10. Unit Trusts, OEICs, Investment Trusts Flashcards
Key features of a unit trust? (4)
Created under trust deed with mandate
Fund divided into units; fraction of fund asset value
Open-ended; can create/cancel units
Manager obliged to buy back units from investors
Describe the 3 required roles of a unit trust?
Trustee:
- overall responsibility for investor protection
- hold & control trust assets & income
- approve marketing
Depositary:
- oversight of sale/issue/pricing of units
- carry out instruction of fund manager
- monitor cash flows
Find manager:
- valuing fund assets
- pricing & selling units
What are the 4 prices of a unit trust?
Creation
Offer; investor buys
Bid; investor sells
Cancellation; lower than bid if bought back with little prospect of re-selling
How are adviser fees priced for unit trusts?
Clean/unbundled - separate from fund charge
Adviser has to charge investor directly rather than earning commission from fund
What is an equalisation payment of a unit trust / OEIC?
First dividend received includes element of income generated before purchase - this is stripped out and not taxed
Key features of an OEIC? (5)
PLC created with mandate outlined in prospectus
Share price = fraction of fund assets
Open ended; can create/cancel shares
Manager obliged to buy back shares from investor
Authorised Corporate Director required
What are the investment rules for unit trusts and OEICs? (7)
- cannot borrow long-term debt; limited to short-term debt up to 10% of fund assets
- cannot hold >10% in single quoted co. unless index tracker (20%/35%)
- up to 4 holdings can be held up to 10%, all other holdings must be <5% each
- cannot hold >10% of voting power
- can only invest 5% in unquoted co’s
- funds with >35% govt securities much spread this over 6+ holdings, none of which >30% fund value
- cash can only be held for liquidity (not as investment)
What is the cancellation period for unit trusts and OEICs
14 days
Receive lower of price paid and offer price @ cancellation
What are fettered and un-fettered investment funds?
Fettered; can only invest in internal funds offered by host provider
Un-fettered; can invest in funds offered by other providers
What is the difference between total return and absolute return?
Total; aim to produce positive returns over 3-5yrs, minimising losses
- mainly long positions
- performance measured against cash + x%
- unconstrained; managers can invest in owt
- produce relatively lower returns in strong markets
Absolute; aim to produce positive returns annually
- use short positions and derivatives to maximise opportunities
What is the yield calculation for an investment fund?
latest dividend/distribution - AMC
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offer price
What is the difference between equity and non-equity unit trusts & OEICs?
Equity; <60% assets in interest-bearing securities. Distribute dividends
Non-equity; >60% assets in interest-bearing securities. Distribute interest
What are the 2 types of offshore funds and their tax treatments?
Reporting; income reported to HMRC - investor taxed as if UK fund
Non-reporting; disposal by investor treated as “offshore income gain” and taxed as income (not CGT)
Key features of investment trusts (5)
PLCs
Close-ended; no new shares can be created
More freedom to invest incl gearing
Can keep 15% profits in reserve to smooth out divs
No more than 15% holdings in single company
What are split capital trusts and the order of repayment (5)?
Multiple share classes and fixed winding-up date
Prior charges; not shares - liabilities paid before capital
Zero dividend preference shares
Income shares
Ordinary
Capital
