This assignment will relate to the following learning outcomes: Understand the key features and characteristics of a variety of investment funds. Understand the trade-off between risk and return and estimate risks and returns of financial assets from market data. Critically review and discuss research results generated in the finance literature. Produce written and verbal accounts on a decision process involving a multitude of choices and isolate the key features of such a process. Appreciate the international dimension of fund management. Distinguish between various classes of assets and their role in the construction of portfolios. Contribute to the debate regarding active and passive asset management. Topic: Active versus Passive Asset Management. Passive funds have grown significantly in recent years as investors have become less satisfied with the performance of active managers. This has renewed interest in the debate over passive versus active asset management. More than three decades of research has not yet resolved the issue. Understandably, the main reason is complexity. The basic principle underlying both views relate to whether markets are efficient. Some research claim that markets exhibits gross inefficiencies and that some (active) managers are able to exploit these inefficiencies. Other researchers argue that the markets are efficient and no one can produce risk adjusted abnormal returns. A nice summary of the debate is given by Arnott and Darnell (2003), who argue that one can make a case for either active or passive management because it depends on how one views the following assumptions (or beliefs): 1) are markets efficient or inefficient? 2) are some managers able to identify inefficiencies in advance? 3) can investors identify the successful managers in advance? To these we can add 4) does the cost of active managers outweigh their performance? Required Task: Write an essay, of no more than 2000 words, critically assessing the case for and against active asset management. In particular: i) explain the difference between active and passive management; ii) the strategies of active and passive management; iii) report evidence; and iv) explain why in your own view the theoretical arguments as well as the empirical evidence are more in favour of active or passive asset management. Materials: As a starting point, you may read the textbook (Reilly and Brown) who dedicate a few sections on passive and active management. Assessment Criteria: The evaluation of the essay will be similar to that of a small dissertation. The main criteria will be: flow and synthesis of ideas; clarity of arguments; depth of research (simply summarising parts of the textbook will not be sufficient, you need to consult additional resources); and originality of ideas. A detailed list of criteria is given in the following table. Issue Distinction Merit + Merit Pass Fail Flow and synthesis of ideas Near publishable quality Excellent quality Good quality Poor to average quality No discernable flow or synthesis Extent of evaluation Evaluation within assignment rigorous and appropriate. Good clear evidence of evaluation carried out within assignment. Evaluation reasonably well carried out Some attempt at evaluation within assignment. No attempt at evaluation within assignment Quality of reasoning Analytical and clear conclusions well grounded in theory and literature, showing development of new concepts. Good development as shown in summary of arguments based on theory/literature and beginnings of synthesis. Evidence of findings and conclusions grounded in theory/literature. Limited evidence of findings and conclusions supported by the literature and theory. Unsubstantiated/invalid conclusion, based on anecdotes and generalisations only. Application of criticism and theory Assignment consistently demonstrates application of theory/critical analysis integrated. Clear evidence of application of theory/ critical analysis. Demonstrate applications of theory/ critical analysis to the topic area. Some evidence of critical thought and rationale for work. Lack of critical thought/ analysis/reference to theory. Skill at facilitating discussion Excellent enabling pacing and summarising of discussion. Clear evidence of ability to stimulate, facilitate and summarise discussion. Some ability to stimulate and facilitate discussion or be directive. Some ability to facilitate discussion but tendency to miss opportunities. Inability to stimulate/ facilitate discussion. Clarity and quality of written expression Clarity of expression excellent. Consistently accurate use of grammar and spelling professional/academic writing style. Thoughts and ideas clearly expressed. Grammar and spelling accurate with fluent language. Language mainly fluent. Grammar and spelling mainly accurate and language fluent Meaning apparent but . language not always fluent, grammar and spelling still poor. Purpose and meaning of assignment unclear. Language, grammar and spelling poor. Understanding of subject Work shows a well co-ordinated, grounded and reasoned understanding of topic and its relevance to practice Consistent understanding demonstrated in a logical, coherent and lucid manner. Demonstrates understanding in a style which is logical, coherent and flowing. Attempts a logical and coherent understanding of the subject area. Fails to demonstrate understanding of the subject/topic area. Referencing Referencing clear, relevant and consistently accurate using the Harvard system. Referencing relevant and mostly accurate using the Harvard system. Minor inconsistencies and inaccuracies in referencing using the Harvard system. Referencing present but had inconsistencies and inaccuracies. Referencing inaccurate or absent. Choice and use of content and theory Assignment demonstrates considerable innovation in the handling of content/theory. Insightful and appropriate selection of content/theory in key areas. Most key theories included in work in an appropriate manner. Appropriate selection of content/theory but some key aspects missed/misconstrued. Inaccurate or inappropriate content/theory. Use of literature Has developed own ideas and justified using a wide range of sources of theories and literature which has been thoroughly analysed, applied and tested. Ability to appraise critically the theory and literature from a variety of courses, developing own ideas in the process. Clear evidence and application of readings relevant to the subject within the text. Little or no evidence of reading around the subject. Evidence of some limited reading around the subject  Robert D Arnott and Max Darnell (2003), Active versus Passive Management: Framing the Decision, The Journal of Investing, Vol. 12, pp. 31-36.