Investment Strategy
14th VolumeAugust 2012issue #5
Column J. G. GroeneveldIAS 19R
Interview Cees SmitCEO Today’s Groep
XVth FSR BoardIntroduction
p36p30 p52
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Investment Strategy
Preface
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
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!
Sincerely,
Anne van Driesum
Editor in Chief FSR Forum
FSR board 2011-2012
Preface • 3
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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AdvertisersBaker Tilly Berk
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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
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
»
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
regression.
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
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
»
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
away.
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
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%
T-bonds.
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
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
Comp FoF FI ART ABI ABS
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
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?
HOE VER GA JIJ
147778_210x197.indd 1 08-11-11 17:01
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-
praktijk.”
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
alleen de controleleider gesprekken voert met de klant, maar
dat ikzelf ook gesprekken mag voeren. Mijn ervaring is dat je
hierdoor de klant sneller leert kennen en een duidelijker
beeld van de klant en zijn omgeving krijgt
Dichtbij de klant!accon■avm adviseurs en accountants heeft vele diverse
MKB-klanten, van klein tot groot, met allemaal hun speci-
fieke kenmerken. Doordat je voortdurend contact hebt met
je klanten, kan je de klanten bij vraagstukken ook snel
helpen. Met de diverse soorten dienstverlening binnen de
organisatie is er altijd een collega die de klant verder kan
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
binnen de organisatie; hij of zij houdt jouw ontwikkelingen
in de gaten houdt en helpt je bij het maken van je carrière
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,
waar ik met al mijn vragen over werk en studie terecht kan.
Verder studeren veel van mijn collega’s nog, waardoor het op
vrijdag meestal erg rustig is op kantoor. Ik kan dichtbij mij-
zelf blijven en dit is belangrijk bij accon■avm, want als je
dichtbij jezelf blijft, kan je meer betekenen voor de klant en
accon■avm. Daarbij is er een goede balans tussen werk en
privé.
ToekomstbeeldIk sta nu nog aan het begin van mijn carrière bij accon■avm
en de organisatie is nog steeds groeiende. accon■avm biedt
voor mij dan ook nog talloze mogelijkheden. Mijn plan voor
nu is het behalen van de Master of Science in Accountancy en
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?
HOE VER GA JIJ
147778_210x197.indd 1 08-11-11 17:01
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
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
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
»
Dt = DJAIt-DJAIt-1
DJAIt-1
(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.
Nt = NASDAQt-NASDAQt-1
NASDAQt-1
(2) St = S&Pt-S&Pt-1
S&Pt-1
(3)
Ot = Oilt-Oilt-1
Oilt-1
(4) Gt = Goldt-Goldt-1
Goldt-1
(5)
Ut = USDt-USDt-1
USDt-1
(6)
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
Dt
Nt
St
Ot
Gt
Ut
dollar%t-1
.308** .203 .259* .012 -.112 -.055
$%t-1
.108 .062 .116 .004 -.080 -.122
gold%t-1
.122 .055 .088 -.034 -.053 .213*
oil%t-1
.022 .018 .054 .295** .108 .072
job%t-1
-.035 .000 -.013 -.165 -.203 .167
economy%t-1
-.142 -.186 -.147 .214* -.011 -.021
Table 3 Correlation coefficient between market movement and Twitter buzz 2 day before
Dt
Nt
St
Ot
Gt
Ut
dollar%t-2
.106 .040 .065 -.148 -.078 .122
$%t-2
.040 .025 .033 -.099 .077 -.131
gold%t-2
-.032 -.013 -.041 .020 .089 .064
oil%t-2
.004 -.039 -.019 .201 -.004 -.123
job%t-2
.094 .101 .108 -.151 -.116 .081
economy%t-2
-.073 -.068 -.030 .121 .020 -.039
Table 4 Correlation coefficient between market movement and Twitter buzz 3 day before
Dt
Nt
St
Ot
Gt
Ut
dollar%t-3
.018 .010 .026 -.013 -.273* -.088
$%t-3
-.198 -.179 -.176 -.109 -.048 -.142
gold%t-3
.020 .024 .007 -.033 .030 .133
oil%t-3
.033 .077 .069 .039 -.039 -.017
job%t-3
.126 .156 .130 -.132 -.141 .093
economy%t-3
-.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
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
Nt
St
Ot
Gt
Ut
dollar%t
n=1 .0039** .0494* .0165* .9588 .2877 .3131
n=2 .0203* .2405 .124 .3174 .3301 .1014
n=3 .0272* .3869 .1803 .4251 .0527 .0802
$%t
n=1 .3309 .5538 .2966 .9033 .4887 .2315
n=2 .9919 .9864 .9849 .7672 .6766 .357
n=3 .2369 .3818 .3967 .8694 .7855 .3395
gold%t
n=1 .286 .5908 .4459 .7685 .5943 .0053*
n=2 .3047 .7991 .572 .8669 .7787 .0306*
n=3 .3267 .8883 .7072 .9317 .9964 .0518
oil%t
n=1 .9036 .7989 .6828 .0164* .2359 .6347
n=2 .8657 .4439 .7809 .0096** .3672 .6156
n=3 .9102 .5801 .864 .0225* .3668 .3782
job%t
n=1 .7542 .9812 .9222 .1668 .0413* .1167
n=2 .2322 .3358 .204 .3986 .194 .3919
n=3 .4879 .5408 .4544 .3697 .0896 .6271
economy%t
n=1 .1978 .0819 .183 .0558 .8752 .591
n=2 .6916 .297 .5575 .1293 .9446 .7235
n=3 .6592 .4267 .6904 .1896 .4743 .3417
4 DiscussionsIn this paper, we investigated the relationship between Twit-
ter buzz and financial market movement. Our results statis-
tically show that public opinion measured from large-scale
collection of emotional retweets is correlated to and even
predic-tive of the financial market movement. Except “$%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
n
(7)
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
SSR2
m-2n-1
(9)
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
p-values.
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
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
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]
WWW.WERKENBIJBDO.NL
Omdat mensen tellen.
dat telt.
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]
WWW.WERKENBIJBDO.NL
Omdat mensen tellen.
dat telt.
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
»
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 )
t-Statistic
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
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
»
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
returns
Commodity futures returns
Inter-national
equity returns
Domestic equity
returns
Commodity futures returns
Inter-national
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
returns
Commodity futures returns
Inter-national
equity returns
Domestic equity
returns
Commodity futures returns
Inter-national
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
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%
bonds)
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
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
AnderhAlf uur voor de eindbespreking vAn
de jA Arrekening vAn een groot recl Amebure Au
w w w.gA A An.nu
© 2011 KPMG N.V., alle rechten voorbehouden.
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AnderhAlf uur voor de eindbespreking vAn
de jA Arrekening vAn een groot recl Amebure Au
w w w.gA A An.nu
© 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
Studie:
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
Studie:
Master International Business aan de
Universiteit MaastrichtFunctie:
Junior adviseur KPMG Advisory
sinds 2011
Lees verder op www.gaaan.nu/margit
©20
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MARGIT
TJEBBELTJEBBEL
123105_1 Gaaan ADV-AA-TM.indd 1 07-06-12 14:57
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
»
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
movements.
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
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
opportunity.
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
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
Coffee? Kaffee? Káva?Ready for an international career in retail
career.ahold.eu
0035 Bord-2x1m (1).indd 1 12-03-12 17:37
Coffee? Kaffee? Káva?Ready for an international career in retail
career.ahold.eu
0035 Bord-2x1m (1).indd 1 12-03-12 17:37
Coffee? Kaffee? Káva?Ready for an international career in retail
career.ahold.eu
0035 Bord-2x1m (1).indd 1 12-03-12 17:37
Coffee? Kaffee? Káva?Ready for an international career in retail
career.ahold.eu
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.
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
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
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
www.carrierebijGT.nl
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
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
42
43
45
47
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
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
+19.87%
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
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
PassPort
Name
Geert C. van Roon
age
28 years
residence
Amsterdam
Employed at
KPMG Corporate
Finance
Current position
Associate
Which Fsr Board
VIIIth board
Board function
Secretary,
Vice Chairman
study
Financial Economics,
Erasmus University,
Rotterdam
Year of graduation
December 2008
Which car do you
drive
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
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.
PassPort
Name
Tim Odenkirchen
age
23 years
residence
Rotterdam
study
MSc Finance &
Investments
Fsr event
International Banking
Cycle
Internship
at/job at
Bank of America Merrill
Lynch
Department of
Internship
M&A Benelux Coverage
Team
fsrforum • volume 14 • issue #5
FSR news • 43
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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
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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
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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
www.werkenvoornederland.nl
Startende fi nancials voor de Rijksoverheid
Een baan waarin je elkmiljard moet omdraaien
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.
NETHERLANDS
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
www.werkenvoornederland.nl
Startende fi nancials voor de Rijksoverheid
Een baan waarin je elkmiljard moet omdraaien
www.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
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
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
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
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
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-
bers.
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
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
© 2012 PricewaterhouseCoopers B.V. (KvK 3412089) Alle rechten voorbehouden.
www.werkenbijpwc.nl
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:
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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
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
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