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R02 > 07. Indirect investments > Flashcards

07. Indirect investments Flashcards

1
Q

Name 4 benefits of investing in collective investment schemes.

A
  • Can invest smaller sums of money that are pooled into larger funds.
  • Investments at a lower cost than if they had acted on their own.
  • Investors can achieve a balanced & diversified portfolio.
  • Professional fund managers make the decisions.
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2
Q

Name 4 investment sector groups.

A
  • Capital protection.
  • Income.
  • Growth.
  • Absolute return.
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3
Q

In general, funds must invest at least ~ of their assets in the relevant asset class.

A

80%

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4
Q

To qualify as an income fund, each fund in the sector must achieve a yield of not less than ~ of the relevant index on an annual basis.

A

90%

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5
Q

Unit Trusts

  • Legal structure?
  • Independent oversight?
  • Run by?
  • Pricing?
A
  • Trust.
  • Trustee(s).
  • Fund Manager.
  • Dual priced.
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6
Q

OEICs

  • Legal structure?
  • Independent oversight?
  • Run by?
  • Pricing?
A
  • Company.
  • Depository.
  • Authorised Corporate Director (ACD).
  • Single priced.
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7
Q

Unit Trusts / OEICs are ~ ended whereas Investment Trusts are ~ ended.

A
  • open
  • closed
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8
Q

Unit Trusts / OEICs are priced to ~ whereas Investment Trusts are priced by ~~~.

A
  • NAV
  • supply & demand.
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9
Q

Unit Trusts / OEICs are generally ~ charged whereas Investment Trusts are generally ~ charged.

A
  • higher
  • lower
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10
Q

Unit Trusts / OEICs are often ~ share class whereas Investment Trusts are ~~~.

A
  • one share class
  • different share classes.
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11
Q

Unit Trusts / OEICs borrowing ~~~ whereas Investment Trusts ~~~.

A
  • capped at 10%
  • can gear significantly.
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12
Q

Unit Trusts / OEICs are often ~ investments whereas Investment Trusts are often more ~ investments.

A
  • mainstream
  • specialised
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13
Q

Open ended: shares are ~ / ~.
Closed ended: shares are ~~ / ~~.

A
  • created / cancelled.
  • not created / cancelled (finite).
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14
Q

What is the minimum number of holdings for OEICs / Unit Trusts under the diversification rules?

A

16
- Max 10% in up to 4 companies.
- Max 5% for other 12 companies.

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15
Q

UK UCITS schemes established as replicating tracker funds can hold up to ~ of the value of the fund in the shares of one company and, where justified by exceptional circumstance, upto~.

A
  • 20%
  • 35%
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16
Q

Funds investing more than ~ in Govt. FISs issued by a single issuer are required to invest in at least ~ different issues of stock and no single stock holding can exceed ~ of the value of the fund.

A
  • 35%
  • 6
  • 30%
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17
Q

UK UCITS schemes can hold up too ~ of the fund’s value in unlisted securities and up to ~ in units of another collective investment scheme.
(~ and ~ for non-UK UCITS schemes).

A
  • 10%
  • 20%
  • 20%
  • 35%
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18
Q

Most funds hold around ~ of a fund’s assets in cash (max allowed ~).

A
  • 5%
  • 20%.
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19
Q

What are UCITS funds borrowing limits?

A

Up to 10% of fund on a:
- temporary basis against future known cashflows (Retail UCITS).
- permanent rolling basis (Non-retail UCITS).

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20
Q

Unit Trust trustees are often a ~ or ~~~, must be ~ of the management firm and are the ~~s of the trust’s assets.

A
  • bank or large insurance company
  • independent
  • legal owners
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21
Q

Which document outlines the rules regarding the manager fulfilling their obligations/investment objectives?

A
  • Trust deed.
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22
Q

What are the 3 levels of protection for Unit trust unit holders?

A
  1. Trustees.
  2. Regulatory organisations.
  3. Complaints & arbitration procedures.
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23
Q

What is an equalisation payment?

A

A partial refund of the original capital invested and is not subject to income tax. Also, deducted from purchase price for CGT purposes.

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24
Q

How often is unit trust income usually distributed?

A

Half yearly.

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25
Q

The fund manager & ACD manages the trust’s ~ in return for an ~~~.

A
  • assets
  • annual management fee.
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26
Q

The fund manager & ACD must be an ~~

A
  • authorised person.
27
Q

OEICs operate under a ~~ structure.

A
  • limited company
28
Q

Unit Trusts & OEICs are priced ~ per day and are priced to their ~.

A
  • once
  • NAV.
29
Q

Unit Trusts & OEICs can operate on a ~ basis or a ~ basis.

A
  • historic (where any deal takes the price at the last valuation point)
  • forward (where any deal takes the price at the next valuation point).
30
Q

OEICs are often ~ priced and Unit trusts are often ~ priced.

A
  • single
  • dual
31
Q

Dual priced funds offer a ~~~ which is typically around ~.

A
  • “bid-offer” spread.
  • 5%
32
Q

OEIC/Unit Trust investor taxation rules

A

Non equity based:
- 60%+ assets must be in in interest bearing securities.
- PSA, 20% / 40% / 45%.

Equity based:
- <60% of assets in interest bearing securities.
- DA, 8.75% / 33.75% / 39.35%

33
Q

Gains from Unit Trusts & OEICs are taxed ~.

A
  • normally.
34
Q

What is ‘box management’?

A

The term used to describe the stock control mechanism applied by managers in the buying and selling of units. (Units held in a ‘box’).

35
Q

Unit trusts my be priced on either a ~ or ~ basis.

A
  • forward (price calculated at next valuation point) [more common]
  • historic (price calculated at last valuation point).
36
Q

Name 5 types of charges for UTs.

A
  • Initial charge.
  • Annual management fee.
  • Performance fee.
  • Exit charge.
  • Other fees e.g. legal & audit.
37
Q

Name 2 advantages of OEICs.

A
  • OEICs are the most popular collective investment type so can be marketed internationally.
  • They permit multiple share classes which allows more flexible charging and currency structures than is possible with UTs.
38
Q

Describe:
- Fund of funds
- Manager of managers

A
  • Different investment funds used to diversify.
  • Manager appointed to choose different management groups to manage asset classes (more cost).
39
Q

In fund of funds what are:
- Fettered arrangements?
- Unfettered arrangements?

A
  • In-house, lower cost & choice.
  • External, more cost & choice.
40
Q

Offshore funds Reporting
- Must ~~~~.
- Do UK rules apply?

A
  • Report income to HMRC.
  • Yes (income tax, div.s, CGT).
41
Q

Offshore funds Non-reporting
- Doesn’t meet ~~~.
- Do UK rules apply?
- What happens to income?
- Gains calculated on ~~ but charged to ~~ without the use of the ~~.

A
  • reporting fund requirements.
  • UK rules not permitted.
  • Gross rolled up (taxed in full at maturity).
  • CGT principles
  • income tax
  • CGT exemption.
42
Q

In what scenario might non-reporting funds be beneficial?

A

For those who expect to be in a lower tax bracket on maturity e.g. retirees.

43
Q

An Investment trust is a ~ that invests in other companies and is regulated by ~ law.

A
  • PLC
  • company
44
Q

Who runs an Investment trust?

A

An independent board of directors responsible for looking after the interests of shareholders.

45
Q

Investment trusts often invest in specialised areas. Name 2.

A
  • Property.
  • Private equity investments.
46
Q

Name 3 reasons why Investment trusts are seen as riskier than Unit trusts & OEICs.

A
  • Invest in more specialist areas.
  • Trade independent from their NAV.
  • Often gear more.
47
Q

Investment trust trading can trade at either a ~ or a ~, and can also be ~ or ~.

A
  • premium
  • discount
  • diluted
  • undiluted
48
Q

Narrowing discounts are ~ for the investor and widening discounts are ~.

A
  • good
  • bad.
49
Q

Whether Investment trust trading is diluted or undiluted depends on any what?

A
  • Warrants outstanding / taken up.
50
Q

Under Investment trusts, what are warrants?

A
  • The option to buy more shares at a fixed price in the future (a “sweetener” for investors).
51
Q

When Investment trust warranties are exercised, what will they do to the NAV?

A
  • Dilute it.
52
Q

Name 3 Investment Trust structures.

A
  • Conventional.
  • Limited life.
  • Split capital.
53
Q

What is a limited life IT?

A

After a period of time the shareholders are asked whether to wind up the IT or not, and if not then life extended by 3 years typically.

54
Q

What is a benefit to investors of a limited life IT?

A

In theory, It helps to reduce the discount as the winding-up date draws near, the discount will narrow because investors could obtain the full value of a trust’s assets if they voted to wind up the trust.

55
Q

Conventional investment trusts vs split capital

A
  • Single share class vs multiple share classes.
  • No fixed term vs fixed term (typically 5-10 years).
56
Q

Split capital ITs has one portfolio of investments that can produce both ~ and ~.

A
  • growth
  • income.
57
Q

Under split capital investment trusts, what is the hurdle rate?

A

The annual growth rate required to ensure investors are paid at wind up.

58
Q

Under split capital investment trusts, what is the asset cover?

A

The ratio by which the redemption value is currently covered by those available assets of the company.

59
Q

Name 3 investment strategies for index-tracking funds and briefly describe them.

A
  1. Replication (replicate the shares of the index).
  2. Stratification (sampling).
  3. Optimisation (using a computerised model).
60
Q

Stakeholder S&S ISAs annual charge limited to ~ in 1st 10 years then ~ thereafter.

A
  • 1.5%
  • 1%
61
Q

Stakeholder S&S ISA min investment cannot be higher than ~.

A
  • £20.
62
Q

Stakeholder S&S ISA no more than ~ can be invested in risker assets.

A
  • 60%
63
Q

Stakeholder Cash ISA min deposit cannot be higher than ~

A
  • £10.
64
Q

Stakeholder Cash ISA- interest rate that is paid must be no less than ~ below the BoE base rate.

A

1%

R02 (11 decks)

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