The third CGU Finance Club meeting took place this past Thursday, October 7th. The meeting started with a brief announcement from Daisuke Kiyokawa, Kosuke Inoue and Aiko Oshima where they introduced a trip to Japan from January 9th through January 16th where students can see how Drucker philosophy is practiced there.
Ryan then went through the rankings in the investment competition. Mr. Shearer is leading the competition by far with over 14% return and is the only one out of 20 competitors or so who is beating the S&P 500, ca. 5%, so far. It seems that the investment competition has turned into a competition for the second place.
Before Ryan introduced the guest speaker of the day, David Ward, he encouraged students to consider seriously to run for the leadership positions within the CGU Finance Club that will be available in the end of the semester.
Before sharing with you some of the things Mr. Ward talked about at the meeting, it is a must to give a small introduction on who he is. David Ward is a member of the CFALA and is also a Senior Portfolio Manager and Senior Vice President at U.S. Trust Bank of America Private Wealth Management. Hence, someone that everyone should listen to, given the chance.
He divided his presentation into two parts. First, he shared his experience as a portfolio manger and a financial advisor, and then he gave a presentation on CFA and what it takes to receive the CFA charter.
In the beginning of his talk, Mr. Ward asked the following question: Why should someone pay others who can’t beat the market? He said that what he tells his clients is that his job is to prevent the client from making mistakes. Individuals often act out on their emotions and make, as a result of that, bad decisions.
Today, many individuals pour money to the bond funds because they are scared. As an adviser, Mr. Ward said that he helps his clients to realize that there are other areas, besides the bond market, to where they can allocate their assets.
Asset allocation is one of the most important roles of a portfolio manager. Despite being the best bond asset manager in the world, living in a world with low inflation and low interest rates and looking into the future with high inflation and high interest rates, it is not a desirable situation to be in. In this circumstances, a good bond manager, who perhaps knows little about other asset classes, is not going to add a lot of value to his clients. One needs to find other assets to invest in also.
David Ward shared that investment managers regularly re-balance their portfolios, but a high transaction cost comes with doing so. If a manager can capture 90% of the S&P 500 index and reduce the transaction cost by 80%, then the manager adds value to the client. He went on and shared that today, emerging markets are hot, and if someone wants to participate in it, they can buy an ETF. The challenge for active managers, such as the ETF managers, is the high volatility that can frequently be seen. Hence, keeping the transaction cost to a minimum is a challenge.
Next, he gave a presentation on the Commercial Finance Association (CFA).
The CFA is a global franchise with more than 95000 member in over 130 societies. The curriculum is not very difficult, but it covers a very broad range of topics. The CFA program is more appropriate for individuals who want to become or that already are fund managers, than investment managers.
David Ward quoted the Financial Times where it said that “CFA qualification pursued part-time by those already hired, has become the industry benchmark in finance.” He showed also various job ads as an example for companies that require CFA qualification for certain positions or say it a plus.
CFA is a self-study curriculum with three levels of examinations. Interested individuals have to pass all three levels, and have a seven year time frame to do so, to obtain the diploma and then acquire four years of work experience to receive the CFA charter. The CFA curriculum is a practical, relevant education based on a practitioner-driven global body of investment knowledge. It emphasizes its ethical and professional standards at every level. The CFA has exam locations worldwide that take place in June and December of each year.
David Ward advised students who are interested in obtaining the CFA diploma to work on at least the first level of the curriculum while they are still in school because it is impossible to go through for people working full-time and who have kids.
The pass rates has gone down in the last 45 years from 90% to 40% or so but Mr. Ward explained that he thought the reason for that being that more and more people who are not in “the biz”, or haven’t been studying / are not familiar with the kind of material covered are mainly the once failing. People with a master’s degree in a finance related education or perhaps with 2 years of working experience in “the biz” have a much higher pass rate.
Mr. Ward informed the audience that the approximate total cost for level 1 is $1,175, excluding books, which is expensive and people should not sign up unless they have the time to devote to studying the material. However, compared to many master’s level programs, it is not very expensive.
The CFA Institute’s Mission is: “To lead the investment profession globally by setting the highest standards of ethics, education, and professional excellence.”
Most of CFA members are portfolio managers (25%), research analysts and consultants and half of the new charter holders come from Asia.
CFA Society of Los Angeles offers a lot of help for those who intend to take the tests. They offer regular classes and a real 6 hour practice exam a couple of weeks before the actual test. This extra help costs $1,499 for non CFALA members but $1,299 for CFALA members. There are also some independent companies that provide assistance. One of them is called Schweser and it offers a vast amount of study material such as the Schweser Study Notes.
If you, dear reader, want more information on CFALA, please visit their web page: http://www.cfala.org.
If you are interested in more information on CFA in general, please check out: http://www.cfainstitute.org.
As a final advise, Mr. Ward said that if someone wants to become a money manager, they should get a CFA diploma, but only if they are committed to pass the exam.
The next CGU Finance Club will take place on October 21st and all members and want-to-be-members are of course encouraged to show up. If any questions arise, please send an email to firstname.lastname@example.org.