Essay on Thompson Asset Management

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Executive Summary Based on the case “Thompson Asset Management” from HBS Professor William Fruhan and writer John Banko, this group exercise has the purpose to discuss various investment philosophies and consider the advantages of quantitative investing, especially technical analysis. Moreover, it should discuss the return variability and risk/return characteristics of the “Thompson Asset Management” funds, the ProIndex and the ProValue funds, regarding its returns, absolute and relative risks, as well as its risk relative to a benchmark index. The way to rebalance the ProValue fund should also be assessed as well as the improvements that can be done in order to improve the rebalancing…show more content…
In this financial strategy the portfolio decision‐making process is minimized as possible, in order to reduce transaction costs. Passive investors are limited in following an index and do not have a broader choice of assets or the opportunity to invest against, for example, some countries that are facing an economic downturn or political instability. This is a passive strategy that is not the same as minimizing risk since it can be achieved through diversification and here investors are able to do it and are not concerned with relative risk and return, but with absolute. Quantitative analysis is an investment philosophy in which investors base their portfolio decision‐making process on quant models in order to increase their chances to beat the market. This investment strategy focuses on patterns and numbers and chooses the investment that, for the same level of return, offers the lowest level of risk, being also not affected by the investors’ feelings often associated with financial decisions. In order to not incur in more risks than necessary and choose the investment that yields the highest level of return for a certain level of risk, investors compare several risk measures such as alpha, beta, R², standard deviation and the Sharpe ratio. Moreover, quant models turn the trading process much more
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