development, such as coaching,

courses, tests and seminars.

For more informationPlease find more information about Ahold Europe, the job opportunities and the recruitment

activities on our website: career.ahold.eu and Facebook careerpage: www.facebook.com/AholdEurope.

Page 38: Editie 5 Investment Strategy

rente-aangroei nog maar rond 2% bedraagt. Om dan toch de

overeengekomen eindwaarde te bereiken, moet je met een

hogere voorziening beginnen. Doordat het balanstotaal is

bepaald door de opgetelde boekwaarden van de activa, zal een

hogere voorziening dus gaan ten koste van het eigen vermogen.

Maakt dat iets uit? Ja, door dit tweesnijdend zwaard daalt

boekhoudkundig de solvabiliteit. Dat kan knap vervelend zijn

wanneer ergens staat dat het eigen vermogen ten minste bij-

voorbeeld 30% van het balanstotaal vormt. Dan kan bedreigend

zijn voor de financiering en mogelijk zelfs voor de continuï-

teit van de onderneming. Zodra je door zo’n boekhoudvloer

zakt, krijg je de neiging om nog eens goed naar je activa te

kijken. Nog ruimte voor wat herwaardering? Of kan iets

nieuws worden geactiveerd? Kan het onderhanden werk

worden opgeschroefd? En kun je anders misschien andere

voorzieningen laten vrijvallen? Voor het overige verandert er

niet veel. De verhoging van de voorziening brengt geen extra

geld in het laatje. De betalingsmogelijkheid van het uit te

keren pensioen verbetert niet. De te verwachten rentabiliteit

zal wèl stijgen. Want deze pensioen-tegenvallers mogen

buiten de winst blijven. Bij gelijke winst wordt die gedeeld

door een kleiner eigen vermogen. Dus mag volgend jaar

wereldwijd een herstel van de rentabiliteit worden verwacht.

Hoe zou de effectenbeurs hierop reageren? Met koersdalingen?

Dat zou me verbazen. Economie is niet erg afhankelijk van

het edele boekhouden. Economie is gebaseerd op verwachte

geldstromen en risico. Daarin wordt per onderneming reke-

ning gehouden met pensioenverplichtingen en de risico’s

daar omheen. Het boekhouden kan de economische waarde

van de onderneming niet beïnvloeden. En dat is maar goed

ook. Wel zou het interessant kunnen zijn om nog eens te

bedenken waarvan de jaarrekening dat getrouwe beeld geeft.

Dat is (naar mijn mening) niet de economische waarde van

de onderneming en/of van het daarin geïnvesteerde eigen en

vreemd vermogen. Die waarde is zelfs niet uit de jaarreke-

ning af te leiden.

Wat is dan wèl getrouw, duidelijk en stelselmatig? De wet

(titel 9 BW 2) is daar niet zo duidelijk over. Daarin wordt ver-

onderstelling op veronderstelling gestapeld. Lees Art. 362:

"De jaarrekening geeft volgens normen die in het maat-

schappelijk verkeer als aanvaardbaar worden beschouwd

Vanouds is de accountant degene die derden min of meer zal

verzekeren (“assurance”) dat uw financiële verantwoordin-

gen in orde zijn, althans dat hij geen aanwijzingen heeft

gevonden voor het tegendeel. Hij heeft daarvoor onderzoek

gedaan. Niet altijd specifiek naar zulke aanwijzingen, maar

toch. De doelstelling van een dergelijke controle zal zijn te

kunnen vaststellen dat de jaarrekening van de directie met

een redelijke mate van zekerheid een getrouw, duidelijk en

stelselmatig beeld geeft. Ja, maar een beeld waarvan? En hoe

redelijk is die mate van zekerheid? Hoe luiden de onderlig-

gende conclusies, en waarop hebben zij betrekking?

Nog belangrijker: wanneer is er sprake van een getrouw

beeld? De normen daarvoor veranderen bijna van dag tot dag.

Wat vorig jaar nog getrouw was, hoeft – op grond alleen al

daarvan - nu niet meer te voldoen. Zo lees ik letterlijk dat de

“Invoering van een nieuwe boekhoudregel over pensioenver-

plichtingen - bedoeld wordt IAS 19R - het mes (zet) in het

eigen vermogen van ondernemingen”. Sterker nog, dat

“Nederlandse AEX-fondsen miljarden verliezen door invoering

nieuwe pensioenregels voor de jaarrekening” (zie http://

ber03.housing.rug.nl/FEBlog/?p=871). Ja, op papier wel ja.

Vanzelfsprekend kunnen normen in het maatschappelijk ver-

keer niet echt ‘overnight’ veranderen. Je zou zeggen dat dit

een min of meer geleidelijk proces is. Ik zie dat proces als

volgt voor me: accountants moeten in de gecertificeerde

jaarrekeningen steeds vaker afwijken van de specificaties die

de wetgever voorschrijft (zie BW2 titel 9, Art.362) omdat het

gevraagde inzicht dit vereist, waarna de standaards daaraan

worden aangepast. Maar ik heb zulke afwijkingen vorig jaar

niet gezien. Worden we dan voor de gek gehouden?

In IAS 19R wordt correctie gemaakt voor actuariële mee- en

tegenvallers. Hierbij kan worden gedacht aan wisselingen in

de rentevoet en een zich wijzigende verwachte levensduur.

Op beide fronten is op dit moment de invloed daarvan voor

gewone ondernemingen nadelig. En dan gaat het hard. Wat u

heeft te maken met die gedaalde rentevoet? Hetzelfde vrees

ik als de pensioenfondsen. U mag namelijk niet uitgaan van

het werkelijke verwachte rendement van de voorziening,

maar u moet daarvoor het percentage rekenen dat geldt voor

kredietwaardige obligaties. AAA-staatsobligaties geven op dit

moment niet zoveel rente. Dus u moet nogal wat in de voor-

ziening stoppen. Je moet rekenen dat op dit moment de jaarlijkse

Drs. Joost G. Groeneveld

RA RV is directeur van

Wingman Business

Valuators B.V. te Breda en

voorzitter van de Stichting

WBO (register van

business valuators).

Hij was hoofddocent aan

de Economische Faculteit

van de Erasmus

Universiteit te Rotterdam.

IAS 19R; een plank in een boekhoudvloer

K(r)anttekening | Drs. Joost Groeneveld RA RV1

36 • IAS 19R; een plank in een boekhoudvloer

fsrforum • volume 14 • issue #5

Page 39: Editie 5 Investment Strategy

een zodanig inzicht dat een verantwoord oordeel kan worden gevormd omtrent het vermogen

en het resultaat, alsmede voor zover de aard van een jaarrekening dat toelaat, omtrent de sol-

vabiliteit en de liquiditeit van de rechtspersoon....".

Al die onderstreepte punten moeten worden ingevuld. Overal zit rek. Alles staat ter discussie.

Sinds de introductie van deze wetgeving is het een komen en gaan van normen. Telkens (b)lijkt

mede daardoor nodig dat de informatie in de jaarrekening moet veranderen. Een andere oor-

zaak is natuurlijk ook dat het maatschappelijk verkeer niet meer de maatschappij van toen

betreft, en dat we anders met elkaar zijn gaan verkeren.

Hoe het ook zij, de informatie in de jaarrekening is dus alleen bedoeld om ‘gebruikers’ tot een

verantwoord oordeel in staat te stellen. En dat oordeel heeft kort gezegd betrekking op het ver-

mogen en het resultaat, en de capaciteit van de onderneming om haar schulden op korte en

lange termijn te voldoen. Als je deze opzet tot je laat doordringen, staat er niet eens zoveel. De

kernvraag is natuurlijk wanneer een oordeel als verantwoord kan worden aangemerkt. Welke

criteria gelden daarvoor? Die vraag wordt niet beantwoord. De enige aanwijzing is dat we daarbij

niet op het verkeerde been mogen worden gezet. Althans ook te lezen in Art. 362:

“De balans met de toelichting geeft getrouw, duidelijk en stelselmatig de grootte van het

vermogen en zijn samenstelling in actief- en passiefposten op het einde van het boekjaar

weer”. (Voor het resultaat geldt een vergelijkbare tekst.)

Met andere woorden: De cijfers zijn getrouw als de boekhouding aan gestelde eisen voldoet en

de accountingregels in acht zijn genomen; en als aan deze twee voorwaarden is voldaan, stelt

de jaarrekening in staat tot een verantwoord oordeel over resultaat en vermogen. Dat is een

omkering van wat de wet voorschrijft. Misschien daarom in Art. 362 de volgende toevoeging:

“… Indien dit noodzakelijk is voor het verschaffen van dat inzicht, wijkt de rechtspersoon van

die voorschriften af …”

Houdt dit in dat zonder de voorwaardelijke afwijking de wel verstrekte boekhoud-informatie

niet meer getrouw, duidelijk en/of stelselmatig is?

Stel dat als criterium voor een verantwoord oordeel zou gelden dat de waarde van het vermogen

moet kunnen worden beoordeeld, met als beperkende voorwaarden op ‘going concern’- en

‘stand alone’-basis. Met de huidige jaarrekening kan dat niet. De waarde van het vermogen is

nu eenmaal niet gelijk aan de boekhoudkundige uitkomst die daarvan de grootte weergeeft.

De economie is niet erg afhankelijk van het edele boekhouden.

Zelfs iemand die een formule gebruikt als ‘factor * winst’

weet dat de waarde niet in de balans wordt gevonden. En met

enig geluk weet hij ook dat de getoonde winst niet de winst is

die hij moet vermenigvuldigen.

Boekwaarde en resultaat zijn naar de aard van de jaarreke-

ning misleidend en stellen niet in staat tot een verantwoord

oordeel over de waarde van het eigen vermogen. Waarover

wel? Bij de pogingen van instanties om regelmatig door ver-

nieuwing van standaards, regels en richtlijnen tot iets rele-

vants te komen, trekken de regelgevers zich onvoldoende aan

van de aard van de jaarrekening waarnaar de Nederlandse

wetgeving verwijst en van de beperkingen die daaruit voort-

vloeien. De uitkomsten zijn ten hoogste ordinaal bruikbaar

(vergelijkbaarheid met andere ondernemingen) maar hun

toepassing is desondanks vaak kardinaal. Zeker als daaraan

ook nog economische waarde wordt toegekend, is dat een

kardinale vergissing.

IAS 19R; een plank in een boekhoudvloer • 37

Page 40: Editie 5 Investment Strategy

Meer weten over de carrière van Marc en zijn collega’s? Of benieuwd naar onze mogelijkheden? Scan de QR of surf naar onze website.

“Groeien tot het hoogste niveau dat voor mij haalbaar is. Dat is mijn toekomstvisie.”

Marc Buijs, gevorderd assistent accountant

Onze ruimte, jouw groei


Page 41: Editie 5 Investment Strategy

Diversification requires at least 50 stocks

Professor N.L. van der Sar

It is common knowledge that you need to spread risk. Yet,

most investors hold only a small number of different stocks.

In short, I explain why this is irrational. Then I describe an

unconventional application of portfolio theory and show how

many stocks are optimal.

TheoryHarry Markowitz received the Nobel Prize in 1990 for his

work in portfolio theory. The technique of mean-variance

optimization devised by him has developed into one of the

building blocks for structuring investment decisions. The

essence is that portfolio risk can be reduced by increasing the

number of different stocks without the expected return

depreciating. This can be demonstrated by dividing the port-

folio risk in a market-related part and a residual part. The

underlying idea is that the market is the only source of risk

stocks have in common and, therefore, is the only reason for

stock returns co-varying. Since a position in stocks inevitably

involves common risk, which thus is systematic, a corre-

sponding return may be expected as a reward. This does not

apply to the residual part comprised of the non-common

individual risks of the stocks. For, by further diversifying the

stock portfolio, which practically costs nothing, the residual

portion becomes smaller and eventually goes to zero.

ImplicationsA first lesson to be learned here is that an investor should not

set narrow limits to his investment world. In case an investor

suffers from a home bias - an excessive revealed preference

for holding stocks from his home country - part of the risk

incurred will be non-common from an international per-

spective and, thus, be avoidable through international diver-

sification. A second lesson is that the diversification benefit

grows with each new stock added to the portfolio, but that

the growth rate becomes smaller and smaller.

Research methodWhat is the actual number of stocks to be chosen? In other

words, at what number is the (additional) benefit of diversifi-

cation reaped from including a new stock in the portfolio

negligible? This is an empirical matter that requires a lot of

data but can be solved statistically. With time series of all

realized stock returns, at every return it is possible to estimate

the residual non-common part of the portfolio risk in

dependence on the number of stocks. A disadvantage is the

use of historical data in consequence of which the results

apply with hindsight. Together with Gerrit Antonides Wage-

ningen University and Research Centre, I employed a less

conventional approach (2012, Erasmus School of Economics

working paper). We used individual response data from a

survey of over 700 private investors in late 2001. This

approach has the advantage of expectations being measured,

which may vary over investors. Based on the responses of

each investor to specific survey questions on the expected

return and the associated probability of a loss for his stock

portfolio, for the stock market, and on the relation between

these two, we determined his portfolio risk and the market-

related part of this. The difference, that is, the residual por-

tion, represents the non-common part of his portfolio risk.

The dependence of this non-common risk on the number of

stocks was then estimated by means of a regression analysis

in the cross-section.

Empirical resultsOur results show that the non-common risk is significantly

positive. In other words, there is under-diversification. The

more than 700 investors appeared to hold an average of 17.7

different stocks in portfolio. This suggests that an adequate

degree of diversification is not achieved with 12 to 18 shares,

as earlier studies indicated.

The regression results show a significant negative relation

between the degree of non-common risk and the number of

stocks in portfolio. This is a great result. For, there is no evidence

that investors indeed used the Markowitz mean-variance

optimization technique when constructing their portfolios

for different numbers of stocks. Therefore, it was not a fore-

gone conclusion all along that the number of stocks would

be decisive for the degree of diversification.

On the basis of the regression results we also estimated how

many stocks make an adequately diversified portfolio. In

order to have a sufficiently low degree of non-common risk,

given the (marginal) transaction costs, the different number

of stocks should be at least 50. In view of the increased risks

of individual stocks observed in recent decades, this seems a

plausible result.

fsrforum • volume 14 • issue #5

Diversification requires at least 50 stocks • 39

Page 42: Editie 5 Investment Strategy

Dear members,

This is already the last edition of the FSR Forum of the academic year 2011-2012. Therefore, it

will also be the last edition of the XIVth FSR board. At the time of writing, some of you are still

struggling with their last re-sits, while others try hard to deliver a solid bachelor- or master

thesis and some lucky ones enjoy their vacations. At the FSR office it is a very busy period as

the preparations for the upcoming academic year are made.

After the last period we can look back at another three successful events. The Coporate Finance

Competition was held at luxurious hotel Saverin during three consecutive days. At the univer-

sity we held the Finance Day in cooperation with the ESE faculty association and the Bachelor

Accountancy Day with both the ESE and the RSM faculty association. Both events provided

bachelor students with a good overview of what they might expect of starting in the world of

Finance or Accounting after completing their master studies.

After a though selection with many interviews we were proud to present to you the new board on

the 7th of June. The new board members for the XVth FSR board will be Sep Vermeulen, Maaike

Lanphen, Taco Smit, Laurent Schmidt, Margriet van der Lubbe and Joost Vlot. On Thursday the

6th of September the XVth FSR board will officially be installed at the General Members Assem-

bly. I would like to invite you all for this special moment and an official invitation will be sent to

you soon. Further in this FSR Forum the new board members will introduce themselves to you.

The XVth board is working hard to make the upcoming year even better than the previous. The

International Banking Cycle is being improved with a grand opening in the form of the Erasmus

Banking Congress. In the last edition of the FSR Forum you could already find some of the

many interesting speakers that will be present during the Congress with the theme “Shifting

Powers’. It will take place on the 12th of September and make sure not to miss it if you are

interested in banking.

Furthermore, the destinations of the International Research Project and the European Finance

Tour are being determined and some new developments take place. As you can see the association

is continuously moving forward and I can truly say that we, as the XIVth board, can be satisfied

with the forward progression of the previous twelve months.

Three of the ten FSR committees are already complete to start the preparations for the upcoming

academic year. These are the International Banking Cycle, the International Research Project

and the Accountancy committees. For the other seven committees the new board is still on the

lookout for new members. A year as committee includes a wide range of new experiences, from

the first contact with the corporate world to improving your organization skills. However there

are many more benefits to enjoy like the active members day, the active members weekend and

numerous drinks and dinners. Make sure you are aware of the deadline on the 7th of September

for applying for the remaining committees. It will prove to be a very strong asset to you, for the

experience in your field of interest, by building a strong network and on your C.V.

As mentioned above the year of our board is coming to an end. On behalf of the whole XIVth

FSR board I would like to thank all our members, active members, partners and teachers who

have made this year into an unforgettable and successful one. A board year we consider being

essential in the academic development of every student. I hope to see you next year and wish

the new board all the success!

FSR News





Column Geert van Roon

Column Tim Odenkirchen

Corporate Finance Competition

International Research Project

Word of the chairman

Wessel Ploegmakers

fsrforum • volume 14 • issue #5

40 • FSR news

Page 43: Editie 5 Investment Strategy

News UpdateReview portfolio

In this final news update we will publish market data on

developments in stocks (indices), commodities and curren-

cies. In the first issue of this academic year (behavioural

finance), we created a portfolio. A short recap on the method-

ology we used might be handy. On September 19th 2011 We

build a portfolio consisting of 15 stocks traded on the AEX,

AMX or ASCX index in Amsterdam. This portfolio was cre-

ated at random. We have taken random funds out of a fund

pool consisting of traded stocks on the AEX, AMX and ASCX

for 15 times where overlap was allowed. What we did

throughout the year is to see how our portfolio has developed

when compared to the AEX,AMX and ASCX. Since this issue

is about investment strategy, one could argue that we are

interested to see if randomness can outperform supposingly

efficient markets.

What we did on every first day of the month is to sell three

stocks from our portfolio and add three others. Again, this is

all based on randomness. Next to following our stock portfolio,

we also kept track of commodities and currencies. Since we

only distribute the forum magazine 5 times per year, you will

not find up-to-date values here, but rather you will get an

insight in movements and prices of commodities and currencies.

As financialists it is important to know at least this much.

From table 1 we can clearly see that randomness could have

provided us with a profit. In reality, we would have probably

sold stocks with great gains and losses, so we would not have

seen numbers as severe as these presented in table 1. What’s

more important to look at is not the profitability of this

random portfolio, but the profitability in comparison to the

index. Table 2 shows the results for the index. It can be seen

that over the same period of time, the index has gained more

than the random portfolio. Although we made a profit, ran-

domness could not beat the market portfolio.

Table 3 is interesting to see because there was a real hype on

commodities at the start of 2012. The table shows this hype

did not set through during 2012 because the total portfolio

shows a negative investment return of 3,05%. The euro has

also lost a large amount of value in comparison to the USD

and the GPB.

Table 1: our randomly selected final portfolio (July 21st 2012)

Long/Short Instruments number Buy price €

Value €

Current price € 08/10/11

Current value €

Profit €

L Aegon 2396 2,65 6.345 3,64 8712 2.367(+37,30%)

L Aperam 578 12,88 7445 10,16 5,87 -1572(-21,12%)

L Arcelor Mittal 577 10,86 6.266 12,15 7.011 744 (+11,88%)

L ASML 362 17,17 6.216 32,14 11.635 5418(+87,17%)

L Binck 850 7,37 6.265 5,75 4.888 -1.376(-21,87%)

L Fugro 178 35,12 6.252 52,99 9.432 3.181(+50.88%)

L KPN 688 9,14 6.290 7,42 5.107 -1.183(-18,80%)

L Mediq 517 11,02 5.695 9,28 4.800 -895(-15.72%)

L Ordina 4429 1,42 6.290 0,94 4.141 -2.149 (-34,17%)

L SBM Offshore 508 12,37 6.282 9,59 4.871 -1.412(-22,47%)

L TNT Express 1221 5,11 6.243 9,01 10.998 4.754(+76,15%)

L Unilver 271 24,27 6.578 27,13 7.351 773(+11,76%)

L Wessanen 1886 3,21 6.053 2,38 4.487 -1.566(-25,88%)

L Wolters Kluwer 538 11,61 6.246 13,19 7.049 847(+13,56%)

Cash 95.796 4.204

103.85 3 16.016

TOTAL 100.00 0

119.86 9


Table 2: investments in indices relative to investments of stocks from those indices (July 21st, 2012)

Long/Short Instruments number Buy price €

Value €

Current price € 08/10/11

Current value €

Profit €

L AEX Index 271 258,19 69.969 319,75 86.652 16.683(+23,84%)

L AMX Index 58 430,75 24.984 511,00 29.638 4.655(+18,63%)

L ASCX Index 13 387,66 5.040 377,72 4.910 -129(-2,56%)

99.993 121.201 +21,21%

Table 3: commodity and currency prices (July 21st 2012) and their profits

Long/Short Instruments number Buy price €

Value €

Current price € 08/10/11

Current value €

Profit €

L Gold (spot) 12 1682 20.18 4

1578 18.935 -1.248 (-6,18%)

L Copper (spot) 3 5789 17.36 7

6.272 18.817 1.450 (+8,35%)

L Silver (spot) 614 32,59 20.01 0

27,25 16.728 -890 (-4,45%)

L Zinc (spot) 14 1472 20.62 0

1379 19.308 -3.282 (-16,40%)

78.18 1

75.798 -3,05%

L EUR/USD 1,350 1,220 -9,63 %

L EUR/GBP 0,871 0,78 -10,45%

The tables shown here are just for comparison. We do not judge on the ef-fectiveness of portfolio strategies, but merely show the outcome of our in-vestment project. All portfolios are sensitive to the investment period, the entry prices and the investment strategy throughout the year.

fsrforum • volume 14 • issue #5

FSR news • 41

Page 44: Editie 5 Investment Strategy

FSR Former board member

Geert C. van Roon

Is has almost been eight years now, since I joined the FSR as

board member of the VIIIth board. After so many years, I still

remember this year as one of the best periods in my life. Not

only due to unawareness about financial crisis including toxic

subprime mortgages in the US, a potential meltdown of South-

ern-European countries or any Libor-gates, but also because

we spend our days careless and unconcerned in the H-tower

of the Erasmus University, organizing major FSR events for

our active members as well as an overkill of social activities.

It all started in May 2005 during a coffee drink at the ´DE

coffee corner´ with some board members at that time. I

became inspired about their passion for audit, finance, and

control (especially finance) and moreover, the unique position

of the FSR as an unique link between students and the corpo-

rate world as potential employer. Furthermore, the FSR gave

me the opportunity to develop professional, commercial, and

social skills and the challenge to work with a group of highly

motivated students. Taken together, this convinced me to

apply for a position as board member of the FSR.

Besides my role as secretary and vice chairman, I was also

responsible for the Corporate Finance Competition, a three-

day business course with five leading players in the Dutch

Corporate Finance market. Organizing this event was very

interesting and inspiring for me: it gave me the opportunity

to develop my leadership skills and guide, support and motivate

my committee resulting in a very successful event with com-

panies as well as students being fully satisfied.

In addition to my professional development, I also experienced

these years as a period in which I was given the opportunity

to strongly develop myself, to work together with different

individuals and to build strong friendships. For each board,

there is the question whether six or seven individuals will fit

within one group and are able to work as a dedicated team

having the motto ‘Work hard, play hard.’ After my years as

FSR board member, I honestly think that we have succeeded

regarding this motto and I am proud off the fact that we still

have a very strong friendship resulting in monthly dinners,

drinks on a regular basis and (semi)-annual city-trips,

remembering the good old days.

It is hard to mention one unforgettable moment during all

these years, since we have experienced a lot of exciting

moments. I will never forget our Christmas gala at the Euro-

mast including polonaise with cigar-smoking ladies through

the rest of the restaurant, our active members weekend in

Paris, the endless social drinks always ending at some of the



Geert C. van Roon


28 years



Employed at

KPMG Corporate


Current position


Which Fsr Board

VIIIth board

Board function


Vice Chairman


Financial Economics,

Erasmus University,


Year of graduation

December 2008

Which car do you


Audi A5

What do you drink

on a Friday night

Beer followed by obscure

liqueurs and shooters

Life Motto

“Work hard, play hard”

worst (but at the same time priceless) bars in Rotterdam and

of course my ‘very professional’ first meeting with Ernst &

Young, falling in love with someone of the company on the

Piet Hein boat during a walking dinner, being staggered and

totally unable to literally eat or say something (she will probably

still remember)!

On top of your professional as well as personal development,

being active at the FSR this membership also gives you the

opportunity to join the FSR Alumni Association to keep in

contact between other former active members. Nowadays the

FSR Alumni Association has 150 members which results in a

highly interesting network of people having an affection for

Finance, all having a strong connection with the FSR, and all

enjoying several drinks and events being organized.

Having finished my years as board member of the FSR, I have

had plenty of time to pick up new and existing challenges

such as finishing my bachelors degree, made a trip around

the world, doing a Corporate Finance internship, studied at

Harvard University, and ultimately spend my final year on

the University finishing my masters degree (including endless

cups of coffee, again at the DE coffee corner).

After graduating, I started working at KPMG Corporate

Finance. Being part of a small group of highly motivated and

inspired colleagues within a global firm is the best of both

worlds. On one hand, we are able to serve a wide range of clients

from our local network of both audit as well as advisory, on

the other hand we are able to act globally having an unlimited

network and knowledge database through our international

network of more than 2,100 Corporate Finance professionals

in 82 countries. To some extent, working at KPMG Corporate

Finance is in line with my years as board member of the FRS:

we service our clients (members), striving for excellence, and

celebrate successes with our colleagues.

To all the passionate and eager members of the FSR, I can

sincerely strongly recommend you to join the FSR as active

member. Not only because I guarantee you the added value I

have experienced during my years, but also because having a

masters in Economics or Business Administration, especially

during these years of economic downturn, is not a guarantee

but only a first step towards a great career!

fsrforum • volume 14 • issue #5

42 • FSR news

Page 45: Editie 5 Investment Strategy

FSR Member

Tim Odenkirchen

Last summer I joined the FSR as a committee member of the

International Banking Cycle. Due to their focus on finance,

joining the FSR had always been at the back of my mind.

When I started with a master in Finance, one of the board

members asked me to apply for the IBC committee. Obviously

I didn’t have to think very long to make the decision. What I

didn’t know in advance, was the wide range of experiences

that the active membership would offer me.

The International Banking Cycle is a big recruitment event

for students that are interested in the fascinating world of

M&A. Through ten workshops, housed by ten globally

renowned Investment Banks, students get the opportunity to

arrange an internship at one of these banks. The workshop

days provided a good opportunity for both the participants

and the committee member to connect with the several

bankers and to obtain insights into their world. Actually, this

way I managed to arrange an internship at one of the banks

myself. After passing the screening I could start working for

Bank of America Merrill Lynch at February 2012 in Amsterdam.

Looking back, it is funny to consider how a beer at the bar

with a Director can be the start of something great.

During the first week of the internship I started noticing that

nearly all stereotypes are true, especially for the London col-

leagues. The Benelux Coverage Team of Merrill Lynch was

great to work for. One of the stereotypes that did not fit with

my experience was the fact that I worked in a very fun team.

From what I understand from others, this is actually quite

typical for the Dutch enclave in I-banking. The relatively

small size of the team also made it interesting to work for

since it allowed me to be part of many different processes. I

had the luckk that moet worden I was fortunate to start at

Merrill while the team was working on the execution of a

deal. This way I immediately got to experience some piece of

the action. Here I realized why it is the execution side of

M&A that makes the work addictive. Being part of large

deals, even though your relative personal contribution is

tiny, and seeing your work back in the end result is simply

very satisfying.

The first part of the internship you’re mostly learning how

the operations of the organization are being run. I fell in love

with the industry as I liked the dynamics of the job and its

attached lifestyle. Being brought home by cab and reading in

the newspaper about the transactions your team is working

on felt great. After a few months, you’re fully operational and

of most use for the team. This phase of the internship I

assisted on several projects and learned how it feels to make

long hours. These months are the real test if you’re willing to

make the sacrifices for a career at an investments bank or if

you rather pursuit other dreams. Because of the demanding

working environment, an internship at an Investment Bank

offers a very valuable learning experience, even for those who

do not aspire a career in M&A. You’ll barely experience a

more demanding working environment in any other industry.

Compared to the romantic view I had about Investment

Banking at the beginning of my internship, I had had quite a

reality check after a few months. I started to realize that you

have to wonder what it is in the job that attracts you so

much. Do you really have a true passion for financial modeling

and quantitative problem solving or are you just conforming

to a romanticized picture? The truth is, the first three till six

years of your career, you’re devoting your entire life to Excel

and Powerpoint assignments and you’re not living the

‘Gordon Gekko lifestyle’ you might be dreaming of. The

industry is fascinating, but you got to be really passionate

about it.

For me it was an easy conclusion not to strive for a career in

M&A. The internship has been tremendously inspiring thanks

to the interesting people I have met and the experiences en

insights I have gained. Apart from the hard work there was

plenty of opportunity for a good laugh. I would advise every

student to gain as much experience as possible before you

start your career. Through internships, study related side

jobs or interesting committees you’ll be able to form a much

clearer picture of the career and life you’re actually striving

for. Experience is the teacher of all things.



Tim Odenkirchen


23 years




MSc Finance &


Fsr event

International Banking



at/job at

Bank of America Merrill


Department of


M&A Benelux Coverage


fsrforum • volume 14 • issue #5

FSR news • 43

Page 46: Editie 5 Investment Strategy

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Page 47: Editie 5 Investment Strategy

Corporate Finance Competition 2012

On Monday the 21st of May the Corporate Finance Competition (CFC) took off. 20 students

were welcomed in 5-star hotel Savarin to compete against each other for 3 days during 5 different

business cases. All striving for the ultimate goal: Being the winner of the CFC 2012.

The first day began early in the morning to start with Ernst & Young with the first business

case. Beginning with a small introduction of Ernst & Young in general, all students were eager

to hear more about the case. From the start of the event everybody could feel that there was

more at stake than just winning one case. The negotiations during the case where intense and

the discussions even more. At the end of the case there was a small lunch to also get to know

Ernst & Young in a more informal matter.

Having finished the lunch the students had to prepare themselves for the next case immediately,

while BDO was already present to give their presentation. During this business case BDO had

an extra trigger for the students: the winners of their case won a ticked in the skybox during a

match of Ajax in the next season! A bit overwhelmed the students began at the case, after the

winner was presented there was a small social drink whereafter the students finally had some

time to relax.

The next morning we began at a tight schedule with the case of ABN AMRO in the morning.

With only 3 more cases to go the battle became even fiercer. During the second day there was

only 1 business case scheduled what left us with time for leisure. Luckily the CFC was planned

during the week with the best weather of this year, because we went surfing as day-activity.

After some successful waves we had to return to Hotel Savarin for the rotation diner with all

the participating companies.

During the last day the students really did their upmost best during the cases of Rabobank and

Kempen&Co. to turn the tide and still become the winner of the CFC 2012. After the last case

of Kempen&Co. it was a very close call, but there was one winner: Team Blue! Again, congratulations.

After three intensive days full of cases, presentations, surfing, lunches, dinners and social

drinks we look back at, yet again, a successful Corporate Finance Competition. Hereby I would

like to thank, the participating companies: Ernst & Young, BDO, ABN AMRO, Rabobank and

Kempen&Co., we do sincerely hope to see you again next year, and of course my committee

members, who made this competition all possible!

fsrforum • volume 14 • issue #5

FSR news • 45

Page 48: Editie 5 Investment Strategy




14 15 18 13 1 12

20 5 24 20

2 5



Page 49: Editie 5 Investment Strategy

International Research Project 2012

On the 20th of May 2012 all participants of the International

Research Project have returned home. Some of them had left

Vietnam for the Netherlands already two weeks ago, whereas others returned the 20th of

May because they had decided to explore the region for two weeks after the official IRP program

had finished.

Irregardless of the time spent abroad, it can be safely said that everyone had a tremendous

time. Although the schedule was at times stuffed with activities, none had trouble getting up

early in the morning at times unfamiliar to the average student and getting in late at night

again. After a day of meetings with great national and international companies, everyone was

eager to grab a bite to eat together and party it up in the local hot spots of Bangkok and Ho Chi

Minh City.

Over the course of two weeks we visited several big Thai companies such as Siam Cement

Group , PTT, Airports of Thailand and Bangkok Bank. In Vietnam we mainly visited plants of

industrial companies such as Akzo Nobel and NedSpice. We also visited several large multina-

tionals including Ernst & Young, KPMG and Toyota amongst others. It was very interesting to

find out about the different views on corporate social responsibility of Thai, Vietnamese and

international companies, and the practical issues which these companies are facing.

Bangkok proved to be a huge, very vibrant city with large business districts, lots of traffic and

a true 24-hour economy. We’ve met a lot of friendly people during the company visits and the

Thai food they served us at lunch time was incredible. Ho Chi Minh City is much smaller than

Bangkok, but has an idyllic vibe due its French architecture of some buildings in the city

center. Business is picking up at rapid pace, but is still relatively small compared to Bangkok.

Besides company visits, we have had a great time together enjoying the Thai and Vietnamese

cuisines and nightlife. Although Bangkok has the massive clubs and fancy places, Ho Chi Minh

City had fantastic bars with live music (of which some was sung by Joost A.).

After two intense weeks we had to say goodbye to several participants that were heading home

because of other responsibilities. Others left for Cambodia and the North of Vietnam. Several

islands of Cambodia, Thailand and Vietnam have been visited by groups of participants. Most

people saw the temples of Angkor in Cambodia which were incredibly beautiful. Some even

went to Singapore and Hongkong.

We can conclude that these were two (or four) great weeks in which we’ve learned as much as

we’ve enjoyed and we would like to thank especially thank our partners, the Erasmus Trust

Fund and STOER and everyone else who have helped us with the realization of the Interna-

tional Research Project 2012!

fsrforum • volume 14 • issue #5

FSR news • 47




14 15 18 13 1 12

20 5 24 20

2 5



Page 50: Editie 5 Investment Strategy

Het gaat om veel geld. En het gaat om belangrijk geld. Geld dat van ons allemaal is. En dat besteed wordt aan zaken met een grote maatschappelijke impact. Zaken als milieu, veiligheid, onderwijs, gezondheidszorg en infrastructuur.

Het is jouw taak om het � nancieringsbeleid voor te bereiden. Om te zorgen dat een departement een correcte begrotings- en controle-cyclus volgt. Of om de staatsschuld te beheren en geld te lenen op de kapitaalmarkt. Iedere beslissing vraagt om nieuwe berekeningen.

En die kunnen weer tot nieuwe beslissingen leiden. Dat maakt dit werk dynamisch, interessant en vooral uitdagend. Kun jij die verantwoor-delijkheid aan?

We zoeken frisse, � nanciële professionals met een afgeronde studie economie, econometrie of bedrijfskunde, een � inke dosis enthousias me en a� niteit met maatschappelijke issues.

Meer weten? Kijk op www.� nancials.werkenvoornederland.nl


Startende fi nancials voor de Rijksoverheid

Een baan waarin je elkmiljard moet omdraaien

Page 51: Editie 5 Investment Strategy

Finance Day 2012

On the 24th of May the Finance took place for the second

time in history. This year, the schema was different than the

first edition. As part of the ESE Orientation Cycle the Finance

Day is aimed at the second and third year student who is

about to choose which master or major study to follow. The

Finance Day provides this student the opportunity to see

what the finance world is all about and what the Erasmus

University Rotterdam has to offer in this field. In cooperation

with the EFR this year’s edition has been a great success.

Despite the beautiful weather outside, about 60 students

were present during the second edition of the Finance Day.

This day started with three presentations from EUR repre-

sentatives. Firstly, Prof.dr. Han Smit, program coordinator of

Financial Economics at the Erasmus School of Economics,

introduces his master program to the students. He was fol-

lowed by dr. Marta Szymanowska of the Department of

Finance RSM. She told the students more about the RSM

Master’s program Finance & Investments. The third speaker

was Jordy Streng, secretary of the FSR. He introduces the

study association for all finance and accountancy students at

the Erasmus University Rotterdam.

After these introductory speakers, the practical part of the

day started. The first speaker in this part was Yvonne Janssen

of SNS Reaal Asset Management. She learned the students

about investing responsibly. Topics like ‘What is responsible

investment’, ‘How are efforts in responsible investment

measured’ and ‘What would you do to invest responsibly’

were discussed.

The day continued with a case study provided by the CFA,

represented by Rogier van Aart and Sereeparp Anantavrasilp.

The participants had to solve questions regarding growth

indicators of equity stocks and predict the returns. Also, the

possibilities to obtain the CFA degree were highlighted.

The final speaker of the day was Diederick van Mierlo, Man-

aging Director and Head Corporate & Market Risk at ABN

AMRO. In the current economic situation risk management

is very important for a financial institution. Diederick van

Mierlo explained how ABN AMRO is currently coping the

actual risks. The day concluded with drinks ‘in De Smitse’.

All in all the participants have gotten a better view on the

possibilities in finance, as well academically as in practice.


fsrforum • volume 14 • issue #5

FSR news • 49

Het gaat om veel geld. En het gaat om belangrijk geld. Geld dat van ons allemaal is. En dat besteed wordt aan zaken met een grote maatschappelijke impact. Zaken als milieu, veiligheid, onderwijs, gezondheidszorg en infrastructuur.

Het is jouw taak om het � nancieringsbeleid voor te bereiden. Om te zorgen dat een departement een correcte begrotings- en controle-cyclus volgt. Of om de staatsschuld te beheren en geld te lenen op de kapitaalmarkt. Iedere beslissing vraagt om nieuwe berekeningen.

En die kunnen weer tot nieuwe beslissingen leiden. Dat maakt dit werk dynamisch, interessant en vooral uitdagend. Kun jij die verantwoor-delijkheid aan?

We zoeken frisse, � nanciële professionals met een afgeronde studie economie, econometrie of bedrijfskunde, een � inke dosis enthousias me en a� niteit met maatschappelijke issues.

Meer weten? Kijk op www.� nancials.werkenvoornederland.nl


Startende fi nancials voor de Rijksoverheid

Een baan waarin je elkmiljard moet omdraaien

Page 52: Editie 5 Investment Strategy


Start a finance career where you develop more than just your professional skills Grow with Philips. Join a company that places great value on people as well as financial results. We challenge and empower you to make the most of your talents while working in multidisciplinary and international teams. You will be surrounded by passionate, insightful colleagues who share your drive to create superior customer experiences. Our growth depends on yours, so we’ll support you with career opportunities that let you accelerate in the directions to which you aspire.

Visit our website and give your financial career a boost while facilitating growth for our business.

Join 120 years of innovation

2012-0212_PHC_Financial adver A4.indd 1 28-02-12 17:01

Page 53: Editie 5 Investment Strategy

Bachelor Accountancy Day 2012

On Wednesday the 23rd of May the Bachelor Accountancy Day took

place in the Cruise Terminal Rotterdam. Each year this event is coop-

eratively organized with EFR, STAR and STAR MScFM especially for

bachelor students who have an interest in accountancy.

The goal of this event is to introduce the students into the different aspects of the profession of

an accountant and learn more about the trajectory towards becoming an accountant. Deloitte,

Ernst & Young, KPMG and PwC prepared a case for the students through which they could get

more familiar with the day to day work of an accountant. The case had to be solved in groups

of students accompanied by accounts of the Big Four firms. During the case the students were

challenged to show their social, analytical and interview skills. The latter during an interview

with the financial director of the company they were auditing. Moreover the students were

informed about the study curriculum of the Master programmes at the Erasmus School of

Economics and Rotterdam School of Management. Besides that, they were informed about the

Chartered Accountant post graduate program.

In the afternoon, after the students solved the case, from each of the audit firms one partner

arrived. During the day the students had the opportunity to prepare questions they wanted to

ask to the partners. The partnerforum consisted of an interactive interview with the four partners,

presided by Mr. Gortemaker. During one hour the partners were questioned about different

topics, ranging from workload to moral responsibility and personal life. The concluding drinks

in the setting sun at the balcony of the Cruise Terminal gave the students the opportunity to

get deeper into conversation with the accountants and the recruiters of the Big Four firms.

It was an interesting and instructive day for the students. Besides the information about the

profession of an accountant they had the opportunity to experience the atmosphere during the

informal lunch and drinks. We would like to thank Deloitte, Ernst & Young, KPMG, PwC, Mr.

Van der Wal and Mr. Gortemaker for their cooperation to make the Bachelor Accountancy Day

this year again to a successful event.

fsrforum • volume 14 • issue #5

FSR news • 51www.philips.nl/carriere

Start a finance career where you develop more than just your professional skills Grow with Philips. Join a company that places great value on people as well as financial results. We challenge and empower you to make the most of your talents while working in multidisciplinary and international teams. You will be surrounded by passionate, insightful colleagues who share your drive to create superior customer experiences. Our growth depends on yours, so we’ll support you with career opportunities that let you accelerate in the directions to which you aspire.

Visit our website and give your financial career a boost while facilitating growth for our business.

Join 120 years of innovation

2012-0212_PHC_Financial adver A4.indd 1 28-02-12 17:01

Page 54: Editie 5 Investment Strategy

Introduction XVth board

Sep VermeulenMy name is Sep Vermeulen. Back in '91 I was born in Apeldoorn. After living in Apeldoorn,

Terschelling and Aadorp for a few years I ended up in Epe. In this scenic village that has every-

thing to offer for a kid I have lived for 11 years until I moved to Groningen to start my student

life with Business Administration. This study was not entirely my cup of tea so the next year I

shifted to Rotterdam to start off with Economics and Business Economics. Simultaneously I

joined a rowing fraternity called Skadi. Here and at the economic faculty association I participated

in a number of committees to learn a lot, see a lot and get to know numerous new students who

also wanted to make the best out of their student life. With this notion and after marvelous stories

of former board members of the FSR it was clear for me; I want to be in the XVth FSR board.

As the chairman I will monitor and enjoy all the wonderful and professional events the FSR has

to offer, with special emphasis on the new Erasmus Banking Congress!

Maaike LanphenHi, my name is Maaike Lanphen and this year I will be the secretary of the FSR. I am 21 years

old and I was born in a little village called Blaricum. After 18 years I decided to study Business

Administration at the RSM in Rotterdam. In my second year of study I joined the fraternity

S.S.R.-Rotterdam. After three years of study, I wanted to do something else. Last year I organized

the Female Business Tour and that’s when I decided that I wanted to become part of the XV

Board of the FSR. I liked that the FSR is very professional and has a lot of great activities. This

year I will organize some of these activities. I will organize the Accountants Firm Day and the

Bachelor Accountancy Dag. I will also be responsible for the FSR Forum. I am really looking

forward to next year with all the prodigious activities, interesting interviews and the wonderful

time with my board members and committees.

Taco SmitHi, my name is Taco Smit and I will be the treasurer of the XVth board of the FSR. Setting out

from the peaceful promontories of Zeeland I decided to pursue my studies in Rotterdam. Three

years ago I started my bachelor of International Business Administration at the Erasmus Uni-

versity and I can now look back upon a successful completion of my bachelor program. Besides

my general tasks as a treasurer, I am also excited to broaden my view on the financial world and

organize this year’s events together with our board and commissioners. Starting with a brand

new Banking Congress to kick off the IBC 2012 and ending with the third FSR lustrum, this year

promises to be extra challenging and inspiring to those interested in finance or accountancy.

fsrforum • volume 14 • issue #5

52 • FSR news

Page 55: Editie 5 Investment Strategy

Laurent SchmidtMy name is Laurent Schmidt and I will take place in the XVth FSR Board as the Commissioner

of External Relations. After 3 years of studying Economics in Rotterdam and thinking about

starting a master, I thought it was time for something different first, something serious. After

taking place in the FSR Banking Diner last year, I got in contact with the FSR and my request

for an interesting challenge for the upcoming year was becoming to get shape! The possibility

to get in touch with so many different companies and being “in charge” of maintaining and

expanding the relationship between the FSR and its partners was what attracted me to this

position. Next to fulfilling my board tasks I hope to get a somewhat clearer view of what my

future of starting in the Finance world will look like. Furthermore I hope to have some scarce

time left this year for my hobbies, going to the gym and riding my motorcycle. I’m really looking

forward to this year and together with my board members we are going to make it a great year!

Margriet van der LubbeMy name is Margriet van der Lubbe and this year I will be the Commissionair Activities of the

fifteenth FSR board. I grew up in ‘s-Gravenzande (a little town near the beach) and started in

2009 studying Economics and Business Economics here in Rotterdam. This year I finished my

Bachelor and am planning to do my Master in Accounting. During my last year I participated

in some events of the FSR (International Research Project and the Big 4 cycle) and I was

impressed by the professionalism. This made me curious about the association and when

asking around I only heard positive stories. I already had been an active member at other asso-

ciations and a board member of the FSR seems to be the right challenge for me. This year I will

be responsible for the International Research Project, Female Business Tour and Big 4 cycle

and I’m really looking forward to organize these (and of course all the other) events together

with my fellow board members and committees.

Joost VlotHi, my name is Joost Vlot and in the XVth board I will fulfill the position of Commissioner

Finance Activities. I’m 21 years old and started with Business Administration three years ago.

During the first years I participated in different committees within my student fraternity and

during 2011 I became active at the FSR. The European Finance Tour committee was a perfect

introduction to the FSR. It was a very good period to find out what FSR and all the companies

had to offer and this made me decide to apply for the XVth board. I’m looking forward to organize

all the financial activities in my portfolio.

FSR news • 53

Page 56: Editie 5 Investment Strategy

Academisch toptalent Je eerste baan is tegenwoordig vrijwel nooit je laatste. Maar vaak wel de baan die de rest

van je carrière beïnvloedt. Droom jij van een loopbaan bij een multinational of de overheid, dan is de keuze voor je eerste

werkgever eenvoudig: Deloitte. Veel topbestuurders in Nederland danken hun huidige positie aan een carrièrestart bij Deloitte.

En dat is niet toevallig. Bij ons werk je namelijk al vanaf dag één voor toonaangevende organisaties aan innovatieve en

vooral duurzame oplossingen. Niet omdat duurzaamheid vandaag de dag in de mode is, maar omdat wij weten dat het

de sleutel vormt tot de businesskansen van morgen. Waardoor jij je kansen op de arbeidsmarkt ook weer verder vergroot.

Zoek jij de beste start van je carrière? Begin eerst hier: werkenbijdeloitte.nl.

Een duurzaam ontwikkelde carrière gaat langer mee.

DB-000-adv-regulier-basis-210x297-v10.indd 5 23-12-10 15:29

Page 57: Editie 5 Investment Strategy

FSR Alumni Association

Dear FSR Alumni,

It is with great excitement that I can inform you about the

ins and outs of our beautiful Alumni Association. At this

moment, the academic year is reaching its end. The 14th

FSR board is quite busy helping the new board with all of the

startups and the FSR Alumni Association has the time to

look back on a more than successful year.

If we overlook the past year, we can joyfully look back at a

more than successful Ketel 1 Friday Afternoon Drink at the

Westelijk Handelsterein. The Ketel 1 Drink was organized for

the members, just to keep up with their fellow Alumni mem-


Futhermore, the Alumni association gave an acte de pres-

ence at the OBD. The OBD (oud besturen diner/former

boardmembers dinner) is a dinner where all of the former

boardmembers of the FSR were invited at restaurant de Har-

monie. This event is traditionally, just like this edition of the

OBD, the event with the highest density rate under all of the

Alumni events.

The last peak on the FSR Alumni Association calendar was

the Philips FSR Alumni Golf Championship. This edition the

current Chairman of the FSR Alumni Association –Joris Kil-

was challenged to defend his title and could be the first and

only consecutive winner of the Championship.

During the day, the more advanced golfers were challenged

with not only a Longest Drive and a Nearie Competition. But

also with the unforgivable golf course Delfland, Which under

the windy conditions on Saturday 2nd of June was trans-

formed in a links course.

During the Championship, the inexperienced Alumni mem-

bers could also enjoy a beautiful day of golf. During a 2 hour

clinic they got the basic skills of golf and afterwards they

showed their new learned skills on a par-3 course!

During the luxurious BBQ buffet, the organizing committee

congratulated Bram Lips with his Philips FSR Alumni Golf

Championship win. The FSR Alumni board did a good job as

well, with a 2nd place for Joris Kil and a 3rd place achieved by

the undersigned!

Looking back at this successful year, we can only thank our

FSR Alumni members for the great attendance at the FSR

Alumni events and we would like to invite all of the current

and previous FSR committee- and board members to join the

network and be part of the fun!

We, as Alumni board, make place for a new class of board

members, which we wish all the luck in the upcoming year.

We hope we can see lots of our FSR friends at one of the next

Alumni events, because together we can increase the

strength of the FSR alumni network and make the events fun

and worthwhile to attend!

Yours faithfully,

Bart Lips

Vice-Chairman FSR Alumni Association

fsrforum • volume 14 • issue #5

FSR news • 55

Academisch toptalent Je eerste baan is tegenwoordig vrijwel nooit je laatste. Maar vaak wel de baan die de rest

van je carrière beïnvloedt. Droom jij van een loopbaan bij een multinational of de overheid, dan is de keuze voor je eerste

werkgever eenvoudig: Deloitte. Veel topbestuurders in Nederland danken hun huidige positie aan een carrièrestart bij Deloitte.

En dat is niet toevallig. Bij ons werk je namelijk al vanaf dag één voor toonaangevende organisaties aan innovatieve en

vooral duurzame oplossingen. Niet omdat duurzaamheid vandaag de dag in de mode is, maar omdat wij weten dat het

de sleutel vormt tot de businesskansen van morgen. Waardoor jij je kansen op de arbeidsmarkt ook weer verder vergroot.

Zoek jij de beste start van je carrière? Begin eerst hier: werkenbijdeloitte.nl.

Een duurzaam ontwikkelde carrière gaat langer mee.

DB-000-adv-regulier-basis-210x297-v10.indd 5 23-12-10 15:29

Page 58: Editie 5 Investment Strategy

FSR Activity Agenda 2012-2013

September/October/November BIG 4 CycleGet to know the 4 leading accounting firms

Erasmus Banking CongressThe official kickoff of the International Banking Cycle

International Banking CycleThe investment in your career

November Accountant Firms DayGet familiar with the world of accounting at a top class loca-

tion in Rotterdam!

Investment Banking MasterclassLearn to valuate, like an investment banker

December Traders TrophyCan you handle the pressure?

January Finance DinnerGet acquainted with the world of banking

January-April CleanTech ChallengeGrow your green ideas!

March Corporate Finance CompetitionFive star event: hotel, companies and participants!

Multinational BattleFour multinationals, five battling cities, are you part of it?

April Female Business TourIt might be a men’s world but it would be nothing without women

Finance DayWant to know what finance is all about…

April/May International Research ProjectUsing your intellect for a charity!

National Investment CompetitionInvest and be a winner!

May Bachelor Accountancy DayWill you choose for a career in accounting?

European Finance TourExploring European financial world

fsrforum • volume 14 • issue #5

56 • FSR news

Page 59: Editie 5 Investment Strategy

© 2012 PricewaterhouseCoopers B.V. (KvK 3412089) Alle rechten voorbehouden.


Soms weet je precies wat je wiltSoms sta je open voor suggesties

Kom verder op werkenbijpwc.nl

Je hebt tijdens je studie alle mogelijke kennis opgedaan. En nu wil je aan de slag. Op een plek waar je al je ambities kwijt kunt. Waar de lat hoog ligt en waar je samenwerkt met professionals. Je start je carrière vliegend en gaat recht op je doel af. Dat is: het beste in jezelf naar boven halen.

Neem voor meer informatie contact op met een recruiter:

Volg werkenbijpwc op Facebook en Twitter

088 792 87 [email protected] www.werkenbijpwc.nl/contact

4872-20 PwC RC Adv. Precies A4 FSR Forum.indd 1 3/28/12 5:40:54 PM

Page 60: Editie 5 Investment Strategy

Blijkt de universiteitineens een vooropleiding.

Een succesvolle carrièrestart is meer dan een goede cijferlijst. Het begint met karakter en inzicht in jezelf. Ontdekken wie je bent, weten waar je naartoe wilt groeien én hoe je dat voor elkaar krijgt staat altijd aan de basis. Ernst & Young coacht jou actief op weg naar jouw succes. We bieden je volop kansen in de wereld van assurance, tax, transaction en advisory. Ontdek ze op ey.nl/carriere

Diederik van de ScheurConsultant TAS

Piet-Hein TouwStaff FSO

E&Y_210x297mm_potentials.indd 2 23-09-10 14:50