M ARC BE RG E OT

CASE STUDY 1

SELECTING AN INVESTMENT
SOLUTION

ASSET MANAGEMENT
 01
AGENDA
Explanation of MiFID
Background information on UCITS
Methodology overview
Benchmark selection
Fund selection process & ranking methodology
Fee structure
Performance of the fund
ESG performance
Final recommendation
EXPLANATION OF MIFID NEW CHANGES IN MIFID II

UNDERSTANDING MIFID
The Markets in Financial Instruments Directive is the EU legislation
that regulates firms that provide services to clients linked to
‘financial instruments’ (shares, bonds, units in collective investment
plans and derivatives), and the venues where those instruments are
traded. The directive’s main objectives are to increase competition
and consumer protection in investment services.
CUSTOMER PROTECTION
Enhanced requirements in terms of suitability testing and
appropriateness of product information, product performance
reporting and pricing transparency.
PRODUCTS
Increased financial product governance.

The directive was adopted a year earlier before the U.S. mortgage
market meltdown in 2008. It was then realized that MiFID could not UNBUNDLING OF ADVICE
meet adequate regulations in the investment field, which saw MiFID Inducements, commissions and rebates for independent
II come into effect as the new arrangement, taking into account the
advisors are banned.
lessons learned during the crisis. One weakness that plagued some
of MiFID's underlying principles was that the stated rules of conduct
did not apply to countries outside of the EU. This implied that some MARKET INFRASTRUCTURE
investment firms outside the EU could have the upper hand in
Broader scope of supervision to include equity and non-equity
regulating investment activities over firms operating within the EU
trading. Increased transparency requirements for all trading
region.
facilities.

BEST EXECUTION

02
Firms must take all the necessary steps to ensure that
transactions are executed in the best interests of customers.
03
MiFID categorizes clients into distinct groups to create different levels of EXPLANATION
client protection, depending on the level of risk tolerance, as well as financial
instruments and services. The idea behind the categorization is that different
types of clients should be given different types of financial knowledge, and OF MIFID
eventually different protection levels, given their varying levels of financial
knowledge.

The MiFID defines three types of client categories – retail clients,

professionals, and eligible counterparties. Professional and retail clients are
considered capable of making their own investment decisions and evaluate the
risks present in the decisions.

The professional and retail client category possesses knowledge, experience,

and expertise. They include the per se professional clients, such as entities
required to be authorized to operate in financial markets. Such clients are
recognized as having greater experience in the financial markets and are
automatically classified.

On the other hand, eligible counterparties are regarded as the most

sophisticated investor participants and are subject to less regulatory
protection by virtue of their financial capacities, knowledge, and capabilities.
Eligible counterparties include, among others, investment firms, credit
institutions, and insurance companies;
BACKGROUND INFORMATION ON UCITS
DIVERSIFICATION RATIOS TRANSPARENCY OF INFORMATION
04
CLEAR INVESTMENTS
CONSTRAINTS
In order to allow investors to be well-informed and to
UCITS ETFs are subject to In order to reduce the risks for the facilitate the comparison of funds, the UCITS
constraints related to the investor and diversify its portfolio, directive requires an appropriate and standardized
the UCITS framework sets up strict level of publication of information through the legal
type of asset in which they
documentation of funds. This publication of
can invest. They should invest rules to promote the diversification
information guarantees a high degree of
in securities or liquid financial of investments.
transparency for investors. Various documents must
assets that can be easily therefore be presented to investors before they
bought and sold, such as invest. The documents must be updated very
stocks, bonds and money regularly, and be available on the fund management
market instruments. Direct company's websites. These documents include:
investment in physical • The Key Investor Information Document (KIID)
RISK MANAGEMENT AND which describes the objectives, major characteristics,
precious metals, or in other
INVESTMENT LIMITS charges and risk profile of the fund.
commodities or other non-
• The prospectus, which provides detailed
financial assets is not
UCITS funds must comply with rules information on the investment strategy and more
permitted.
limiting the funds' exposure to risk, generally all aspects related to the management of
the fund.
particularly counterparts risk. This is
• The annual report, which presents the fund's
generally limited to 10% of the net
financial statements and information about the fund's
asset value of the fund.
assets.
 F UN D S S E L E C T ION P ROC E S S & RAN K IN G

05 M E T H OD OL OG Y
FEE STRUCTURE
PERFORMANCE OF THE FUND
ESG PERFORMANCE

METHODOLOGY BE N C H M ARK S E L E C T ION

OVERVIEW MSCI World NR Index

F IN AL RE C OM M E N D AT ION
BENCHMARK SELECTION MSCI World NR INDEX
The MSCI World is a market cap weighted stock market
Cumulative Index Performance - Net Returns (USD) (Jul 2007 - Jul 2022)
index of 1546 companies throughout the world. It is
maintained by MSCI, formerly Morgan Stanley Capital
International, and is used as a common benchmark for
global stock funds intended to represent a broad cross-
section of global markets which makes it a good
benchmark for global equity funds.

This index is used by professional investors worldwide

for investment analysis, performance measurement,
asset allocation, hedging and the creation of a wide
range of index derivatives, funds, ETFs and structured
Index Performance - Net Returns (%) (Jul 29, 2022) products. By taking into account variations reflecting
conditions across regions, market-cap segments,
sectors and styles, it enables clients to construct and
monitor portfolios in a cohesive and consistent manner,

06
avoiding benchmark misfits and uncompensated risks.
FUND SELECTION PROCESS & RANKING METHODOLOGY
In order to pick 3 funds, we used Quantalys as well as key information from the Financial Times. As we know, funds need the following key
requirements but also key metrics in terms of risks, returns, and ESG characteristics to find the best options for our retail clients. Hence,
these metrics have been used to filter the universe on the Quantalys database.

BASIC REQUIREMENTS FINANCIAL PERFORMANCE ESG PERFORMANCE

UCITS FUND RISK ANALYSIS
ESG ANALYSIS
COMPLIANCE WITH MIGID RELATIVE RISK MEASURES
MORNINGSTAR SUSTAINABILITY
GLOBAL EQUITY FUND TRACKING ERROR
SHARPE RATIO RANKING
ACTIVELY MANAGED
INFORMATION RATIO QUANTALYS ESG INTENSITY RANKING
RETAIL INVESTORS
ABSOLUTE RISK MEASURES
VALUE AT RISK (95%)
VOLATILITY
RETURN ANALYSIS
5-YEAR RETURN
FEES ANALYSIS
ONGOING CHARGE
INITIAL CHARGE
MAX ANNUAL CHARGE
EXIT CHARGE
MINIMUM INITIAL INVESTMENT

In order to pick the right funds, we will analyze them on 3 categories (Fee structure; Fund Performance; ESG Performance) and
precisely on specific criteria related to risks, returns, fees, and ESG characteristics. For each criteria, we will rank the funds and

07
give them a score out of 3. Finally, to obtain the final ranking, we will attribute an equal weight* to each category and add the
scores.

*⅓
FEE STRUCTURE

Criteria
Ongoing charge 1,75% 1,81% 1,81%

Initial charge 4,50% 5,26% 5,00%

Max annual charge 1,5% 1,5% 1,5%

Exit charge 0% 0% 0,5%

Min. initial investment 1 share 651 GBP 28,000 GBP

Score 3/3 2/3 1/3

08
The Amundi fund dominates in the fee structure as it has a lower ongoing and initial charge. On the other hand, the
J.P.Morgan fund is last as it has a significant minimum initial investment which is not suitable for our retail
investors.
 PERFORMANCE OF THE FUND
We base our risk analysis on the assumption that the average retail investor is risk-averse meaning they experience a loss much more strongly than a gain and
would prefer a stable accumulation of wealth over a volatile one. Given this assumption, we will use the following metrics to evaluate the risks of the funds.
Relative Risk Measures
TRACKING ERROR
It is a standard deviation percentage difference which reports the difference between
the return an investor receives and that of the benchmark they were attempting to
imitate. Tracking Error can also be used as a measure of activism of the fund, a higher
Tracking Error generally indicates higher activism. In our case, given that we want a
fund following an active strategy, the higher the tracking error, the better.
SHARPE RATIO
It indicates how many units of excess returns were obtained for each unit of risk
undertaken. A Sharpe ratio of 0.4 indicates that the fund has outperformed the risk-free
rate by 0.4% per additional risk unit (i.e. for 1% of volatility, measured by the standard
deviation of the fund's returns over the calculation period). Hence, the higher, the better.
INFORMATION RATIO
It is equivalent to the Sharpe ratio in the active return/risk space but here you are not
comparing the return to the risk-free rate but rather to the benchmark return. If the
fund has outperformed its benchmark index (in which case the information ratio is
positive), the higher the information ratio, the better the fund.
09
Absolute Risk Measures
VALUE AT RISK 95% (VAR)
It corresponds to the maximum loss that a portfolio or fund can generate over a given
time horizon, with a given confidence level. If we state that the weekly VaR is 4%, this
means we expect losses over the next week to exceed 4% with only 5% probability.
Here, the lower the better.
VOLATILITY
Risk is measured by the standard deviation of the weekly returns of the fund over
different periods: 1 year, 3 year, 5 year, or over a period defined by the user. The
more volatile the fund is, the greater the range of possible returns, whether positive
or negative. Since our retail investors are risk-averse, the lower the volatility, the
better.
Alpha
We will use a 5-year benchmark to measure the amount that the fund has returned
compared to the index (MSCI World NR). The higher the return, the better.
PERFORMANCE OF THE FUND

To get to the final score, we scored each fund out of 3 on 6 key metrics where the higher the better (except for volatility)

10
and hence we computed the average. Taking into account all the different characteristics for our retail investors, the
BlackRock fund is the most appropriate in terms of the performance followed closely by the J.P.Morgan one.
ESG PERFORMANCE Weight: 0,33

Since we need to take into account ESG characteristics to find the best products for our clients, article 6 from SFDR will be removed from our search
on Quantalys in order to target the funds including ESG factors. Furthermore, we will take into account the Quantalys ESG intensity rating and the
MorningStar sustainability rating which gives a good overview on how well the holdings in a portfolio are managing their ESG risks and opportunities
relative their peers. The score is in terms of "globe" and the higher the number of globes, the better. Finally, they will be attributed a score out of 3
where the higher the better.

Score 2/3 3/3 2/3

11
FINAL RECOMMENDATION

As a final recommendation, we will compute the final score to determine which fund is the most suitable according to its fee structure,
performance and ESG characteristics. Precisely, we will multiply the score of each category by its weight of 0,33 and sum them all.

Following our methodology, the BlackRock fund is the most appropriate for our retail investors taking into consideration the basic

12
requirements as well as the risks, returns and ESG performance.
 REFERENCES
Financial Times. (n.d.). AMUNDI funds - global equity sustainable income A2 CZK HGD QTI (D). FT.com. Retrieved November 17, 2022, from
https://markets.ft.com/data/funds/tearsheet/performance?s=LU1883320720%3ACZK

Financial Times. (n.d.). Blackrock Global Funds - Global Long-Horizon Equity Fund A2. FT.com. Retrieved November 17, 2022, from
https://markets.ft.com/data/funds/tearsheet/summary?s=LU0011850046%3AUSD

Financial Times. (n.d.). JPMorgan Investment Funds - Global Dividend Fund A (ACC) - EUR. FT.com. Retrieved November 17, 2022, from
https://markets.ft.com/data/funds/tearsheet/summary?s=LU0329202252%3AEUR

MorningStar. (n.d.). AMUNDI funds - global equity sustainable income A2 CZK HGD QTI (D). Amundi Funds - Global Equity Sustainable Income A...|LU1883320720. Retrieved
November 17, 2022, from https://www.morningstar.fr/fr/funds/snapshot/snapshot.aspx?id=F00000YDX8

MorningStar. (n.d.). Blackrock Global Funds - Global Long-Horizon Equity Fund A2. BlackRock Global Funds - Global Long-Horizon Equi...|LU0011850046. Retrieved November
17, 2022, from https://www.morningstar.fr/fr/funds/snapshot/snapshot.aspx?id=F0GBR04AQI

MorningStar. (n.d.). JPMorgan Investment Funds - Global Dividend Fund A (ACC) - EUR. JPMorgan Investment Funds - Global Dividend Fund ...|LU0329202252. Retrieved
November 17, 2022, from https://www.morningstar.fr/fr/funds/snapshot/snapshot.aspx?id=F00000JV1A

Quantalys. (n.d.). Quantalys - Harvest group. Retrieved November 17, 2022, from https://www.quantalys.com/Recherche?
Values.lstCategorie=27&Values.lstIdProduits=1&Values.bExcludeUncommercialized=true&Values.bExcludeClosedShares=true&Values.bETF=true&Values.lEMTypeClient=0&Val
ues.ProduitAdaptedTo=3&Values.ESG.isEnvironnement=true&Values.ESG.isSocial=true&Values.ESG.isGouvernance=true&Values.ESG.Intensite=2&Values.lstSFDRArticle=9

Quantalys. (n.d.). OPCVM - JPM if global dividend a ACC EUR - LU0329202252. JPM IF Global Dividend A Acc EUR | LU0329202252 - Synthèse. Retrieved November 17, 2022,
from https://www.quantalys.com/Fonds/66949

Quantalys. (n.d.). OPCVM - Blackrock GLB long-Horizon EQ A2 - LU0011850046. BlackRock Glb Long-Horizon Eq A2 | LU0011850046 - Performances. Retrieved November 17,

13
2022, from https://www.quantalys.com/Fonds/Performances/5131

Quantalys. (n.d.). OPCVM - Amundi Global EQ SUST Inc A2 CZK HQTI D - LU1883320720. Amundi Global Eq Sust Inc A2 CZK HQTI D | LU1883320720 - Performances. Retrieved
November 17, 2022, from https://www.quantalys.com/Fonds/Performances/755355
REFERENCES
AVAYA. (n.d.). MiFID II: What Does It Mean for Your Organization? Avaya DevConnect. Retrieved November 17, 2022, from
https://www.devconnectprogram.com/fileMedia/download/db0381c2-63b4-483d-9b2d-78ae211e02a5

Amundi. (2021). (rep.). Les avantages des ETF UCITS. Retrieved November 17, 2022, from
https://www.amundietf.fr/amundi_etf_fr_retail/ezjscore/call/ezjscamundibuzz::sfForwardFront::paramsList=service=ProxyGedApi&routeId=_dl_c040a98b-224a-4376-9558
2f947980a37f#:~:text=Les%20investisseurs%20dans%20les%20ETF,int%C3%A9r%C3%AAts%20de%20ces%20m%C3%AAmes%20investisseurs.&text=Le%20cadre%20UCI
%20offre%20une%20r%C3%A9gulation%20robuste%20pour%20tous%20les%20fonds%20europ%C3%A9ens.

MSCI World index. MSCI. (2022). Retrieved November 17, 2022, from https://www.msci.com/documents/10199/149ed7bc-316e-4b4c-8ea4-43fcb5bd6523

14