A quick presentation of the Asset Management field…

May 30, 2022 by Louis DETALLE

A quick presentation of the Asset Management field…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what does an Asset Management company consists in.

What does Asset Management consist in?

Asset management is a financial activity whose objective is to create, manage, grow and maximize the benefits of financial products or investments entrusted by companies or individual investors. Asset management therefore consists in managing a client portfolio and increasing its profitability by balancing expected returns and risks in order to achieve previously defined objectives.

When thinking about asset management, companies such as Allianz, Amundi, AVIVA or Natixis Investment Managers could be quoted as examples of Asset Management companies.

What are the main clients of Asset Managers?

The main clients of asset management companies are :

– Companies wishing to invest their cash surpluses;
– Pension funds and mutual insurance companies;
– Financial institutions investing for their own account;
– Banks and insurance companies that distribute financial products to their clients (retail, private and corporate banking).

Two main types of management

Management under mandate

The company manages the account of a single client or a group of clients who have delegated the management of the fund to it. All of the fund’s assets belong to one person or to a small number of people,

Collective management

A fund with a large number of investors and units. It is managed according to the same strategic orientation corresponding to the profile adapted to these investors.

What does an asset manager work on?

The day-to-day work consists mainly of assessing how the previous day’s transactions and market movements have affected the portfolio’s risk profile in terms of liquidity, credit and market.

Another key aspect of this job is the development, adaptation and improvement of quantitative portfolio risk analysis tools. Other tools to assist investment decisions, to monitor developments in financial research in terms of risk and to analyze macroeconomic news require more specific attention and are therefore more complex to implement.

Useful resources

Thinking ahead Institute The world’s largest asset managers – 2021

About the author

The article was written in May 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Reuters

May 30, 2022 by Louis DETALLE

Reuters

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains everything there is to know about Reuters, the international giant in the data-providing market…

Quick presentation of the company

Thomson Reuters is a leading provider of business information services. As one of the main competitors of Bloomberg, their products include highly specialized information-enabled software and tools for legal, tax, accounting and compliance professionals combined with the world’s most global news service – Reuters.

Reuters is organized in 5 different business units:

Legal Professionals: This business unit serves law firms and governments with research products, focusing on intuitive legal research powered by emerging technologies and integrated legal workflow solutions that combine content, tools and analytics.

Corporates: Designed for corporate customers from small businesses to multinational organizations, this business unit provides its clients with a full suite of content-enabled technology solutions for in-house legal, tax, regulatory, compliance and IT professionals.

Tax & Accounting Professionals: This business provides its customers with research that focuses on intuitive tax offerings and automating tax workflows.

Reuters News: Supplies business, financial and global news to the world’s media organizations, professionals and news consumers through their many platforms.

Global Print: Provides legal and tax information primarily in print format to customers around the world.

Type of people working at Bloomberg (types of jobs)

Nearly 2/3 of Reuters’ employees work in the US, the remaining third working in Asia and in Europe. The careers available at Reuters are therefore numerous and very diverse.

Indeed, the profiles needed by Reuters consists in legal professionals, corporate professionals, tax & accounting professionals and journalists. Thomson Reuters also employs many software designers to help design the Reuters’ terminals, as well as sectorial legal and corporate specialists in order to provide precise and adequate analysis.

Main competitors

As Thomson Reuters’ activities are very diverse, we will classify the main competitors of the firm in respect to the activities.

For Thomson Reuters’ business that consists of software-design, Bloomberg LLP is the most natural competitor in this space with its very famous Bloomber Terminal. The terminal business is built on a fantastic technology platform that provides comprehensive financial information. There are other competitors, such as Dow Jones Industrial Average FX Trader, which have specialized in one type of industry whereas Reuters and Bloomberg remain generalists.

Reuters’ editorial branch’s main competitors would be Bloomberg News, the Financial Times (FT), the Wall Street Journal, and other traditional financial news companies. The same goes for their TV/radio operation (their competitor would be CNBC).

Use of data in financial markets

The explosion of financial data, enabled by the Internet tremendous potential, caused an explosion of demand for financial data. As evidenced in 2006 by the British mathematician and Tesco marketing mastermind Clive Humby’s quote, “Data is the new oil”, the data market seems to be limitless.

In addition, as Bloomberg acquires many of his competitors, such as BNA and BusinessWeek, this contributes to curbing the number of data providers and improving the monopoly of Bloomberg on the data-providing market. Reuters struggles to keep up the pace of its competitor which is very well established in this market.

Useful resources

Bloomberg

Reuters

About the author

The article was written in March 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Branding and marketing in the financial services sector

May 26, 2022 by Samantha MARCUS

Branding and marketing in the financial services sector

In this article, Samantha MARCUS (ESSEC Business School, Semester Exchange BBA, 2022) explains the changes and trends in branding and marketing in the financial services sector.

While generally overlooked, the messaging and branding of a financial institution is becoming increasingly more important, and financial institutions are facing pressure to act.

Financial service marketing uses various strategies and branding techniques to drive awareness and create brand loyalty. Unlike traditional tangible products, financial service providers must plant their brand in their consumers’ mind in any way they can because it is generally not a tangible product they are selling. The customer experience is extremely important in the financial services sector, and this is where branding and marketing play in. While the marketing approaches of financial products is oftentimes different than that of retail or consumer packaged goods, the marketing of financial services primarily utilizes two methods: traditional marketing and digital marketing

Traditional marketing

In the past, financial institutions have relied on marketing tactics such as word of mouth advertising, TV ads, radio and print marketing. As the consumer in the financial services sector is changing, these tactics are not as effective in this industry as they once were.

Digital marketing

In 2022, financial service providers are being pushed to step up their digital marketing efforts. Whether it’s through optimizing your firm’s SEO, creating more personalized algorithms or being active on social media platforms, there are various efforts in digital marketing happening in the financial services industry. The financial services sector is leaning more into digital marketing and this strategy is beginning to show more returns in terms of reaching new consumers and driving brand loyalty.

Why are branding and marketing important in financial services?

Retail banks, investment banks, brokerages, credit card companies, and many more financial service institutions can benefit from branding and marketing. Now more than ever, the younger generations are not trusting financial service institutions with about 92% of millennials claiming they do not trust banks at all (Financeography.com, 2016). Branding and marketing in this sector are so important as they can build this trust with consumers. Traditionally, financial service providers did not have to focus as much on branding and marketing because their services were deemed a necessity and consumers would normally approach them. This is all changing now for a variety of reasons that make this outdated mindset ineffective and dangerous. One of the largest reasons that it’s important for financial service providers to utilize marketing is the commoditization of financial products; standardization has made it harder for providers to differentiate their products as there are now more options than ever before. In addition, disruptive financial technology (like blockchains/cryptos) is changing the financial services sector and decentralizing the control, therefore marketing and grasping consumer awareness is more vital than ever. Lastly, as our world becomes increasingly more digitized, consumers are expecting personalized, digitized experiences regardless of the industry.

Trends for financial services marketing

The Rise of Personalization

As the financial service industry becomes increasingly more saturated and decentralized, personalization within marketing strategies offers a way for firms to differentiate themselves and shift the focus to a customer centric approach. Traditionally, banking and financial services have been more focused on their products rather than their consumers, however this is all changing. As within any marketing approach, when financial service providers have a grasp on their audience and demographic, they are better able to appeal to the wants and needs of this consumer and it even begins to become part of their brand. This approach is becoming increasingly more popular, and it helps create more personalized relationships which facilitate customer loyalty which is crucial in the financial services industry.

Digitalization

As there is an emphasis on mobile technology and e-commerce now more than ever, firms are adjusting their marketing strategies to be more digitalized and more customer centric as mentioned above. Many consumers now prefer to manage their finances online, so it only makes sense that digitalization is a priority. Consumers want to manage their money, pay their bills, and buy the things that they need to on their own terms, so it is important that financial brands message this in their marketing strategies as well as process the right technology to cater to this need. Whether it is through marketing techniques such as pay-per-click advertising, email marketing, search engine optimization or activity on social media, financial institutions must push to develop their brand online in order to be noticed amongst competitors.

Intriguing social media content

In the financial service industry, creating impactful content is now being discussed. Video content can be utilized as a great marketing took and form of content as firms can utilize videos to create video courses or webinars to help their target audience understand their products and the more complex financial concepts. It is also a trend to utilize content by showing in your social media posts your firms services and your specialties.

Using personal stories to build a brand

Since the modern consumer has changed especially in the financial sector, product-focused, cold, and impersonal branding does not cut it anymore. Consumers are less trusting of financial service providers so financial brands must find a way to capture their consumer’s attention and create a brand that they trust. While traditionally financial services did not place much emphasis on the human element, there is increasing pressure for financial brands to let this side shine through in their marketing. Is there an interesting story within your company? Is there a personable employee to tell a compelling finance story or explain events in the industry? The question is now: how can a firm use marketing to create trust with their consumers?

Key concepts

Branding

Branding is the personality of a brand. Branding can include everything from your logo to your mission statement; branding is how you define your business. Branding goes beyond just the color of your website or the style of your font, but rather it is how you tell a story and how you draw the attention of your target audience. Branding is how you make a connection with your target customers.

Marketing

While oftentimes people get branding and marketing get confused, there are fundamental differences between the two. Marketing is how a company positions their product based on their brand strategy. Marketing identifies a target market, uses the optimal tactics and segment markets to win over a bigger market share. Branding is all about knowing your company’s story while marketing is more focused on knowing who your target customers are.

Relevance to SimTrade Certificate

The SimTrade certificate allows students to increase their knowledge of financial markets, but it is also important to look at the business behind how financial institutions are able to thrive. Marketing and branding are a large part in this and how firms stay competitive.

Final thoughts

Marketing in financial institutions’ sector is very interesting because it is a quickly evolving area and institutions are experiencing pressure to act in order to sustain their businesses and keep their customers. Financial service marketing is so different from what we know as traditional marketing and advertising as it is not a tangible product, but it is peoples’ financials and essentially their life; this adds a lot of importance on winning over consumers loyalty and trust. As the modern consumer has more options now than ever before, financial firms are placing more importance on marketing and shifting their strategies from a product-obsessed mindset to a customer-focused mindset. Financial firms and their marketing teams must look into getting the right marketing technology to support their consumer centric marketing initiatives. There is so much opportunity to build trustworthy brands and improve customer’s experience through carefully crafted messaging and the right technology. The correct marketing provides a unique opportunity for financial institutions to differentiate themselves in this evolving marketing.

Useful resources

Academic books

Heding, T., Knudtzen, C. F., & Bjerre, M. (2009). Brand management: Research, theory and practice. Routledge.

Kapferer, J. N. (2012). The new strategic brand management: Advanced insights and strategic thinking. Kogan Page Publishers.

Business resources

Financeography.com (November 30, 2016) 92% of Millennials Do Not Trust Financial Institutions with Money Matters

O8 Agency for Marketing Financial Services Marketing: Everything You Need to Know

Templafy blog Industry Branding Series: Branding Financial Services

Purpose brand A corporate ESG content strategy puts brands at a competitive advantage.

About the author

The article was written in May 2022 by Samantha MARCUS (ESSEC Business School, Semester Exchange BBA, 2022).

The Paris Agreement

August 26, 2024May 16, 2022 by Anant JAIN

The Paris Agreement

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks the Paris Agreement.

Introduction

The Paris Agreement is a global agreement that intends to keep global average temperatures below 2 degrees Celsius above pre-industrial levels by the end of the 21^st century, with efforts to keep it below 1.5 degrees.

The Paris Agreement was drafted during the Conference of the Parties (COP 21) of the United Nations Framework Convention on Climate Change (UNFCCC21) and signed on December 12, 2015. The agreement was ratified on April 22, 2016, which was recognized as Earth Day by the United Nations, and was signed by all 196 UNFCCC members. In June 2017, President Donald Trump announced that the United States would withdraw from the Paris Agreement, claiming that it was not in the country’s best interests to do so.

Greenhouse gas emissions are considered as the primary cause of global warming.
To accomplish the agreement’s objectives, scientists have agreed that global greenhouse gas emissions must be reduced. As a result, the 20/20/20 targets were established: a 20% reduction in carbon dioxide (CO₂) emissions, a 20% increase in renewable energy market share, and a 20% increase in energy efficiency through current technology such as insulation. The signatories are obligated to put efforts through Nationally Determined Contributions (NDCs), and to continue to do so in the future. This includes the duty to report on national emissions and decarbonization initiatives on a regular basis.

To keep global warming to a maximum of two degrees Celsius by 2100, scientists agree that the world will need to become carbon neutral by 2050. The International Panel on Climate Change (IPCC) issued a study in October 2018 warning that in order to meet the lower 1.5-degree objective, emissions must be reduced by 40-60% from 2010 levels by 2030, with net zero by 2050. To meet the less ambitious 2-degree objective, emissions must be reduced by 25%. Failure to do either will result in irreversible climate change beginning around 2030, according to the paper. According to the IPCC, if current levels of (in)activity continue, the 2-degree target will most likely be met by 2030, with global warming of 3 degrees by the end of the century becoming increasingly likely. The IPCC also warned in September 2019 that unless the world takes action now, sea levels will increase by at least one meter by 2100.

According to studies, CO₂ produced by burning fossil fuels for power, heating, cooling, and transportation is the primary cause of global warming. Carbon dioxide levels in the atmosphere in 2017 were last seen on Earth three million years ago, according to research from the Potsdam Institute for Climate Impact. Before humans originated, the average surface temperature was 2-3 degrees Celsius higher than pre-industrial levels, and the average sea level was up to 25 meters higher than it is today during the Pliocene Era.

The Working Process

The Paris Agreement’s implementation necessitates economic and societal transformations based on the best available knowledge. The Paris Agreement is structured on a five-year cycle in which countries take more ambitious climate action each year. Countries must submit their climate action plans, known as Nationally Determined Contributions (NDCs) by 2020.

NDCs

Countries need to establish the steps that they will take to alleviate greenhouse gas emissions in their NDCs to align with the Paris Agreement’s agendas. Countries also outline the activities they plan to take to build resilience and adapt to the effects of rising temperatures.

Long-Term Planning

The Paris Agreement called for nations to draft and submit long-term low-carbon development strategies by 2020 in order to effectively define their efforts toward the long-term goal (LT-LEDS).

The long-term vision offered by LT-LEDS is beneficial to Nationally Determined Contributions (NDCs). They are not required, unlike NDCs. Irrespective, they place the NDCs in the context of countries’ long-term planning and development goals, giving them a vision and direction for future development.

How are countries supporting one another?

The Paris Agreement establishes a framework for assisting developing countries with financial, technical, and capacity-building support.

Finance

The Paris Agreement maintains that affluent countries should lead in providing financial support to less developed and vulnerable countries, while also encouraging voluntary contributions from other Parties for the first time. Since large financial resources are required to adjust to the negative effects of climate change and mitigate its consequences, it is imperative to adapt climate finance (financing that supports projects to contribute to climate change).

Technology

The Paris Agreement outlines a goal of fully implementing technological development and transfer in order to improve climate change resilience while also lowering greenhouse gas emissions (GHG) emissions. Through its policy and implementation arms, the mechanism is increasing technology development and transfer.

Capacity-Building

Many of the issues posed by climate change are beyond the capabilities of many developing countries. As a result, the Paris Agreement places a strong emphasis on developing nations’ climate-related capacity-building efforts and calls on all wealthy countries to increase their assistance for such efforts.

How are we tracking progress?

Countries adopted a more transparent framework with the Paris Agreement known as the Enhanced Transparency Framework (or ETF) to report information. Starting in 2024, countries will be required to report honestly on their activities and progress in climate change mitigation, adaptation, and support offered or received under the ETF. It also establishes worldwide protocols for the examination of reports provided.

The data from the ETF will be incorporated into the Global Stocktake, which will assess how far we’ve progressed toward our long-term climate goals. This will lead to recommendations for countries to establish more ambitious targets in the next phase.

What have we achieved so far?

Even though massive improvements in climate change action are required to reach the Paris Agreement’s goals, low-carbon solutions and new markets have already emerged in the years after it went into effect. A growing number of governments, regions, cities, and corporations are setting carbon neutrality goals. Zero-carbon solutions are becoming more competitive across a variety of economic sectors that account for 25% of total emissions. This trend is especially obvious in the electricity and transportation sectors, and it has opened up a slew of new business opportunities for those who get in early.

By 2030, zero-carbon solutions may be competitive in industries that account for more than 70% of world emissions.

Useful resources

United Nations The Paris Agreement

United Nations What Is Climate Change?

United Nations How the Paris Agreement will help tackle the climate crisis (with Aidan Gallagher)- Within Our Grasp (video)

United Nations What is the ‘Paris Agreement’, and how does it work? (video)

About the author

The article was written in May 2022 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Social Impact Bonds

August 26, 2024May 16, 2022 by Anant JAIN

Social Impact Bonds

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about Social Impact Bonds.

Introduction

Social impact bonds (also known as a social benefit goods or social bonds) are one-of-a-kind public-private partnerships that use performance-based contracts to fund effective social services. They are a type of financial security that provides capital to the government to fund projects that improve social outcomes while saving money. Impact investors provide capital to help high-quality service providers scale their operations. If and when the project achieves outcomes that generate public value, the government repays those investors.

Social impact bonds transfer the risk from the public sector to the private sector and further align project partners on the achievement of meaningful impact projects. For example, these projects can help low-income mothers have healthy births, reduce carbon emission, or support refugees through job training. In 2010, Social Finance UK issued the first ever social impact bond in the market. Over 160 social impact bonds have been issued in 28 countries, with more than 25 in the United States.

Purpose of Social Impact Bonds

The goal of social impact bonds is more than just to make money. The securities are designed to bring together the interests of various entities, such as governments, investors, social enterprises, and the general public, in order to develop effective solutions to public-sector problems.

Despite the fact that these securities are called bonds, they lack many of the characteristics of traditional bonds. Social impact bonds have a fixed term, but investors do not receive a fixed interest rate of return. Instead, the success of the project that was subsidized with the bonds is what determines whether the bonds are repaid or not.

If a project is successful, the government repays the investors by using the savings generated by the project. The investors, on the other hand, receive nothing if the project fails. As a result, social impact bonds carry a high level of risk for investors.

How Does a Social Impact Bond Work?

Social impact bonds are often differentiated from other fixed-income securities by the number of key players involved in the capital-raising process. It is further illustrated by Figure 1 and the steps involved are mentioned below.

Figure 1. Social Impact Bond Working Process.

Source: Social Finance, UK .

1. Partner

The government determines the social issue and the goal by working with an intermediary, such as Social Finance, and high-performing service providers (organizations with a track record of success and evidence that their programs work) to achieve its goal.

2. Develop & finance

The project’s design, negotiation, and financial structure are all driven by Social Finance in collaboration with the government and the provider. Then, to provide upfront, flexible funding, the project raises capital from impact investors.

3. Deliver services

With ongoing support from Social Finance, the provider provides services to the target population, including governance oversight, performance management, course corrections, financial management, and investor relations.

4. Attain positive results

People in need can improve their lives by having healthy births, raising kindergarten-ready children, staying out of prison, and finding and keeping good jobs with the help of high-quality services.

5. Measure the outcomes

The impact of the project is measured by an independent evaluator using predetermined outcome metrics. If the project is a success, the government reimburses the project’s backers. The government, on the other hand, only pays based on the level of results achieved.

A Social Impact Bond in Practice

In 2010, the United Kingdom’s Peterborough Prison issued one of the world’s first social impact bonds. The bond raised £5 million from 17 social investors to fund a pilot project aimed at lowering short-term prisoner re-offending rates. Over the course of six years, the relapse or re-conviction rates of Peterborough inmates will be compared to the relapse rates of a control group of inmates.

The Peterborough Social Impact Bond was declared a success by the Ministry of Justice in 2017, with a 9 percent reduction in reoffending of short-sentenced offenders compared to a control group, exceeding the bond’s target of a reduction 7.5 percent. As a result, investors received a yearly return of 3%.

Useful resources

Social Finance, UK

Reducing reoffending in Peterborough

About the author

The article was written in May 2022 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

The World 10 Most Sustainable Companies in 2021

August 26, 2024May 16, 2022 by Anant JAIN

The World 10 Most Sustainable Companies in 2021

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about the World 10 Most Sustainable Companies in 2021.

Introduction

The Corporate Knights’ yearly list is a ranking of the 100 most sustainable companies. It is based on the analysis of companies with revenues over $1 billion (8,080 companies in 2021). This year marks the 17th year of the list.

This list is usually revealed during the World Economic Forum in Davos. The Davos Agenda is a ground-breaking gathering of world leaders to shape the values, policies, and alliances required in this difficult new environment. The World Economic Forum has been a trusted venue for leaders from business, government, international organizations, civil society, and academia to assemble at the start of each year to discuss crucial issues.

In 2021, the breakdown of the most sustainable firms by geographical areas is as follows:

46 in Europe
33 in North America
18 in Asia
2 in South America
1 in Africa

The top 10 most sustainable corporations of 2021 are as follows:

1. Schneider Electric SE, France
2. Orsted A/S, Denmark
3. Banco do Brazil SA, Brazil
4. Neste Oyj, Finland
5. Stantec Inc, Canada
6. McCormick & Company Inc, United States
7. Kering SA, France
8. Metso Outotec, Finland
9. American Water Works Company Inc, United States
10. Canadian National Railway Co, Canada

We detail below the characteristic of each company in the dimension of sustainability.

1. Schneider Electric SE

Industry: Electrical Equipment
Location: France
Year Founded: 1836

Schneider Electric has been named the world’s most environmentally friendly firm. This European energy and automation multinational corporation was praised for its quick and consistent response to ESG – environmental, social, and governance – issues, moving up from 29th place in 2020.

Schneider Electric is helping to reduce CO2 emissions and the rise of the Earth’s temperature by focusing on innovative and renewable alternatives. Its efforts are assisting in the prevention of global warming and the production of ecologically friendly goods that improve energy access.

The core of Schneider Electric’s strategy, according to Chair and CEO Jean-Pascal Tricoire, is to build a sustainable business and organization. Schneider has long been committed to environmental issues, and it continues to raise the bar for itself, its customers, and its partners.

2. Ørsted A/S

Industry: Electricity Generation
Location: Denmark
Year Founded: 2006

After vowing to combat climate change with renewable energy, Ørsted was voted the world’s second most sustainable company. Despite dropping to second position in 2020, the Danish power company is still the world’s most sustainable energy provider, a title it has held for three years.

The corporation, which is also renowned as one of the top renewable energy generators, has switched its operations from fossil fuels to renewable energy and has set a goal of becoming carbon neutral by 2025.

Ørsted CEO Mads Nipper said the company’s strong placement in the Global 100 report underlines both its commitment to driving a successful and sustainable business and its resolve to become a catalyst for green energy change. He also stated that in order to be effective in the fight against climate change – and to stay in business – all businesses must adopt a sustainable business model.

3. Banco do Brazil SA

Industry: Financial Services
Location: Brazil
Year Founded: 1808

Banco do Brazil, Brazil’s, and Latin America’s largest bank by assets, is also one of the most sustainable companies. The 212-year-old bank aspires to be inclusive and contribute to digitally improving society by providing internet access and supporting education by fostering innovation and motivating entrepreneurs.

In 2020, the government-owned corporation was ranked ninth, but it has quickly risen through the ranks this year.

4. Neste Oyj

Industry: Oil and Gas Industry
Location: Finland
Year Founded: 1948

Neste is a global pioneer in sustainability, with products such as renewable diesel, sustainable aviation fuel, chemical recycling to reduce plastic waste, and raw material refining innovation. The Finnish company dropped from third to fourth place in a year, but it has been on the Corporate Knights Global 100 Index for the 15th year in a row, far longer than any other global energy company.

The company’s mission of making the world a better place for our children, according to Peter Vanacker, President and CEO of Neste, drives them to strive for greater heights every day. Many companies are constantly improving their sustainability programs, making it more difficult to make the list each year. More businesses are actively implementing sustainability into their operations, which is encouraging.

5. Stantec Inc.

Industry: Engineering, Architectural Design
Location: Canada
Year Founded: 1954

Stantec is not only one of the most ecologically responsible companies in the world, but it is also a leader in North America. Clean earnings and clean investment, which are goods and services with a demonstrated environmental and social impact, accounted for half of the company’s overall score.

Gord Johnston, President and CEO of Stantec, remarked that its remarkable track record on sustainability is the result of its people’s deep commitment and good leadership throughout the company’s global operations. Its teams are striving to improve sustainability in its own operations and aiding clients in developing and achieving sustainability goals.

6. McCormick & Company Inc.

Industry: Processed & Packaged goods
Location: U.S.A.
Year Founded: 1889

McCormick & Company is not just the world’s sixth most sustainable company, but it is also the leader in the food market. Since the index’s debut five years ago, the packaged and processed foods industry in the United States has advanced 16 points to its highest position.

According to Lawrence E Kurzius, Chairman, President of McCormick & Company, it has never been more important to work together for the future of flavor and to limit its impact on the environment. The company is dedicated to producing clean revenue, providing renewable energy projects, and making the transition to 100% circular packaging.

7. Kering SA

Industry: Luxury
Location: France
Year Founded: 1963

Gucci, Saint Laurent, Bottega Veneta, Ulysse Nardin, and Pomellato’s parent business are the only luxury brands to make the top 10 sustainable companies list.

When measured against 24 quantitative key performance indicators (KPIs), including resource management, people management, financial management, clean revenue and investment, and supplier performance, Kering maintained its strong position. In order to build the future of luxury, sustainability is promoted at every level of governance, from the Board of Directors to the operational managers.

Kering’s vow to protect the environment on which it relies, according to the CEO Dr. M Sanjayan, is a big step forward for the fashion business, and it offers a massive doorway for the luxury sector to influence the people and help rethink fashion and luxury goods.

8. Metso Outotec

Industry: Industrial Machinery
Location: Finland
Year Founded: 2020

Metso Outotec is ranked 8th on the Global 100 Index, a global leader in sustainable technology and services for the recycling, aggregates, and mineral processing industries. In order to have a good impact on the globe as a sustainable leader, the Finland-based firm has set a number of lofty goals, including reducing global warming to 1.5 degrees Celsius.

Piia Karhu, Senior Vice President Business Development at Metso Outotec, remarked that their customers in the aggregates and metals and minerals industries are focused on producing sustainable goods and services. They collaborate with their customers, partners, and communities to advance sustainable innovation.

9. American Water Works Company

Industry: Utilities, Water and Wastewater
Location: U.S.A.
Year Founded: 1886

Because of its leadership and transparency, American Water is one of the top ten sustainable firms. The largest publicly listed water and wastewater utility firm in the world, founded in 1886 and employing over 6,800 people, is based in the United States.

Despite serving 15 million people in 46 states, the company saves 12.5 billion liters of water each year through efficiency measures. It has also promised to reducing greenhouse gas emissions by 40% by 2025.

10. Canadian National Railway Company

Industry: Rail Transport
Location: Canada
Year Founded: 1919

The lone railway company on the list for 2021 was the Canadian National Railway. The railway conglomerate adheres to a global standard for sustainability activities, adhering to the UN Global Compact principles and the Sustainable Development Goals of the United Nations (SDGs).

Useful resources

General resources

Corporate Knights’ Global Ranking List

The Davos Agenda

Top 10 sustainable companies

#1 Schneider Electric SE, France

#2 Orsted A/S, Denmark

#3 Banco do Brazil SA, Brazil

#4 Neste Oyj, Finland

#5 Stantec Inc, Canada

#6 McCormick & Company Inc, USA

#7 Kering SA, France

#8 Metso Outotec, Finland

#9 American Water Works Company, USA

#10 Canadian National Railway, Canada

About the author

The article was written in May 2022 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Dow Jones Sustainability Index

August 26, 2024May 16, 2022 by Anant JAIN

Dow Jones Sustainability Index

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about Dow Jones Sustainability Index (DJSI).

Introduction

The Dow Jones Sustainability Index (DJSI) was established in 1999 to honor publicly traded companies that excel in the field of sustainability. As of 2021, it includes 323 companies from a variety of industries that stand out for their outstanding environmental, social, and governance (ESG) performance.

The DJSI was created by S&P Dow Jones Indices (one of the world’s leading resources for benchmark and investable indices) and SAM (corporate sustainability assessment issued by S&P Global) to select the most sustainable companies from 61 industries, combining the experience of an established index provider with the expertise of a specialist in Sustainable Investing.

The indices act as a benchmark for investors who incorporate sustainability considerations into their portfolios, as well as a platform for investors who want to encourage companies to improve their corporate sustainability practices.

Understanding DJSI

Companies that are included in the DJSI gain not only public recognition and a high level of acceptance from their stakeholders (for their best practices in this field), but they also become a benchmark for many other companies that aspire to be included in the index and want to improve their ranking to be among the best in the world. It is also a key tool for investors, who find these companies appealing and trustworthy, and value them for including policies like these in their strategy, which outperforms other organizations in terms of long-term profitability.

Being accepted into the Dow Jones Sustainability Index is a difficult task. Companies need to pass a rigorous assessment questionnaire with approximately 600 indicators that measure various criteria relating to their corporate governance, code of ethics and conduct, risk management, business, and providers in order to be included in this demanding ranking. Other environmental aspects are also investigated, such as the development of products and programs that are more environmentally friendly and promote efficiency, as well as initiatives aimed at defending human rights, encouraging talent retention and financial inclusion, and improving employee health and well-being.

S&P Global, the world’s largest index provider, is in charge of verifying each of the indicators using a questionnaire with 100 questions about the companies’ environmental, social, and governance performance. The businesses are then graded on a scale of one to one hundred points. Analysts at S&P Global also look at how companies break down public information in their communications with analysts and investors. Only those who achieve the highest ranking in their field of activity are invited to join the DJSI.

Example

MAPFRE is included in the Dow Jones Sustainability World Index for the third year in a row (from 2016 to 2019), with a total score of 77 out of 100. In the areas of customer relationship management, principles for sustainable insurance, social and environmental reporting, and financial inclusion, the company has improved its environmental and social rating and received the highest score (100 points).

MAPFRE has set more than 30 objectives for 2021 to address global issues such as climate change and inequality. It does so as part of its commitment to sustainability and in accordance with its Sustainability Plan 2019–2021, a roadmap that lays out a series of projects aimed at helping the company achieve carbon neutrality, become a leader in the circular economy, promote women’s leadership, and improve financial education, among other objectives.

Methodology

Based on the companies’ Total Sustainability Scores from the annual S&P Global Corporate Sustainability Assessment, the DJSI uses a transparent, rules-based component selection process (CSA). For inclusion in the Dow Jones Sustainability Index family, only the top-ranked companies in each industry are chosen. This process does not exclude any industries. The methodology used by S&P Global to build the DJSI index family is illustrated in Figure 1.

Figure 1. S&P Global methodology for the DJSI index family.
MSCI ESG Classification
Source: S&P Global.

As mentioned by S&P Global on its website, the DJSI is rebalanced quarterly and is reviewed each year in September based on the S&P Global ESG Scores resulting from the annual SAM CSA.

Index family

As shown in the following list, the Dow Jones Sustainability Index family includes global, regional, and country benchmarks:

DJSI World
DJSI North America
DJSI Europe
DJSI Asia Pacific
DJSI Emerging Markets
DJSI Korea
DJSI Australia
DJSI Chile
DJSI MILA Pacific Alliance

S&P Dow Jones Indices also offers DJSI Indices with exclusion criteria such as Armaments & Firearms, Alcohol, Tobacco, Gambling, and Adult Entertainment for investors who want to limit their exposure to controversial activities.

All DJSI indices are calculated and disseminated in real time, in both price and total return versions.

Useful resources

S&P Global

MAPFRE

About the author

The article was written in May 2022 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Implied Volatility

May 15, 2022 by Jayati WALIA

In this article, Jayati WALIA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) explains how implied volatility is computed from option market prices and a option pricing model.

Introduction

Volatility is a measure of fluctuations observed in an asset’s returns over a period of time. The standard deviation of historical asset returns is one of the measures of volatility. In option pricing models like the Black-Scholes-Merton model, volatility corresponds to the volatility of the underlying asset’s return. It is a key component of the model because it is not directly observed in the market and cannot be directly computed. Moreover, volatility has a strong impact on the option value.

Mathematically, in a reverse way, implied volatility is the volatility of the underlying asset which gives the theoretical value of an option (as computed by Black-Scholes-Merton model) equal to the market price of that option.

Implied volatility is a forward-looking measure because it is a representation of expected price movements in an underlying asset in the future.

Computation methods for implied volatility

The Black-Scholes-Merton (BSM) model provides an analytical formula for the price of both a call option and a put option.

The value for a call option at time t is given by:

Call option value

The value for a put option at time t is given by:

Put option value

where the parameters d₁ and d₂ are given by:,

call option d1 d2

with the following notations:

S_t : Price of the underlying asset at time t
t: Current date
T: Expiry date of the option
K: Strike price of the option
r: Risk-free interest rate
σ: Volatility of the underlying asset
N(.): Cumulative distribution function for a normal (Gaussian) distribution. It is the probability that a random variable is less or equal to its input (i.e. d₁ and d₂) for a normal distribution. Thus, 0 ≤ N(.) ≤ 1

From the BSM model, both for a call option and a put option, the option price is an increasing function of the volatility of the underlying asset: an increase in volatility will cause an increase in the option price.

Figures 1 and 2 below illustrate the relationship between the value of a call option and a put option and the level of volatility of the underlying asset according to the BSM model.

Figure 1. Call option value as a function of volatility.

Source: computation by the author (BSM model)

Figure 2. Put option value as a function of volatility.

Source: computation by the author (BSM model)

You can download below the Excel file for the computation of the value of a call option and a put option for different levels of volatility of the underlying asset according to the BSM model.

We can observe that the call and put option values are a monotonically increasing function of the volatility of the underlying asset. Then, for a given level of volatility, there is a unique value for the call option and a unique value for the put option. This implies that this function can be reversed; for a given value for the call option, there is a unique level of volatility, and similarly, for a given value for the put option, there is a unique level of volatility.

The BSM formula can be reverse-engineered to compute the implied volatility i.e., if we have the market price of the option, the market price of the underlying asset, the market risk-free rate, and the characteristics of the option (the expiration date and strike price), we can obtain the implied volatility of the underlying asset by inverting the BSM formula.

Example

Consider a call option with a strike price of 50 € and a time to maturity of 0.25 years. The market risk-free interest rate is 2% and the current price of the underlying asset is 50 €. Thus, the call option is ‘at-the-money’. If the market price of the call option is equal to 2 €, then the associated level of volatility (implied volatility) is equal to 18.83%.

You can download below the Excel file below to compute the implied volatility given the market price of a call option. The computation uses the Excel solver.

Volatility smile

Volatility smile is the name given to the plot of implied volatility against different strikes for options with the same time to maturity. According to the BSM model, it is a horizontal straight line as the model assumes that the volatility is constant (it does not depend on the option strike). However, in practice, we do not observe a horizontal straight line. The curve may be in the shape of the alphabet ‘U’ or a ‘smile’ which is the usual term used to refer to the observed function of implied volatility.

Figure 3 below depicts the volatility smile for call options on the Apple stock on May 13, 2022.

Figure 3. Volatility smile for call options on Apple stock.
Apple volatility smile
Source: Computation by author.

We can also observe that the for a specific time to maturity, the implied volatility is minimum when the option is at-the-money.

Volatility surface

An essential assumption of the BSM model is that the returns of the underlying asset follow geometric Brownian motion (corresponding to log-normal distribution for the price at a given point in time) and the volatility of the underlying asset price remains constant over time until the expiration date. Thus theoretically, for a constant time to maturity, the plot of implied volatility and strike price would be a horizontal straight line corresponding to a constant value for volatility.

Volatility surface is obtained when values for implied volatilities are calculated for options with different strike prices and times to maturity.

CBOE Volatility Index

The Chicago Board Options Exchange publishes the renowned Volatility Index (also known as VIX) which is an index based on the implied volatility of 30-day option contracts on the S&P 500 index. It is also called the ‘fear gauge’ and it is a representation of the market outlook for volatility for the next 30 days.

Useful resources

Academic articles

Black F. and M. Scholes (1973) “The Pricing of Options and Corporate Liabilities” The Journal of Political Economy, 81, 637-654.

Dupire B. (1994). “Pricing with a Smile” Risk Magazine 7, 18-20.

Merton R.C. (1973) “Theory of Rational Option Pricing” Bell Journal of Economics, 4, 141–183.

Business

CBOE Volatility Index (VIX)

CBOE VIX tradable products

About the author

The article was written in May 2022 by Jayati WALIA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

A quick presentation of the Private Equity field…

May 15, 2022 by Louis DETALLE

A quick presentation of the Private Equity field…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what does an M&A daily life looks like.

What does Private Equity consist in?

Private Equity, represents fundamental and indispensable funding-support throughout the life cycle of the company.
Private equity consists in taking (minority or majority) stakes in the capital of (small or medium) companies which are generally unlisted on the stock exchange. It is therefore a method of financing companies in order to support them on the path to growth in the relatively short term. Indeed, the objective of the private equity fund is obviously to realize a capital gain at the exit, after 5 to 8 years in general, the time for the invested capital to generate a return on investment.

What are the main categories of Private Equity?

Venture capital

This type of capital investment is mainly aimed at small businesses/start-ups. Its target is to launch the activity of a company in the creation or start-up phase. Indeed, for a start-up, it is often difficult and premature to call on bank loans that follow very specific and very standardized covenants.

Development capital / growth capital

It aims at entering the capital of a company that has reached a certain maturity and profitability. The funds collected will then be used for internal and external growth: respectively the development of the company’s offers in order to develop its activities or the acquisition of competitors.

Turnaround capital

This type of capital investment aims at restructuring a company in difficulty. The call for bank financing having generally become impossible when the company experiences a major crisis, the turnaround capital fund will enter the capital to allow the company to reconnect with profitability and profits.

Transmission capital

This mode of capital entry is observed when a change of owner occurs. The objective is to ensure the gradual transition and preserve the profitability of the company. Traditionally, the LBO “leveraged buy-out” or the LMBO “leveraged management buy-out” is used, i.e. its buyout by the debt of a holding company constituted especially for the occasion.

What does an analyst in private equity work on?

The tasks of a Private Equity analyst are diverse and include, for example, the producing and challenging a business plan, modelling different scenarios and strategies in Excel. The analyst and the investment teams of the private equity teams thoroughly analyze the companies seeking for funding. They try to determine whether the projections of the seeked investment are reasonable and not overestimated. Indeed, bear in mind that private equity funds intend to fund companies trough equity. And as equity investors (shareholders) are reimbursed at last in the event of a bankruptcy, their work is to determine if the company will really generate growth with the capital at stake. That’s why deep sector-analysis are also required from a private equity analyst.

About the author

The article was written in April 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick presentation of the M&A field…

May 15, 2022 by Louis DETALLE

A quick presentation of the M&A field…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what does an M&A daily life looks like.

What does M&A consist in?

Mergers & Acquisitions (M&A) is a profession that advises companies wishing to develop their external growth, i.e. growth through the acquisition of a company or through a merger with it. M&A mandates are therefore carried out on the side of the company that wishes to acquire another company, “buy-side”, or on the side of a company that wishes to be acquired, “sell-side”.

What does an analyst work on?

The tasks of an M&A analyst are diverse and include, for example, drawing up a business plan, modelling different scenarios and strategies in Excel, and drafting information memorandums (IMs) on the various deals in progress. All these skills are then widely used for the mergers and acquisitions of companies, in the development of their external strategy, in their financial evaluation or in the analysis of databases. Overall, M&A allows you to move into any sector of finance and this is part of the reason why it is so attractive.

Why does M&A jobs appeal so much to students?

First of all, it is the dynamic working atmosphere that investment banking enjoys that also attracts young graduates. M&A is indeed marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a quality team is very stimulating, and often makes it possible to approach the workload with less apprehension and to rapidly increase one’s competence. The remuneration is also much higher than in other professions at the beginning of a professional career for a young graduate and it progresses rapidly. Finally, it is also the exit hypotheses that attract young M&A analysts.

What are the main exits for M&A?

Most professionals who started out in M&A move on to other types of activities where experience in this sector is required. This is particularly the case in private equity. After advising companies on their growth and expansion projects, the young investment banker has all the tools needed to work in investment funds. The skills are indeed transposable to the financial and strategic questions that private equity funds ask themselves in order to obtain a return on investment.

Switching to alternative portfolio management (hedge funds) is also a possibility. Hedge funds can invest in different types of assets such as commodities, currencies, corporate or government bonds, real estate or others. As a former M&A analyst, you have the skills to analyse the market and determine the assets that seem to be the most appropriate and profitable.

Finally, some former M&A bankers switch to corporate M&A, which involves determining which companies or subsidiaries the company should buy or sell. This can be a very interesting area as you have the opportunity to follow the acquisition of a company from start to finish and therefore take a long-term view of the company’s strategy.

Useful resources

Décideurs magazine Rankings for M&A banks in France (league tables)

About the author

The article was written in May 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Warren Buffet and his basket of eggs

May 12, 2022 by Rayan AKKAWI

Warren Buffet and his basket of eggs

In this article, Rayan AKKAWI (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022) analyzes the two following quotes “Do not put all eggs in one basket” and “Put all your eggs in one basket and watch that basket” often used by Warren Buffet to describe his investment strategy.

“Do not put all eggs in one basket”

I particularly liked this quote first because it is said by the world’s greatest investor and one of the richest people on the planet, Warren Buffet. I aspire this man due to his great investment philosophy which is to invest in great businesses at value for money prices and then by using the “buy and hold strategy” keep the stocks over the long term. He has bought great brands such as Coca Cola, Microsoft, and American Express. Second, I like this quote particularly because it is dedicated to any person who has little or no knowledge in investment, so it is easy to implement.

Analysis

If we analyze the wealthiest people in the world, they are entrepreneurs who have created companies that grew exponentially in value. For example, Bill gates who is the founder of Microsoft (1975), Jeff Bezos who is the founder of Amazon (1994), and Mark Zuckerberg who is the founder of Facebook (2004). And as we continue to analyze these founders, we come to realize that they have made their wealth by putting all their eggs in one basket at least early in their lives. However, not all of us have this entrepreneurial spirit and business success such as these brilliant men. Thus, when Warren Buffet said “do not put all eggs in one basket” he was referring to an average person who has little knowledge in investments. Therefore, he advocates investment into index tracker or passive funds which have the benefit of low charges, better performance, and large diversification than most active managed funds. This involves a buy and hold strategy which keeps share dealing charges low. Thus, it is always recommended to have 80% of investments in passive funds which are low cost, predictable, and conservative funds and 20% of investments in satellite which usually involve higher charges with greater volatility and greater returns.

Another way of looking at it is the following. One might decide to invest a certain number of personal wealth in a new business or in crypto. This would be a risky type of investment because another competitor might release a better and more attractive or even more affordable version of the product or service. Eventually, this might put you out of business if a customer writes a bad review of your product or business or if the bitcoin value drops.

So before you invest more time and money in your business, consider how you can manage your risk. First, you must think about your risk tolerance which depends on your age and current financial obligations. Second, you need to keep sufficient liquidity in your portfolio by setting aside an emergency fund that should be equal to 6 to 8 months’ expenses. For ensuring that there is easy accessibility to emergency funds, you should have low-risk investment options like Liquid Funds and Overnight Funds in your accounts. Then you need to determine an asset allocation strategy that works which refers to investing in more than one asset class for reducing the investment risks and this strategy also provides you with optimal returns. You can invest in a perfect mix of key asset classes like Equity, Debt, Mutual Funds, real estate, etc. One of the asset allocation strategies is to invest in a combination of asset classes that are inversely correlated to each other. After you have found the best mix of asset classes for your portfolio, you can reduce the overall investment risk by diversifying your investment in the same asset class. Think about diversifying by offering more than one product or service. To avoid liquidity risk, it is always better to stay invested in blue chip stock or fund. Investors should check the credit rating of debt securities to avoid default risk.

“Put all your eggs in one basket and watch that basket”

At the same time, Warren Buffet believes that diversification makes little sense if a person doesn’t know exactly what he or she is doing. Diversification is a protection against ignorance and is for people who do not know how to analyze businesses. Sometimes it is enough to invest in two or three companies that are resistant to competition rather than fifty average companies due to less risk. That is why it is as critical for a person to invest in a company where its values and vision are similar to that of the investor and to be able to watch closely the performance of that business and its stocks.

Thus, Warren Buffet believes that it is extremely crucial to be able to “watch your basket” or your stocks closely to better understand the stock market. For example, when the stock market is going down, it is the best way to start buying stocks because businesses will be selling at a discount.

Why should I be interested in this post?

One would be interested to read this post because it introduces the basics of investing in stock markets for an average person who has little knowledge in investments or for a student studying business. As a student, it is crucial and important to be able to have at least a general idea of the basic rules of investments and especially those stated by one of the most famous investors in the world such as Mr. Warren Buffet. Whether you are interested in buying stocks yourself or whether you are not, as a business student, you might be asked about investments and the financial market one time in your life and knowing some useful information about investments will be impressive for you. It will allow you to understand the bigger picture of financial markets, give some recommendations for your family and friends, and help you invest yourself in the safest and most successful way.

Useful resources

Berkshire Hathaway

About the author

The article was written in May 2022 by Rayan AKKAWI (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022).

Big data in the financial sector

May 12, 2022 by Rayan AKKAWI

Big data in the financial sector

In this article, Rayan AKKAWI (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022) explains the role of big data in the financial sector.

Big data is a term used for contemporary technologies and methodologies that are used to collect, process, and analyze complex data. Today, data is being created at an exponential rate. In fact, and according to a 2015 IBM study, 90% of the data in the world has been created in the past two years. As big data gets bigger, it becomes even more important and essential for executives in the financial sector to stay ahead of the curve. Also, it is expected that data creation will continue to grow moving forward in time.

Big Data in The Financial Sector

For decades, financial analysts have relied on data to extract insights. Today, with the rise of data science and machine learning, automated algorithms and complex analytical tools are being used hand in hand to get a head of the curve in diferetn areas of the financial sector.

Fraud prevention

First, data has helped with fraud prevention such as identity theft and credit card schemes. Abnormally high transactions from conservative spenders and out of region purchases often signal credit card fraud. Whenever this happens, the card is automatically blocked, and a notification is sent out to the card owner. This protects users, insurance companies, and banks from huge financial loses in a small period. This also made things even easier and more practical avoiding the hassle of having to call and cancel the card. Data science comes in the form of tool like random forests that can detect a certain suspicion. In addition, and to lower the chance of identity theft, data has helped ease this process through 3D passwords, text messages, and PINT code which have backed up the safety of online transactions.

Anomaly detection

Second, data has helped the financial sector through anomaly detection. Data analysis is not only created to avoid a problem but also to detect it. For example, data today helps with catching illegal insider traders. To do so, data analysts created anomaly detection algorithms that can analyze history in trading patterns and thus detect and catch abnormal transactions of illegal traders.

Customer analytics

Third, data has helped with improving customer analytics. Data analyzes previous behavioral trends of consumers based on historical transactions and then makes future predictions of how consumers are likely to act. With the help of socioeconomic characteristics, we can create clusters of consumers and group customers based on how much money we expect to gain or lose from each client in the future. Following that, we can come up with decisions to focus on a certain type of clients to make profits and cut on other customers to make savings. Thus, financial institutions minimize human errors by utilizing data science. To achieve that, first, by identifying uncertain interactions and then monitor them going forward. Finally, prioritizing the investments most vulnerable at a given time. For example, banks use this approach to create adaptive real risk score time models to identify risky clients and those who are suitable for a mortgage or a loan.

Algorithmic trading

Fourth and most importantly data has created algorithmic trading. Machines make trading based on algorithms multiple times every second with no need for approval by a stand-by analyst. These trades can be in any market and even in multiple markets simultaneously. Thus, algorithmic trading has mitigated opportunity costs. Thus, there are algorithmic rules that can help in identifying if there is a need to trade or not to trade and reinforces business models where errors are highly penalized and then adjust hyper parameters. We can see algorithms that exploit arbitrage opportunities where they can find inconsistencies and make trades which can cause problems. The huge upside is that it is high frequency trading; whenever it will find an opportunity to make a trading, it will. However, the downside is that imprecision could lead to huge losses due to lack of human supervision. That is why sometimes human interventions are needed.

Conclusion

Thus, we can say that data has become the hottest commodity that results in getting an edge over competition. Financial institutions spend a huge amount of money to get exclusive rights to data. By having more information, they can construct better models. The most valuable commodities are not analysts but the data itself. That is how the data science has revolutionized finance.

Characteristics of Big Data

When talking about Big Data, four main characteristics need to be considered to understand the why Big Data plays a transformational role in the financial sector: volume, variety, velocity, and value.

Volume

First, the amount also known as volume of data being produced on daily basis by users has been increasing exponentially by users. This large output of data has helped create Zettabytes (10¹² Gigabyte) and Yottabytes (10¹⁵ Gigabyte) of datasets in which companies can benefit by extracting knowledge and insights out of it. However, this amount of data cannot be processed using regular computers and laptops. Since they would require a lot of processing power.

Variety

Second, as the massive amount of data is being generated by multiple sources, the output of this data is unstructured making it hard to organize the data extract insights. Raw data extracted from the source without being processed does not provide any value to business as it does provide stakeholders with the ability to analyze it.

Velocity

Third, to address the issue of processing technological advancements have brought us to the tipping point where technologies such as cloud computing have enabled companies to process this large amount of data by utilizing the ability to share computational power. Furthermore, cloud platforms have not only helped in the processing part of data but by the emergence or cloud solution such as data lakes and data warehouses. Businesses are able to store this data in its original from to make sure that they can benefit from it.

Value

Finally, this brings us to the most important aspect of Big Data and that in being able to extract insights and value out of the data to understand what it is telling us. This process is tedious and time consuming however with ETL tool (Extract Transform Load) the data in its raw format is transformed so that standardized data sets can be produced. Insights can be extracted through Business Intelligence (BI) tools to create visualization that help business decisions. As well as predictive artificial intelligence models that help business predict when to take a strategic decision. In the case of financial markets, these decisions are when to buy or sell assets, and how much to invest.

Challenges Solved by Big Data in the Financial Industry

Utilizing Big Data in the finance industry presents a lot of benefits and helps the industry to overcome multiple challenges.

Data Quality

As previously mentioned, the multiple data sources present a huge challenge from a data management standpoint. Making it an ongoing and a tedious effort to maintain the integrity and the reliability of the records collected. Therefore, adding information processing systems and standardizing the data gathering and transformation processes helps improve the accuracy of the decision-making process, especially in financial services companies where real-time data enables fast decision making and elevates the performance of companies.

Data Silos

Since financial data comes from multiple sources (applications, emails, documents, and more), the use of data integration tools help simplifies and consolidate the data of the institution. These technologies facilitate processes and make them faster and more agile, which are important characteristics in the financial markets.

Robo-Advisory

Big Data and analytics have had a huge impact on the financial advisory sector. Where financial advisors are being replaced by machine learning algorithms and AI models to manage portfolio and provide customers with personalized advice and without human intervention.

Why should I be interested in this post?

This article is just an eye opener on the trends and the future state of the financial industry.

Like many other industries, the financial sector is becoming one of the most data driven field. Therefore, as future leaders it is vital to keep track and push towards data driven solutions to excel and succeed within the financial sector.

Useful resources

The Future of Cognitive Computing

Five Ways to Use RPA in Finance

About the author

The article was written in May 2022 by Rayan AKKAWI (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2022).

Fiche Métier : Térsorier

May 11, 2022 by Emma LAFARGUE

Fiche Métier : Térsorier

Dans cet article, Emma LAFARGUE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2024) décrit le métier de trésorier.

Que fait un trésorier ?

Le trésorier est la personne en charge des différents flux monétaire de l’entreprise. C’est lui qui gère la répartition et la distribution des liquidités (paiement des prestataires, rémunération des salariés) et qui veille à la stabilité financière. Il doit s’assurer que l’entreprise dispose d’un fonds de roulement suffisant pour son fonctionnement quotidien, c’est lui qui place l’argent et décide du financement et des investissements (en lien avec la direction stratégique)

Concrètement, ses missions au quotidien sont de :

Contrôler les dépenses et recettes de l’entreprise
Tenir le registre des différents mouvements financiers
Gérer les liquidités, c’est-à-dire veiller au remboursement des emprunts et à la rentabilité des investissements
Etudier les risques liés aux perspectives de placement

Avec qui travaille un trésorier ?

Le trésorier est en lien constant avec la direction de l’entreprise afin de décider de la stratégie de financement, de se mettre d’accord sur les investissements et les placements à effectuer.
Le trésorier est également le principal interlocuteur des banques et des investisseurs.

Enfin, il travaille en interaction avec les comptables, en charge de l’aspect technique des transactions financières : ils enregistrent les opérations et formulent des déclarations. Le trésorier quand-à-lui, est chargé des fonds directement.

Combien gagne un trésorier ?

Un trésorier gagne entre 3 700€ et 6 000€ brut par mois. Cependant, le salaire d’un trésorier junior varie entre 36 000€ et 48 000€ par an (source : cadremplois.fr 2021)).

Quel positionnement dans la carrière ?

Il est possible d’être trésorier junior. Cependant, les entreprises privilégient les personnes avec de l’expérience, c’est-à-dire ayant déjà exercé des fonctions de contrôleur de gestion ou comptable trésorerie.
Le trésorier peut aspirer à une belle évolution de carrière. Après 5 années, il peut bénéficier d’opportunités et évoluer en tant que directeur financier, responsable du service administratif, chef trésorier ou responsable trésorerie groupe.

Quelle formation ?

Pour être trésorier, un bac +5 est nécessaire en finance, commerce, gestion ou comptabilité.
Les formations peuvent donc être une école de commerce avec spécialisation en finance ou trésorerie ou un diplôme supérieur de comptabilité et de gestion (DSCG). Ces deux formations sont proposées par l’ESSEC : le DSCG peut être passé en parallèle et la spécialisation en finance se fait par le Corporate Finance Track disponible à Cergy et Singapour.

Lien avec le cours et concepts clés :

Pour être trésorier, il faut avoir une très bonne connaissance des différentes normes IFRS (International Financial Reporting Standards), du droit des affaires ainsi que toutes les notions de comptabilité et finance (Compte de résultat, Bilan, Tableau de financement, flux de trésorerie, fonds de roulement etc.)

Autres articles sur le blog SimTrade

▶ All posts about Professional experiences

▶ Anna BARBERO Career in finance

▶ Alexandre VERLET Classic brain teasers from real-life interviews

Resources utiles

Association Française des Trésoriers d’Entreprise

Cadremplois.fr Trésorier

A popos de l’auteure

Cet article a été écrit en Mai 2022 Emma LAFARGUE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2024).

Mon expérience en contrôle de gestion chez Chanel

May 11, 2022 by Emma LAFARGUE

Mon expérience en contrôle de gestion chez Chanel

Dans cet article, Emma LAFARGUE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2024) partage son expérience en contrôle de gestion chez Chanel.

Présentation de l’entreprise

Chanel est une entreprise française de haute couture, prêt-à-porter, accessoires, parfums et autres produits de luxe. Elle a été créée en 1910 par Gabrielle Chanel. La maison appartient aujourd’hui à Alain et Gérard Wertheimer et son siège est basée à Neuilly. La maison est connue pour ses produits tels que le parfum numéro 5 créé en 1921, le tweed ou encore les sacs. Chanel est une des rares entreprises du luxe qui n’est pas côté en bourse. Son chiffre d’affaires s’élève à 10 milliards de dollars en 2020.

Logo de l’entreprise Chanel
Logo Chanel
Source: Chanel

Mon poste et qu’est-ce que le contrôle de gestion ?

Le contrôleur de gestion est la personne chargée de contrôler les budgets de l’entreprise en lien avec la mise en œuvre de la stratégie de l’entreprise.

De mon côté, j’étais au service de contrôle de gestion « Reporting et Budget » au sein de la division Mode de chez Chanel (il existait aussi d’autres service de contrôle de gestion comme la gestion des stocks). Mon périmètre était très large, je gérais tout d’abord les budgets de fonctionnement des équipes (sans la masse salariale qui était gérée par un autre employé), cela concerne donc les déplacements, voyages, séminaires, intérims et différents frais consultants. J’étais en charge de toutes les équipes de la division mode : le digital, la communication, le service clients (CRM pour customer relationship management), les sessions d’achats, les opérationnels ainsi que les équipes produits.

Je gérais également les coûts de collection c’est-à-dire les coûts de création de tous les prototypes destinés aux défilés et les budgets des sessions d’achats, soit le moment après le défilé durant lequel les directeurs des boutiques monde se rendent au siège pour choisir quelle pièce sera présente dans quelle boutique.

Enfin, je m’occupais des budgets de la logistique (supply chain) et des centres de distribution (retail). Ce volet passait par une partie « Suivie de projet » qui concernait un nouveau centre de distribution. Il fallait donc suivre la mise en fonctionnement de ce centre, en particulier les dépenses de de fonctionnement (OPEX pour operational expenses) et les investissements (CAPEX pour capital expenditures).

Concrètement, durant mon stage, j’exerçais différentes missions :

Lors des clôtures mensuelles : mise à jour mensuelle des fichiers de suivi des coûts par l’extraction des données de la comptabilité et consolidation dans nos fichiers de suivi et tableaux de bord
Travail d’analyse : traitement des données, analyse des écarts existant entre les chiffres de prévisions et les chiffres réalisés
Reporting aux différentes équipes pour les tenir au courant de l’avancée dans leurs budgets

La partie la plus intéressante de mon stage, selon moi, a été l’élaboration des budgets pour l’année suivante. L’objectif de ce travail est d’estimer les dépenses pour l’année suivante afin qu’elles soient validées par la Direction Financière et la Direction Générale.
L’élaboration des budgets passe par des réunions avec toutes les équipes opérationnelles afin de définir leurs besoins, comprendre leurs différents projets et les estimer.

L’élaboration des budgets permet au contrôleur de gestion de rester informé des différents projets que mènent les équipes pour pouvoir ensuite suivre au plus près leurs dépenses l’année suivante.

Au niveau opérationnel, le contrôleur de gestion est donc en relation directe avec toutes les équipes opérationnelles dont il a la charge, avec le service de comptabilité qui est chargé d’enregistrer et d’imputer les factures et donc les différents postes de coûts. Le contrôleur de gestion est aussi en relation avec le responsable du contrôle de gestion et le directeur financier.

Compétences et connaissances requises

Le travail se fait principalement sur Excel, ainsi, il faut maîtriser les principales commandes : recherche (recherche H ou V dans les feuilles Excel), somme.si (sommes conditionnelles), TCD (tableaux croisés dynamiques), etc.

Il faut avoir des connaissances sur l’entreprise, le secteur dans lequel on évolue et les différentes équipes avec qui on est en contact de manière régulière pour établir les budgets. La connaissance de chaque équipe est importante car l’activité peut différer beaucoup d’une équipe à l’autre (le suivi des budgets pour les coûts de collection est totalement différent de celui effectué pour la logistique).

Il faut également des connaissances dans le domaine financier : savoir analyser un compte de résultat, comprendre les différentes notions comptables telles que les immobilisations et amortissements.

Un esprit d’analyse et de synthèse sont aussi nécessaires pour effectuer les reportings mensuels aux différentes équipes.

Enfin, les qualités relationnelles sont indispensables car le contrôleur de gestion est en constante interaction avec les autres services de l’entreprise.

Autres articles sur le blog SimTrade

▶ All posts about Professional experiences

▶ Anna BARBERO Career in finance

▶ Chloé POUZOL Mon expérience de contrôleuse de gestion chez Edgar Suites

Resources utiles

Chanel

Association Nationale des Directeurs Financiers et de Contrôle de Gestion (DFCG)

A propos de l’auteure

Cet article a été écrit en mai 2022 par Emma LAFARGUE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2024).

Métier de Directeur financier

May 10, 2022 by Chloé POUZOL

Description du métier de Directeur financier

In this article, Chloé POUZOL (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) présente le métier de Directeur financier.

Que fait un directeur financier ?

L’objectif principal d’un directeur financier est de développer stratégiquement et financièrement l’entreprise pour laquelle il travaille. Ses missions sont variées et nombreuses. Il est tout d’abord responsable de garantir l’équilibre financier de l’entreprise et d’optimiser ses performances. Pour cela, il encadre les équipes financières et comptables, établit les budgets, assure le suivi de la trésorerie et des écarts avec le budget, gère le besoin en fonds de roulement (BFR) et s’occupe de la gestion des dettes en anticipant les besoins de financement de l’entreprise.

Ensuite, le directeur financier est chargé de conseiller la Direction Générale sur les investissements à réaliser. Il décide des placements à effectuer, des plans de financement et suit leur mise en œuvre.

Le directeur financier doit aussi représenter l’entreprise lors des rencontres, des négociations avec les partenaires financiers et des réunions de la Direction générale au sein même de l’entreprise. Il est responsable de l’organisation des réunions et assemblées générales (notamment de clôture des comptes et pour les reportings) .

Enfin, le directeur financier doit mettre en place des procédures de gestion et d’optimisation et faire des veilles réglementaires relatives au secteur d’activité de l’entreprise. Il supervise le recouvrement et le juridique.

Avec qui travaille un directeur financier ?

Le directeur financier doit avoir une appétence pour le travail en équipe. En effet, il est en relation avec tous les services de l’entreprise pour établir les budgets de trésorerie et surtout avec les équipes comptables, administratives et financières. Il dirige lui-même une équipe composée d’analystes financiers, de responsables de la trésorerie, de spécialistes du financement et d’experts des crédits internationaux. Le directeur financier est également en charge des relations extérieures avec les bailleurs de fonds (les actionnaires et les créanciers comme les banques) et les organismes privés ou publics (Etat, régulateurs, associations professionnelles, etc.) concernés par l’activité de l’entreprise.

Combien gagne un directeur financier ?

Le salaire d’un directeur financier dépend de son expérience professionnelle, de sa formation initiale, du secteur d’activité et de la taille de l’entreprise dans laquelle il travaille. Cependant, le salaire mensuel moyen s’élève généralement entre 5 000 € et 6 600 € brut ; mais il peut aller jusqu’à 25 000 € brut pour un directeur financier très expérimenté. En tant que directeur, il est également possible de toucher des bonus.

Quel positionnement dans la carrière ?

Travailler en tant que directeur financier permet une mobilité professionnelle importante. En effet, il vous est possible d’une part de continuer votre carrière dans la même entreprise en travaillant à la Direction Générale en tant que DG ou PDG par exemple, ou d’autre part, en changeant d’entreprise pour occuper à nouveau un poste de Directeur Financier ou au sein de la Direction Générale.

Quelle formation ?

Être muni d’un Bac+5 et sorti d’une école de commerce comme l’ESSEC correspondent à la formation académique nécessaire pour occuper ce poste.

Cependant, le poste de Directeur financier n’est pas accessible dès la diplomation. Il est, en effet, nécessaire d’acquérir plusieurs années d’expériences dans le domaine de la comtpabilité, de la finance, du contrôle de gestion ou de l’audit.

Compétences requises ?

Il est évident que chaque directeur financier est différent et qu’en fonction de l’entreprise dans laquelle il travaille et des équipes qu’il gère certaines compétences seront plus nécessaires que d’autres. Il est tout de même possible d’affirmer que parmi les hard skills nécessaire, une bonne connaissance des aspects fiscaux, comptables, juridiques et financiers est essentielle à acquérir. Les compétences techniques s’acquièrent principalement avec l’expérience. De même, le directeur financier doit faire preuve de leadership et avoir le sens de l’écoute afin de bien manager ses équipes. Enfin, une forte résistance au stress ainsi que la capacité de convaincre un public sont des compétences humaines et comportementales (soft skills) très valorisées pour ce poste.

Artilcles à lire sur le blog SimTrade

▶ All posts about Professional experiences

▶ Anne BARBERO Career in finance

▶ Alexandre VERLET Classic brain teasers from real-life interviews

Ressources utiles

Cegos Fiche métier directeur financier

A propos de l’auteure

Cet article a été écrit en mai 2022 par Chloé POUZOL (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

Mon expérience de contrôleuse de gestion chez Edgar Suites

May 10, 2022 by Chloé POUZOL

Mon expérience de contrôleuse de gestion chez Edgar Suites

In this article, Chloé POUZOL (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) partage son experience de contrôleuse de gestion chez Edgar Suites.

L’entreprise : Edgar Suites

Edgar Suites est une start-up fondée en 2016 par Xavier O’QUIN, Maxime BENOIT et Grégoire BENOIT. Elle propose à ses clients de vivre une expérience au cœur de la ville en logeant dans une suite urbaine : un mix idéal entre appartement et hôtel. Pour cela, l’entreprise loue des locaux initialement occupés par des bureaux, qu’elle transforme en T1 (studio), T2 (2 pièces) et T3 (3 pièces).

Exemple de suite

Source: Edgar Suites

En mai 2021, Edgar Suites a levé 104 millions d’euros auprès du fonds d’investissement BC Partners. Depuis cette levée de fonds, l’entreprise a triplé son activité avec presque 150 suites urbaines à Paris, Levallois Perret, Bordeaux, Lille et Cannes.

Logo de l’entreprise Edgar Suites
Logo Edgar Suites
Source: Edgar Suites

Mes missions

En tant que stagiaire, j’ai eu plusieurs missions bien différentes, certaines seulement temporairement et d’autres tout au long de mon stage.

Lorsque je suis arrivée chez Edgar Suites, il n’y avait pas encore de contrôle de gestion mis en place. L’entreprise avait juste quelques fichiers Excel avec lesquels elle faisait tant bien que mal les calculs de chiffres d’affaires (CA) et d’excédent brut d’exploitation (EBE) qui représente le bénéfice d’une société avant les intérêts, impôts, amortissement et provisions (EBITDA pour Earnings before interest, taxes, depreciation, and amortization)…

L’entreprise avait embauché un prestataire extérieur pour construire des fichiers de reporting financier et comptable grâce à un tableur (Excel) et une suite de logiciels qui permettent de transformer des données disparates en informations visuelles, immersives et interactives (Power BI). J’étais chargée de surveiller l’avancée du dossier, de superviser le respect des dates limites (deadlines) et surtout de vérifier la cohérence des fichiers envoyés (écarts, cohérences entre les grands livres, les résultats de l’entreprise (P&L pour Profit & Loss) et les budgets). Cela m’a ainsi permis d’apprendre à maîtriser un éditeur de requêtes de données (Power Query, un des logiciels de la suite Power BI) pour importer des données de l’entreprise dans le tableur Excel.

En plus de cette première responsabilité, j’ai été chargée d’améliorer les fichiers internes de suivi d’indicateurs utilisés pour l’aide à la décision et pour mesurer l’efficacité d’une mesure (KPI pour key performance indicator) notamment le coût au check-in et le coût par équivalent temps plein (ETP) qui est une unité de mesure permettant d’évaluer la charge de travail et la capacité d’un employé.

Réalisation des reportings mensuels

En plus de ces missions, j’étais responsable de la rédaction de tous les reportings mensuels pour BC Partners (le fonds d’investissement auprès duquel Edgar Suites a levé des fonds pour financer son développement) et pour les propriétaires d’immeuble à loyer variable (loyer calculé selon un certain pourcentage du chiffre d’affaires) où il s’agissait de calculer le chiffre d’affaires, les coûts fixes, les coûts variables du mois et ainsi les bénéfices du mois. Je devais aussi m’occuper des rapprochements bancaires (contrôle de la concordance entre les relevés des comptes bancaires et les comptes correspondant dans la comptabilité) et de la gestion des factures qui s’effectuaient à l’aide du logiciel Pennylane.

Réflexion sur la responsabilité sociétale des entreprises (RSE)

Enfin, j’ai également participé à la réflexion sur la responsabilité sociétale des entreprises (RSE) pour prendre en compte les enjeux environnementaux et sociaux d’Edgar Suites. Les dirigeants souhaitent, en effet, être labellisés B-Corp (Benefit Corporation). Une entreprise peut recevoir la certification B-Corp lorsque ses actions sont en adéquation avec les exigences sociales, environnementales et de gouvernance du public. Il s’agit d’une certification qui s’obtient après un long processus. J’ai donc effectué des recherches et conduit des entretiens pour trouver le cabinet de conseil adéquat pour nous accompagner tout au long de ce projet. J’ai également participé aux réunions de réflexion sur les actions d’Edgar Suites afin d’atténuer l’impact social et environnemental de l’activité.

Compétences et connaissances requises pour ce stage

Les principales compétences et connaissances techniques (hard skills) requises sont de maîtriser un tableur comme Excel et d’avoir de bonnes bases en comptabilité et en finance. En effet, pour réaliser les reportings, il était nécessaire de comprendre les données importantes de l’activité pour pouvoir les analyser et les synthétiser. Ces données importantes chez Edgar Suites étaient le coût par check-in, l’EBITDA, les coûts fixes et les coûts variables (notamment les loyers variables). De même, pour faire de la modélisation financière, il est essentiel d’avoir de bonnes connaissances financières afin de créer une logique et une présentation cohérente au sein du fichier.

Enfin, les compétences humaines et comportementales (soft skills) essentielles étaient principalement de savoir travailler en équipe ; cela permet de mettre à contribution les idées et les compétences de tous les membres du groupe pour améliorer le résultat du travail sur l’entreprise.

De façon générale, je suis très satisfaite de mon premier stage que j’ai effectué à la fin de ma première année à l’ESSEC. J’ai été responsabilisée et j’ai pu découvrir le fonctionnement comptable d’une entreprise ainsi que me familiariser avec la finance d’entreprise. En effet, j’ai pu manipuler les états financiers d’Edgar Suites pour me familiariser avec leur lecture et leur analyse. De plus, j’ai pu observer le fonctionnement des finances de l’entreprise : comment l’entreprise gérait ses coûts ; comment Edgar Suites essayait d’améliorer sa rentabilité ; quelles étaient les répercutions sur le plan financier des décisions de management …

Concepts clés

Je détaille ci-dessous quelques concepts clés qui m’ont été utile de maîtriser pendant mon stage :

Contrôle de gestion

Le contrôle de gestion est un service au sein d’une entreprise, chargé d’aider à la prise de décision. Il est responsable de l’élaboration des budgets, de la mise en place de procédures de gestion et de règles, du suivi des résultats, du choix des indicateurs clés dans les tableaux de bord et de la production et la diffusion d’outils de pilotage. L’objectif principal du contrôleur de gestion est d’optimiser les performances matérielles et financières de l’entreprise.

Chiffre d’Affaires

Le Chiffre d’Affaires (CA) correspond à la somme des ventes des produits ou services d’une entreprise. Il se calcule en multipliant les quantités vendues par leur prix de vente. Il s’agit donc d’un indicateur principal sur les performances de l’entreprise.

EBE ou Ebitda

L’Ebitda (Earnings before interest, taxes, depreciation, and amortization) correspond au bénéfice avant les intérêts, les impôts, les taxes, la dépréciation et l’amortissement. Il mesure donc la création de richesse avant toute charge. Il s’agit d’une notion assez proche de l’EBE (Excédent Brut d’Exploitation). Il existe deux formules pour calculer l’Ebitda :

Ebitda = Chiffres d’affaires – achats – autres charges externes – charges du personnel – autres charges

Ebitda = Résultat net + charges d’intérêts + charges d’impôts + amortissements et provisions

Lorsque l’Ebitda est positif, cela signifie que l’entreprise est rentable au niveau opérationnel mais pas forcément qu’elle est bénéficiaire (après la prise en compte d’autres éléments comme les charges financière).

Responsabilité sociétale des entreprises (RSE)

La responsabilité sociétale des entreprises (RSE) correspond à la contribution des entreprises aux enjeux du développement durable. Cela consiste à faire des efforts pour la protection de l’environnement et pour l’amélioration de la société. Ces efforts se font en collaboration avec toutes les parties prenantes (fournisseurs, clients, employés, actionnaires…). Il existe aujourd’hui de nombreuses certifications, comme la certification B-Corp, qui reconnaissent l’investissement des entreprises dans la RSE.

Articles à lire sur le blog SimTrade

▶ All posts about Professional experiences

▶ Anna BARBERO Career in finance

▶ Emma LAFARGUE Mon expérience en contrôle de gestion chez Chanel

▶ Ghali EL KOUHENE Asset valuation in the real estate sector

Ressources utiles

Edgar Suites

B-Corp France

A propos de l’auteure

Cet article a été écrit en mai 2022 par Chloé POUZOL (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024). Vous pouvez me contacter via mon adresse mail ESSEC pour plus d’information sur mon stage.

Momentum Trading Strategy

May 8, 2022 by Akshit GUPTA

Momentum Trading Strategy

This article written by Akshit GUPTA (ESSEC Business School, Master in Management, 2019-2022) explains the momentum trading strategy.

Introduction

The momentum trading strategy is a strategy where a trader buys a security when its market price starts to rise and then sells it when its price seems to have reached a top. Similarly, a trader sells (or short sells) a security when its market price starts to fall and then buys it back when its price seems to have reached a bottom. In other words, if we observe a positive price change or return today, we are long tomorrow, and if we observe a negative price change or return today, we are short tomorrow.

This trading strategy is based on the direction of the price trend (up or down) in the market and its relative strength. The rationale behind the momentum trading strategy is that, for an upward trend, if there is enough buying force behind the rise in the price of an asset, it will keep on rising until a strong selling pressure is seen in the market to reverse the trend. Similarly, for a downward trend, if there is enough selling force behind the fall in the price of an asset, it will keep on falling until a strong buying pressure is seen in the market to reverse the trend.

Momentum trading is a trading strategy with a short-term horizon where traders try to capture and profit from the price trend. The period for implementing a momentum strategy can range from a trend forming within a day or over several days. Momentum traders try to identify the strength of an ongoing trend in a particular direction and take a position. The strength can measured by different technical indicators discussed below. Once the strength of the trend begins to fall, the trader exits the position at a profit.

Momentum traders are least concerned about the fundamentals of the company for which the stock is to be traded. They rather use various technical indicators to understand the trend in the stock price, especially its strength.

Implementation

Figure 1 below illustrates the implementation of the momentum trading strategy for Apple stock over the period from April 1, 2020 to March 31, 2021.

Figure 1. Implementation of the momentum trading strategy for Apple stock.

Source: computation by the author (data source: Yahoo Finance).

In Figure 1, an upward trend can be seen forming in the period from November 22, 2020 to November 25, 2020 in the price of Apple stock. The trader following a momentum strategy will go long on the Apple stock till the momentum is in the upward direction. The right time to exit the long position is around December 2, 2020. By following this trend, the trader can capture a price movement of around $10 which is approximately 8%-9%, by going long on the Apple stock.

Momentum trading indicators

Momentum trading indicators help the trader to look for the formation of a trend and the signal of an entry/exit point, and also indicate the strength of that signal. We present below some of the most common indicators used to assess the strength of the trend: relative strength index (RSI), moving-average convergence-divergence (MACD) and Bollinger bands.

Relative Strength Index (RSI)

The RSI indicator is a technical indicator and is plotted on a chart which ranges from 0 to 100. It helps a trader in knowing the relative strength of a trend formation. The indicator is an oscillator which provides overbought or oversold signals based on the positioning of the line in the chart. During the uptrend, if the line crosses the 70 mark, an overbought signal is considered for the given security. Symmetrically, during a downtrend, if the line crosses the 30 mark, an oversold signal is considered. Momentum traders generally take a position in between in the indicator instead of waiting for a price reversal when the line crosses the given thresholds. For example, a trader can use the halfway mark of 50 to get an idea about the formation of a trend. If the RSI line crosses the 50 mark and is moving in an upward direction, it can show the high strength of the upward forming trend and the trader can take a long position in the respective stock.

Figure 2. Relative Strength Index of Apple stock.

Source: computation by the author (data source: Yahoo Finance).

Moving-average convergence-divergence (MACD)

The moving-average convergence-divergence (MACD) is a technical indicator based on the moving averages of prices over a period of time. The indicator helps in understanding the direction and strength of a trend. It also helps in understanding the rate at which the change in trend is happening.

The indicator is shown by two lines namely, the MACD line and the signal line. The MACD line is the difference between two exponential moving-averages, a long-term moving-average like a 26-day moving average and a short-term moving-average like the 12-day moving average. The signal line is made up of the 9-day exponential moving-average of the MACD itself and is placed on the same graph. A bar graphs plotted on the zero-line (X axis) showing the difference by which the MACD line is below/above the signal line. Generally, the indicator is used to understand the degree of the bullish or bearish sentiments in the market. If the MACD line crosses the signal line from below the zero-level moving upwards, it indicates a bullish trend. In such a scenario, a trader practicing momentum strategy would take a long position in the market seeing the trend.

Figure 3. Moving-average convergence-divergence of Apple stock.
MACD of Apple stock
Source: computation by the author (data source: Yahoo Finance).

Bollinger bands

The Bollinger bands is a very popular technical indicator that represents the volatility in the prices of a financial asset. The indicator consist of three lines, namely, a simple moving-average (SMA), and an upper band and a lower band. The simple moving average is usually computed over a rolling period of 20 trading day (about a calendar month for the equity market). The upper and lower bands are usually set by default to two standard deviations away from the simple moving average.

The width between the upper and lower Bollinger bands provides a range for price changes in the market (an indicator of volatility). The bands help to identify the overbought or oversold situations in the market for an asset. They can be used by a trader to identify possible entry or exit prices to implement the momentum trading strategy.

Figure 4 represents the Bollinger bands for Apple stocks. The price of the Apple stock is touching the lower band on November 2, 2020 and reverting just after that. This can be a signal for the momentum trader showing a trend reversal and the trader can take a long position in this stock till the price touches the 20-day SMA line which happens around November 5, 2020, thereby capturing a price movement of $8 approximately.

Figure 4. Bollinger bands of Apple stock.

Source: computation by the author (data source: Yahoo Finance).

Market conditions

Market liquidity and market volatility play a major role in the implementation of a momentum strategy.

A liquid market is generally preferred by traders in order to quickly enter and exit the market.

Stock price volatility is a major factor affecting a momentum trader’s decision to enter/exit a trade. A highly volatile stock can provide a good opportunity for a trader to earn high profits using this strategy as the asset prices can change dramatically in a short period of time. But a high stock volatility can also lead to huge losses if the prices move in an unfavorable direction.

The figure below represents the historical daily volatility (standard deviation of returns over rolling 10-day periods) of Apple stock over the period from April 1, 2020 to March 31, 2021.

Figure 5. Volatility of Apple stock.

Source: computation by the author (data source: Yahoo Finance).

You can download below the Excel file for the computation of the different momentum trading indicators mentioned above.

Risks associated with momentum trading

Although momentum trading is a commonly used strategy, the risks associated with it are quite high. The trader using this strategy should be careful about:

Entering the position too early
Exiting the position too late
Relying on rumors and fake news
Missing the indication of a reversal in the direction of the trend
Not applying a strict stop loss rule

Link with market efficiency

Market efficiency refers to the degree to which all the relevant information about an asset is incorporated in the market prices of that asset. Fama (1970) distinguished three forms of market efficiency: weak, semi-strong, and strong according to the set of information considered (market data, public information, and private information).

In the weak form of the market efficiency hypothesis, the current market price of an asset incorporates all the historical market data (past transaction prices and volumes). The current market price of the asset is then the best predictor of its future price.

In a market efficient in the weak sense, the autocorrelation of asset price changes or returns is close to zero.

A positive autocorrelation coefficient would imply that after a price increase, we should likely observe another price increase, and symmetrically, after a price decrease, we should likely observe another price decrease, leading in both cases to price trends.

The implementation of a momentum strategy assumes that the autocorrelation of price changes is positive, which contradicts the efficient market hypothesis.

In a market which is efficient in the weak sense (implying an autocorrelation close to zero), momentum trading strategies should not exhibit extra profit as traders are not be able to beat the market on the long run.

▶ Jayati WALIA Bollinger bands

▶ Jayati WALIA Moving averages

▶ Akshit GUPTA Growth investment strategy

Useful resources

Academic research

Fama E.F. (1970) Efficient Capital Markets: A Review of Theory and Empirical Work, The Journal of Finance 25(2): 383-417.

Fama E.F. (1991) Efficient Capital Markets II: A Review of Theory and Empirical Work, The Journal of Finance 46(5): 1575-1617.

Business analysis

Fidelity Learning center: Momentum trading strategy

About the author

Article written in May 2022 by Akshit GUPTA (ESSEC Business School, Grande Ecole – Master in Management, 2019-2022).

The WHO's news on the HPV vaccine caused the stock prices of Zhifei Bio and Wantai Bio to plunge

May 6, 2022 by Pai LI

The WHO’s news on the HPV vaccine caused the stock prices of Zhifei Bio and Wantai Bio to plunge

In this article, Pai LI (ESSEC Business School, Global BBA, 2021-2023) shares her insights on the event “The WHO’s news on the HPV vaccine caused the stock prices to plunge”.

The Brief Introduction of the event

On 2022 April 11, the World Health Organization (WHO) announced on its official website that the WHO convened a meeting of the Strategic Expert Group on Immunization (SAGE) from April 4 to 7 to vaccinate one dose of human papillomavirus (HPV) vaccine. The expert group considered that only 1 dose of HPV vaccine can produce the same immune effect as 2-3 doses, and can effectively prevent cervical cancer caused by HPV infection.

As soon as the news came out, the stock prices of HPV vaccine concept stocks Zhifei Bio and Wantai Bio plunged. As of the close, Zhifei Bio fell 14.19%, and Wantai Bio once fell by the limit, and as of the close, it fell 9.46% and approached the limit.

Stock chart of Zhifei Bio and Wantai Bio

Source: Bloomberg.

Explanation of the Market reaction to the Event

The World Health Organization (WHO) website released information saying that from April 4 to April 7, the WHO Strategic Advisory Group of Experts on Immunization (SAGE) held a meeting, referring to the single dose of the HPV vaccine provides reliable protection, comparable to a 2- or 3-dose regimen.

Regarding the impact of the reduction in the number of HPV vaccination doses, at noon on April 14, After the stock market opened on the afternoon of April 14, the decline in the share price of related companies narrowed. As of the close, Zhifei Biological fell 14.19% to 116 yuan per share, with a market value of 185.6 billion yuan; Watson Bio fell 3.08% to 49.11 yuan / stock market value of 78.65 billion yuan; Wantai Bio fell 9.46% to 257.59 yuan / share , with a market value of 156.37 billion yuan.

The stocks of biology may be affected by the decline of three HPV vaccine companies. On April 14, many stocks in the A-share biological vaccine sector fell. For example, CanSino closed down 3.99%, and Kangtai Bio closed down 1.2%.

WHO press release

Source: WHO.

It is important to note that SAGE stated in the minutes of the meeting that it reviewed new evidence on the efficacy of single doses of HPV, and recommended that women aged 9-14 receive 1 or 2 doses, with a single dose providing comparable and high levels of protection. From a public health perspective, is more effective, less resource intensive and easier to implement. Likewise, 1 or 2 doses are also suitable for women between the ages of 15 and 20.

The current HPV vaccine policy in the world is 2 doses for girls aged 9-14 years, 3 doses for girls aged 15 years and above, and 3 doses for immunocompromised people of any age, including people with HIV.

Notably, SAGE emphasizes that more evidence is needed on whether reduced doses provide protection in immunocompromised groups.

The minutes also mentioned that WHO will conduct stakeholder consultations on these important policy changes before revising the position paper on HPV vaccination.

Predictions for the future

Regarding the recommendations of this WHO meeting on HPV vaccine, I believe that this meeting is only providing a recommendation and not implementing it, and that the current vaccination schedule is still dominated by 2-3 doses. In addition, WHO’s recommendations are mainly based on concerns about the slow introduction of HPV vaccine into immunization programs and low overall population coverage, especially in poorer countries, and the core is to address the huge gap between HPV vaccine supply and demand.

Even if the vaccination procedure is changed from three injections to two injections in the future, the improvement of industry penetration rate and accessibility is believed to effectively fill the market, which is expected to bring strong demand for HPV vaccination in relevant third world countries, and the export of Chinese domestic HPV vaccines is expected to accelerate. At the same time, for Merck’s nine-valent HPV vaccine, it is still in a stage of insufficient production capacity. Whether it is a two-shot or three-shot vaccination program, it is still in a stage of short supply. In conclusion, there is no need to worry too much about the impact on the performance of HPV-related companies.

About the author

The article was written in May 2022 by Pai LI (ESSEC Business School, Global BBA, 2021-2023).

My internship experience as a financial research analyst in Tianfeng Securities

May 6, 2022 by Pai LI

My internship experience as a financial research analyst in Tianfeng Securities

In this article, Pai LI (ESSEC Business School, Global BBA, 2021-2023) shares her internship experience as an assistant financial research analyst in Tianfeng Securities which is a Securities Research Institute in China.

The Company

Tianfeng Securities is a global full-license integrated financial securities service provider. Tianfeng Securities Research Institute is a high-end industry research think tank in China. It brings together more than 200 team members to build bridges and links between funds and industry and enhance the ability of financial services to serve the substantial economy.

Tianfeng Research Institute adheres to the “industry-oriented” driving force, creates a unique financial ecological alliance, forming a complete ecological chain that runs through the life cycle of enterprises and industries.

Logo of Tianfeng Securities

Source: Tianfeng Securities.

My Internship

My missions

The department I practiced for was the Securities Research Institute, and the position was financial research assistant. My work mainly consisted of two parts, the daily research work about industry and the related work of writing in-depth research reports about companies.

Daily work includes using a financial database called Wind (like Bloomberg but focused on mainland China) to find industry data, prospectus, company annual reports and other materials, doing market shares calculations, doing valuation models, collecting information for industry research topics, writing new stock purchase proposals, updating internal industry databases, modifying and improve the Powerpoint presentation of roadshow reports, operating social media for publishing weekly reports, comments, and in-depth reports.

In addition to the above routines, I also participated in the writing of the first draft of the Institute’s in-depth reports. At the beginning I wrote some simple company tracking reviews. These short reports were completed by referring to the relevant announcements and materials of the company. Next, I gradually participated in the writing of the in-depth reports. In the process of continuous maturity and improvement of the reports, I learned a lot of research skills.

Writing in-depth reports requires the collection of a large amount of financial and business data, and an overall overall grasp of the structure and context of the company. Not only did I improve my ability to understand the company’s business by collecting information from all parties, but I also learned to build a valuation model to predict the company’s future performance.

Required skills and knowledge

In terms of technical skills, you need to have financial knowledge, frameworks and insights for industry analysis and company analysis, and report writing skills. These professional abilities of mine have been greatly improved during this internship.
In terms of behavior skills, industry researchers need to have logical thinking ability to predict the future direction of companies and industries. In addition, interpersonal communication skills are also very important, through which research results can be presented to the buy-side clients in the best possible state.

What I have learnt

My biggest gain in this internship is that I learned how to write a professional report. I summarize the essential qualities of an extraordinary in-depth report into seven points:

The selection of the company is meaningful.
The core point of view about the company is highlighted.
The discussion about the business of the company is rigorous and logical.
The business and financial data are authentic and credible.
The business charts are clear and detailed.
The text is concise and straightforward.
The exhibit are exciting.

In addition, I also deepened my understanding of the industry of securities firm research. I realized that it is a highly homogenized industry, because the same teams research the same companies, and the companies provide the same type of information (announcements, financial and accounting data). This is an industry that pays great attention to timeliness. When a news comes out, investors expect to see relevant research results immediately, and will be swept away by other reports later. This is an industry with high barriers to entry. When looking for data, well-funded securities companies are equipped with sufficient database access qualifications, while small agencies can only search for free public information. Every year, many finance students try hard to get an internship in industry financial research, but few can get it. Therefore, in the face of such as intense competition, what we need to do is to maximize our core competitive advantages.

Three key financial concepts

Here are 3 useful valuation methods.

P/E Valuation Method

The Price-to-Earnings (P/E) valuation method is based on the price-earnings (P/E) ratio:

Price earnings ratio

EPS comes in two main varieties. TTM is a Wall Street acronym for “trailing 12 months”. This number signals the company’s performance over the past 12 months. The second type of EPS is found in a company’s earnings release, which often provides EPS guidance. This is the company’s best-educated guess of what it expects to earn in the future. These different versions of EPS form the basis of trailing and forward P/E, respectively.

The price-earnings ratio can be used to predict the stock price by the following calculation formula:

Stock price prediction based on the price-earnings ratio

P/B valuation method

The P/B valuation method is based on the price-to-book (P/B) ratio:

Price-book ratio

Generally speaking, stocks with low price-to-book ratios generally have relatively high investment value (in their balance sheet).
The price-to-book ratio can be used to predict the stock price by the following calculation formula:

Stock price prediction based on the price-to-book ratio

The P/B valuation method is suitable for companies with large and relatively stable net assets, such as steel, coal, construction and other traditional companies. However, it is not suitable for enterprises with light assets such as technology Internet and consulting services, which are small in scale and dominated by labor costs. The valuation should be based on the principle of “peer ratio and historical ratio”. Usually, the lower the price-to-book ratio, the safer the investment.

PEG valuation method

The PEG valuation method is based on the price-to-earnings growth (PEG) ratio:

Price-to-earnings growth ratio

In general, the smaller the PEG, the better and safer. But PEG>1 does not mean that the stock is overvalued. It must be measured according to the overall indicators of its peers. If the PEG is greater than 1, but its peers are higher than it, which also means that although the company’s PEG is already higher than 1, its value may also be is underrated.

Useful resources

Tianfeng Securities

Wind Database

About the author

The article was written in May 2022 by Pai LI (ESSEC Business School, Global BBA, 2021-2023).

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