Passive Investing

Daniel Lundberg & Morten Barslund Nielsen

Student thesis: Master thesis

Abstract

The purpose of this Master’s Thesis is to estimate the most advantageous line of procedure in order to establish and implement a passive investment strategy in the global financial markets. Given the assumption that the markets are efficient, we as private investors, accept the premise that it is impossible to exceed the market return by striving for active investing. Because of this assumption, the private investor is only interested in being in possessing of the market portfolio and thereby rewarded with the market return. In order to hold the market portfolio this Thesis selects three different financial products in order to possess the market portfolio in a pragmatic manner being: Danish mutual funds, Exchange traded funds and the establishment of private equity portfolios. In order to achieve an unbiased valuation of each selected investment product and thereby achieving an unbiased conclusion, the assessment of each investment product is based on an average procedure. Instead of selecting individual funds or stocks, this Thesis gathers many different funds or stocks for in order to arrive at an average for each investment product. In order to ensure that the included funds are comparable, different assortments are done. In order to be included in the estimation of the average investment product, the individual fund or stocks must uphold at least ten years of available data. Furthermore, the data must be accessible via the Bloomberg terminal. Finally, each individual fund must uphold a beta value within the range of 0.9-1.0 in order to be compared to the return of the market portfolio. After presenting and assorting the three individual investment products this Thesis seeks to analyse which of the listed products is the most profitable in order to hold the market portfolio. The analysis is based on four different criteria’s for valuation: performance, trading expenses, taxation and optimization. The Thesis finds that the private established portfolio, being the generated market weighted-geographically distributed, has the best performance measured over 30-years. The cheapest investment product, measured in a total of spread, brokerage, emission and commission, is the exchange traded funds. However, given the current taxation in Denmark the Thesis estimates that the highest accumulated taxation over 30-years is paid by the exchange traded funds. Possible optimization actions include new tax legislation, minimum brokerage and tax optimization. Based on the contradictory findings of this Thesis it is impossible to conclude, which of the listed investment products is the most optimal.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages133