Principles of Investment

Module Title	Principles of Investment
Module Code	25-5031-00S
Semester of Delivery	See Module Information Table
Mandatory/Elective/Option	See Module Information Table
Level	5
Credit Points	20
Assessment Mode Weighting	Coursework	40%
	Examination	60%
Pre-requisites	None
Co-requisites	None
Class Contact Hours
Average Weekly	2.5
Directed Learning
Average Weekly	10
Module Leader	Jane Cowdell
	Sheffield Business School
Module Banding	A
Approval Status	Validated

Rationale

Financial advice for the private investor is becoming more and more important throughout the financial services industry. Deregulation and competition have meant that traditional demarcation lines have been eroded and where once a particular aspect of investment advice may have been dealt with by only, say, a stock broker, nowadays that aspect could be covered by banks, building societies, insurance companies, independent financial advisers, "Marks and Spencer" type advisers or indeed stockbrokers. The increasing emphasis throughout the financial services industry on fee based services linked to expert advice, and the increasing demands from regulators that advisers be fully qualified by formal courses of study, makes this a very relevant area of study for all students interested in a career in the industry. By taking the perspective of the user of financial services, the module provides a valuable broadening of some aspects of issues covered in Financial Institutions and Markets, and it provides appropriate background knowledge for issues such as Modern Portfolio Theory, cost of capital, Gordon Growth Model and Capital Asset Pricing Model which are studied in depth at level 6 in various modules.

 

Summary of Aims

1 To provide students with an overview of the types of investment available to private investors - equities, gilts, cash investments, collective investments.

2 To develop an appreciation of the role of collective investments (such as module trusts and investment trusts) in investment planning

3 To evaluate the merits and drawbacks of fundamental and technical analysis and be able to assess the relevance of the efficient market hypothesis to portfolio planning.

4 To enable students to appreciate the implications of income tax and capital gains tax for the overall return on different investments.

5 To identify the factors which investors should apply to the selection and review of investments.

6 To identify and apply the special factors which apply to investment by Trustees of Registered Charities.

 

Anticipated Learning Outcomes

On completion of this module, the student should be able to:

1. Appreciate the importance of income tax and capital gains tax in personal financial planning
2. Appreciate the different characteristics of equities, gilts, corporate bonds, convertibles, and preference shares from the point of view of the investor as opposed to the issuer.
3. Appreciate the significance of the efficient market hypothesis in portfolio planning
4. Apply the principles of modern portfolio theory to practical portfolio construction
5. Appreciate the benefits and drawbacks of collective investments such as module trusts , investment trusts, pension plans and managed bonds
6. Relate the characteristics of the various investments to the needs of different investors;
7. Analyse and suggest changes to a portfolio of investments held by a Trustee of a Registered Charity.

 

Assessment and Feedback Strategy

The summative assessment by individual written assignment and unseen examination. This is supported by formative assessment by means of individual tutorials.

Formative learning is also seen in the seminars relating to a number of the topics.

 

Module Assessment Criteria

Examination Assessment Criteria

Mark:	Fail	Third	2:1	2:2	First
Outcome 1 Portfolio planning, tax calculations, bonus and right issues calculations and evaluation.	Little attempt at showing understanding of portfolio planning. Poor level of understanding relevant calculations and poor level of numeracy	Some attempt at showing understanding of portfolio planning. Poor to moderate level of understanding relevant calculations and poor to moderate level of numeracy	Reasonable attempt at showing understanding of portfolio planning. Fair to good level of understanding relevant calculations and fair to good level of numeracy	Good attempt at showing. Good level of understanding of portfolio planning. Good level of understanding relevant calculations and good level of numeracy	Very good at showing understanding of portfolio planning. Good to excellent level of understanding of relevant calculations and good to excellent level of numeracy
Outcome 2 The theory part of the syllabus	Little or no knowledge of these topics	A basic knowledge of these topics	Reasonable knowledge of these topics	Good understanding and knowledge of these topics	A very clear understanding knowledge of these topics
Outcome 3 Different types of investment and either covers an in depth understand of a particular type of investment or comparisons between similar, but different investments for a private investor.	Little evidence of these areas	A basic level of understanding of these areas	A reasonable level of understanding of these areas	Good, detailed level of understanding of these areas	In depth level of understanding of these areas
Outcome 4 Written communication	Poorly written, hard to follow, spelling and grammatical errors.	Able to follow points made, some spelling and grammatical errors.	Reader friendly and few spelling and grammatical errors.	Very reader friendly, few or no spelling and grammatical errors.	Very reader friendly, few or no spelling and grammatical errors, imaginative / innovative approach to communication ,

  Coursework Assessment Criteria

Mark:	Fail	Third	2:1	2:2	First
Outcome 1 Evaluation of the suitability of the portfolio for a registered charity	Little attempt to analyse the suitability of the existing portfolio	Some attempt at analysis an analysis of the suitability of the existing portfolio.	Reasonable attempt at analysis of the suitability of the existing portfolio	Good attempt at analysis of the suitability of the existing portfolio	An in depth analysis of the of the suitability of the existing portfolio
Outcome 2 Appreciate the legal requirements of Charity Investment	Little or no attempt at this topic	A basic description of the key points	Reasonable description of the key points	Good description of the key points	A very clear understanding and description of the key points
Outcome 3 Analysis of the theoretical background to portfolio planning	Little attempt at analysing theory	A weak attempt at analysing theory a brief use of more than one source of information	Reasonable attempt at analysing theory with a wider source of information	Good, detailed attempt at analysing theory utilising a broad range of information applied to the scenario.	Extensive, well researched analysis of theory utilising a comprehensive range of information applied to the scenario.
Outcome 4 Understand and utilise Datastream for portfolio analysis and planning	Little or no use of Datastream information	Some basic use of Datastream information but poorly presented and not covering all the relevant investments in the existing and new portfolios	Good usage of Datastream information reasonable presentation of findings covering some of the relevant investments in the existing and new portfolios	Good usage of Datastream information well presented, but not covering all the relevant investments in the existing and new portfolios	Well developed of Datastream information well presented and covering all the relevant investments in the existing and new portfolios .
Outcome 5 draw up a new portfolio to meet the requirements of the charity giving clear reasons for the recommendations	Little or no attempt at a balanced portfolio. No reasons for choice of investments	An attempt at a balanced portfolio. Reasons for choice of investments weak.	Reasonable attempt at a balanced portfolio. Incomplete reasons for choice of investments	Good attempt at a balanced portfolio. Good reasons for choice of investments	Work shows a very good attempt at a balanced portfolio. Reasons for choice of investments strongly argued and backed up.
Outcome 6 Written communication	Poorly written, hard to follow, spelling and grammatical errors	Able to follow points made, some spelling and grammatical errors	Reader friendly and few spelling and grammatical errors	Very reader friendly, few or no spelling and grammatical errors	Very reader friendly, few or no spelling and grammatical errors, imaginative / innovative approach to communication

 

1. A 3 hour exam (60% weighting) - Summative
2. An individual assignment (40% weighting) - Summative

 

Teaching and Learning Strategy and Methods

The course will seek to integrate recent theoretical developments with the real life situations faced by private investors and fund managers.

Students will be encouraged to make full use of technology such as Datastream so as to be able to make a thorough analysis of company securities.

Students will be provided with input on a range of broad factors relevant to investment and will carry out research into specific factors affecting the investment portfolio of a Registered Charity.

The teaching and learning strategy is achieved by a mixture of formal lecture; seminars on specific topics; individual tutorials for the assignment; and by means of a Datastream course tailored specifically for the use of this subject and delivered by Adsetts. This mix of methods enables synergies to be obtained by means of lectures to all students. The learning is then reinforced by means of seminars and individual tutorials.

 

Indicative Content

• The London Stock Exchange primary and secondary markets.
• The changes in share ownership over the last 40 years.
• New issues, rights issues, bonus issues.
• Income tax and capital gains tax.
• Gilts, gilt edged switching, yield curves, reverse yield gap.
• Equities, preference shares, corporate bonds.
• Fundamental analysis, technical analysis random walk hypothesis, efficient market hypothesis and Modern Portfolio Theory;
• Beta factors, gross dividend yields, price earnings ratios.
• Assessment and analysis of equities using relevant up to date information from sources such as Datastream and Financial Times;.
• Module trusts, investment trusts, insurance products, tax exempt savings, Cash Investments.
• Selection of investments for private investors.
• Trustee investment for Registered Charities
• Financial Times and other sources of relevant information.
• Takeovers, implications for all stakeholders.

 

Indicative Reading List

Cowdell J - Investment 5^th Edition , Bankers Books 2000.

Malkiel : A Random Walk Down Wall Street, W.W. Norton

Students should also study relevant sections of "Investors Chronicle" , "The Economist", "Financial Times" and the financial pages of good quality daily and weekend papers.

Fact File 1999 London Stock Exchange web site and in printed form in Adsetts.

Useful Web Sites addresses are included in the scheme of work

 

Assessment Criteria for the examination

Section One of the Examination Paper covers learning outcomes:

• Appreciate the importance of income tax and capital gains tax in personal financial planning for individuals
• relate the characteristics of the various investments to the needs of different investors
• understand the basics of modern portfolio theory and apply it to practical portfolio construction

Section Two of the paper covers learning outcomes :

• Appreciate the benefits and drawbacks of collective investments such as module trusts , investment trusts, pension plans and managed bonds
• The application of theoretical concepts such as the significance of the Random Walk theory to private investors.

Note

1. The learning outcome, "analyse and suggest changes to a portfolio of investments held by a Trustee of a Registered Charity, " is specifically excluded from the examination as this is covered in the assignment.
2. Inevitably, there could be some overlap of learning outcomes between the two sections of the examination paper, but the above indicates the sections of the paper where outcomes will certainly be tested.