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bhdfbuygffihrnknsahoe > 2: yuaytief > Flashcards

2: yuaytief Flashcards

1
Q

is a relationship or an arrangement whereby a person called a TRUSTEE is appointed by a person called a trustor to administer, hold and manage funds and/or property of the trust for the benefit of a BENEFICIARY.

A

Trust

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2
Q

Trust Principles

A

→ TRUSTOR
→ TRUSTEE / TRUST ENTITY
→ TRUST PROPERTY
→ BENEFICIARY
→ TRUST INSTRUMENT

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3
Q

The person who intentionally causes the trust to come into existence; gains and losses of the trust are for the account of the trustor

A

TRUSTOR

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4
Q

The person who holds title for the benefit of another; does not have beneficial interest in the trust property/fund

A

TRUSTEE / TRUST ENTITY

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5
Q

The property interest which the trustee holds subject to the right of another

A

TRUST PROPERTY

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6
Q

The person for whose benefit the trust property is to be held or used by the trustee

A

BENEFICIARY

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7
Q

Document by which property interests are vested in the trustee and beneficiaries and the rights and duties of the parties are set forth

A

TRUST INSTRUMENT

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8
Q

Unit Investment Trust Funds (UITFs)

→ An _________________________ in any acceptable __________, operated by a _____________, and made available by participation.
→ Established, administered and maintained in accordance with a _____________________ drawn by the ________, i.e., the Declaration of Trust (DOT). The DOT provides the guidelines in the management of a ______, and ________.
→ No _______________. This allows investors to invest or redeem their investments at any time subject to the trust entity’s guidelines.
→ UITFs are __________, not implied.
→ Established, administered and maintained by a trust entity subject to ______________* or notification. Trust entity may establish more than one UITF.

A

→ open-ended pooled trust funds; currency; trust entity;
→ written agreement/plans; trustee; UITF; plan rules
→ maturity date.
→ express trust
→ BSP approval

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9
Q

How does a Fund work?

 Group of investors ______ their money/ funds together
 Entrust the pooled funds to a _____________
 Fund Manager invest the investors’ funds to either _________, _______ or _____ (securities) based on the ___________________ of the UITF
 Fund Manager, through time,will actively/ passively ____________________ and aims to ____________________.

A

→ pools
→ Fund Manager
→ equities, bonds, both; investment objective
→ manage the UITF; generate returns for the investors

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10
Q

How does a Fund work?

A

(INVESTORS) Pool their money ➡️ (FUND MANAGER) Invests in ➡️ (SECURITIES) Generates ➡️ (RETURN) Provides Income

(back to investors)

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11
Q

How does a UITF work?

A

Investors ➡️ UITF (Managed by team of Fund Managers) ➡️ Cash / Gov’t. Bonds / Corp. Bonds / Listed Shares

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12
Q

Benefits vs. Risks of investing in funds

A

→ Potentially higher returns
→ Affordability
→ Professional management
→ Diversification
→ Liquidity
→ Investor Information
→ Transparency

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13
Q

Benefits vs. Risks of investing in funds

A

→ Returns are not guaranteed
→ Not insured by PDIC

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14
Q

Key differences between UITFs & Mutual Funds

A

UITFs
Regulator: Bangko Sentral ng Pilipinas
Structure: Contractual
Instrument: Units of participation
Governance: Bank/Non-Bank FI’s Trust Committee / Trust Corp
Management: Bank/Non-Bank FI’s Trust Department / Trust Corp
Sales License: Certified UITF Sales Person
Annual Stockholders Meeting: No / Yes (Trust Corp)
Liquidity requirement: None

Mutual Funds
Regulator: Securities and Exchange Commission
Structure: Corporate
Instrument: Common shares/ Units
Governance: Board of Directors
Management: Independent Investment Company Adviser/Fund Manager
Sales License: Sales agents need SEC license to sell funds
Annual Stockholders Meeting: Yes
Liquidity requirement: Yes. 5% of NAV subject to submission of liquidity plan to SEC, otherwise 10% of NAV

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15
Q

Fund Classifications

A

→ Money Market Fund
→ Fixed Income Fund
→ Multi-Asset Fund
→ Equity Fund

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16
Q

Money Market Fund invests in bank deposits and fixed income securities with remaining terms to maturity of ______________________ and has a weighted average portfolio life of _______________.

A

not more than three (3) years; one (1) year or less

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17
Q

Fixed Income Fund invests in fixed income instruments and has a weighted average portfolio life of ______________________. Cannot have investment in equities ________________.

A

more than one (1) year; more than 5%

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18
Q

Multi-Asset Fund invests in a ________________ of ______________ securities, ________, and other allowable investments for UITFs.

A

diversified portfolio; fixed income, equities

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19
Q

Equity Fund has at least ____of its net asset value (NAV) in equities.

A

80%

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20
Q

Types of Fixed Income Funds: What’s the Maximum Modified Duration?

Classification
→ Intermediate-Term Bond Fund:
→ Medium-Term Bond Fund:
→ Long-Term Bond Fund:

A

→ Intermediate-Term Bond Fund: 3
→ Medium-Term Bond Fund: 5
→ Long-Term Bond Fund: >5

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21
Q

Types of Multi-Asset Funds:
What’s the Equity Allocation Range

Risk Profile
→ At least Moderate
→ At least Moderate
→ Moderate to Aggressive
→ Aggressive

A

→ At least Moderate: 5% to 20% in equities
→ At least Moderate: 21% to 40% in equities
→ Moderate to Aggressive: 41% to 60% in equities
→ Aggressive: 61% to 80% in equities

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22
Q

Examples of Equity Funds

A

 EquityFund
 BlueChipEquityFund
 DividendPayingEquityFund
 Themed Equity Fund (e.g.ESGEquityFund)
 IndexTrackerFund

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23
Q

New UITF Structures

A

 Regular
 Feeder Fund
 Fund-of-Funds
 Multi-Class Fund
 Distributing Fund

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24
Q

New UITF Structures

→ Any trust entity authorized to perform trust functions may establish, administer and maintain ____________________ subject to applicable provisions under this section.

→ A UIT Fund may be allowed to operate as a 1) __________, 2) _______________ 3) ________________ and/or ________________; provided, that the plan rules and related documents shall state that the UIT Fund is a feeder fund, fund-of-funds, or multi-class fund, and provide an explanation or illustration of such structures.”

→ Foreign currency denominated funds may invest in any currency including ____________ if the same is expressly allowed in the fund’s ______________ and disclosed to participants.

A

→ one (1) or more UIT Funds
→ 1) feeder fund, 2) fund-of-funds 3) multi-class UIT Fund; Distributing Fund
→ Philippine Peso; Declaration of trust

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25
Q

A UIT Fund structure that mandates the fund to invest at least 90% of its assets in a single collective investment scheme—the target fund

A

Feeder Funds

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26
Q

→ Feeder Fund’s investment in the target fund must __________ of the target fund’s market value

→ Feeder Funds can have _________

A

→ not exceed 10%
→ multi-classes

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27
Q

A UIT Fund structure that mandates the fund to invest at least 90% of its assets in more
than 1 collective investment scheme—the target fund

A

Fund-of-Funds

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28
Q

Fund-of-Funds can have ________________

A

multi-classes

29
Q

Feeder Fund and Fund-of-Funds

UITFs may invest in other pooled funds referred to as _______________________, i.e., target funds, are subject to the
following:

• _______________ of the target fund are aligned with that of the __________.
• Target fund has no investment in other ______________________
• Target fund shall include ________________ and other _____
• Target funds may be of _______ or ________

A

collective investment schemes (CIS)

• Investment objectives; investor fund
• collective investment schemes
• Exchange Traded Funds (ETFs); CIS
• local; foreign origin

30
Q

Target fund is supervised by a

A

regulatory authority

31
Q

Feeder Fund and Fund-of-Funds: regulatory authority

LOCAL TARGET FUND:
TARGET FUND CONSTITUTED IN ANOTHER JURISDICTION:

A

LOCAL TARGET FUND:
→ Bangko Sentral ng Pilipinas or
→ Registered with Securities & Exchange Commission

TARGET FUND CONSTITUTED IN ANOTHER JURISDICTION:
→ Registered/authorized/approved in its home jurisdiction by a regulatory authority that is a member of the international organization of securities commissions (IOSCO)

32
Q

Structure of Feeder Fund and Fund-of-Funds

A

see page 79

33
Q

Multi-Class Fund shall refer to a UITF structure which has

A

 more than one(1) class of units in the fund
 invested in the same pool of securities
 Invested and the same portfolio, investment objectives and policies

34
Q

can generally promote efficiencies by eliminating the need to create additional UITFs.

A

Multi-class fund

35
Q

can generally promote efficiencies by eliminating the need to create additional UITFs.

A

Multi-class fund

36
Q

A UITF that has an income distribution feature whereby the income of the fund is distributed in the form of units called unit income.

A

Distributing Fund

37
Q

_____________________ shall be determined by the trustee in accordance with the UITF’s plan rules and is not guaranteed.

Income for distribution shall automatically be considered as _________ from the fund

A

Income for distribution

redeemed

38
Q

The Plan rules of a Distributing Fund shall:

 Set an _______ and a _________.

 _______________________, how the computation is made for the UNIT payouts.

A

 ex-date; date payable
 Provide, in plain and simple language

39
Q

the cut-off date for the unit-dividend entitlement

A

Ex-date

40
Q

the day when the unit dividends are actually paid out to the investors.

A

Date payable

41
Q

Distributing Fund: Distribution of Income

The Trustee may distribute the income of the Fund subject to the minimum conditions below:

1) Only from cash received from _______________ and ___________; and

2) After the trustee has taken into consideration the following:

3) Converted into ___________, referred to as _________, based on ______ as at the first business day when units in the fund are quoted _____________.

4) Participants shall be entitled to their ____________ in the unit income based on their outstanding units of participation on distribution date

5) State the distribution policy, including the following:

6) For monitoring purposes, Trustee shall ______________ for the Fund’s income due for _________

7) Notice to each participant on the unit income which shall contain:
 ___________ – the number of un for every unit held by the participant entitled for distribution

A

1) interest income earned; cash dividends

2)
 income for the period;
 taxes and expenses;
 sustainability of distribution of income; and
 investment objective and distribution policy of the Fund

3) equivalent units; unit income; NAVPu; ex-distribution

4) pro-rate share

5)
 sources of income for distribution
 intended frequency of distribution
 manner of distribution of unit income

6) separately account; distribution

7)
 Total amount of income for distribution
 NAVPu ex-distribution as its basis
 Total number of units for distribution
 Unit Income – the number of un for every unit held by the participant entitled for distribution

42
Q

Creation of UITFs that require BSP APPROVAL

A

a) Fixed income fund
b) Multi-asset fund
c) Equity fund
d) Fund-of-funds
e) Feeder fund;
f) Multi-class fund
g) Distributing fund

43
Q

Creation of UITFs that require NOTIFICATION to BSP

A

a) Money Market Fund
b) Fund that falls under the same category of an existing UITF

44
Q

is a summation of the market value of each investment less fees, taxes,
and other qualified expenses.

A

Net Asset Value (NAV)

45
Q

What is Net Asset Value (NAV)?

 All UITFs are to be ____________________.
 Mark to Market (MTM) is the act of assigning a value to a position held in a ______________________ based on the ______________ for that instrument.
 Under the MTM method of valuation, the value of the investment is constantly __________ based on __________.
 Asset classes are based on its ________________.

A

 marked-to-market on a daily basis
 tradable financial
instrument; current market price
 adjusted, market rates.
 weighted average return

46
Q

PORTFOLIO IS COMPRISED OF:

A

Asset 1 (MTM Valuation) + Asset 2 (MTM Valuation) + Asset 3 (MTM Valuation) - Trust Fees, Taxes, Other Expenses and liabilities (Expenses & Liabilities) = Net Asset Value

47
Q

What is Net Asset Value (NAV)?

A

Cash / Deposits +
Market Value of Investments +
Accrued interest on deposits and fixed income securities +
All other assets and receivables
= GROSS ASSET VALUE

Gross Asset Value -
Accrued Taxes Payables -
Accrued Trust Fee Payables -
Other Accrued Expenses -
Accounts Payable -
All other liabilities
= NET ASSET VALUE

48
Q

NAVPU Valuation Methodology Net Asset Value per Unit (NAVPU)
 Computed by dividing the fund’s __________ by the __________________.
 Determines the _________________ of each participation unit

A

 total NAV; total outstanding units
 beneficial interest

NAVPU = Net Asset Value/Total Outstanding Units of Participation

49
Q

ROI Computation

A

ROI = (Current NAVPU/NAVPU at the start of the period) - 1 x 100

50
Q

Other ROI Computation

A

Year-to-Date ROI:
YTD ROI = (Current NAVPU/Previous year - end NAVPU) - 1 x 100

Year-on-Year ROI:
YOY ROI = (Current NAVPU / NAVPU of same calendar date the previous year) - 1 x 100

Past 1-month, 3-month, 6 month ROI:
N month ROI = (Current NAVPU/ NAVPU n months from current date) - 1 x 100

Do not annualize ROI numbers for periods less than 1 year

51
Q

Simple Return computation

A

Simple Return = (Current NAVPU/beginning-of-period NAVPU) - 1 x 100

52
Q

Compute for the ROI:

Fund NAVPU
03/19/23: 115
02/19/23: 112
01/19/23: 113
12/29/22: 110
03/19/22: 105
12/31/17: 102

A

Past 1 Mo: (115/112) -1 x 100= 2.68%
YTD: (115/110) -1 x 100 = 4.55%
YoY: (115/105) -1 x 100 = 9.52%
Since 12/31/2017: (115/102) -1 x 100 = 12.75%

Note: All of the ROIs are paper gain/loss until the investor actually redeems units from the UITF

53
Q

Compute for the ROI:

Date of Investment: Aug. 3, 2021
NAVPU: 10.9854
Initial Investment: 1,098.54
Units Owned: 100

Date of Redemption: Aug. 3, 2022
NAVPU: 12.1304
Redemption Proceeds: 1,213.04
Units Owned: 100

A

Earnings: Php 114.50
ROI: 10.42%

54
Q

Investors are generally _____________

• Investors prefer _________ to more for the ___________ of expected return

A

risk averse

• less risk; same level

55
Q

How do you select funds?

A

Simplest approach is to look at the performance, i.e. returns

56
Q

Is it sufficient to track only returns?

A

Also need to account for the risk taken by the Fund Manager

57
Q

Common measures to evaluate “Risk-adjusted investment performance”:
1.
2.

Both measures how well the Fund Manager is able to balance between ____________ and ______________

A
  1. Sharpe Ratio
  2. Information Ratio

”High Returns”; “Acceptable Risks”

Allows you to see which fund is able to give higher returns with optimal risk-taking

58
Q

Measure of how well a Fund Manager performs by looking at the excess portfolio return generated for every unit of risk that the Fund Manager is taking

A

Sharpe Ratio

59
Q

How to Calculate Sharpe Ratio

A

Sharpe Ratio = (Rp - Rf)/σp
→ (Rp - Rf): Excess Returns generated by the Fund by taking risk
→ σp: Amount of risk taken by the Fund

Where:
Rp = Return of the Portfolio
Rf = Risk−free rate (usually use the Short term government instruments such as the 91-Day Tbill)
σp = Standard Deviation of the Portfolio

60
Q

General Rule:
 _________ Sharpe Ratio, the better the fund.

A

Higher

Shows Fund Manager was able to generate higher returns on risk-adjusted basis.

61
Q

Sharpe Ratio: EXAMPLE #1

Fund A
Annual Portfolio Return (Rp): 25.80%
91-day Tbill (Rf): 0.50%
Annual Standard Deviation (σp): 18.54%

Fund B
Annual Portfolio Return (Rp): 25.80%
91-day Tbill (Rf): 0.50%
Annual Standard Deviation (σp): 13.12%

A

Fund A Sharpe Ratio: 1.36
Fund B Sharpe Ratio: 1.93

→ If Fund A and Fund B have similar strategy and both offer similar returns, but Fund A has higher risk, Fund A will have lower Sharpe Ratio than Fund B

→ Although both Funds generated same level of returns, Fund Manager B has higher Sharpe Ratio hence was able to generate higher risk-adjusted returns (i.e. took lesser risks to attain same returns)

62
Q

Sharpe Ratio: EXAMPLE #2

Fund A
Annual Portfolio Return (Rp): 32.50%
91-day Tbill (Rf): 0.50%
Annual Standard Deviation (σp): 22.12%

Fund B
Annual Portfolio Return (Rp): 28.80%
91-day Tbill (Rf): 0.50%
Annual Standard Deviation (σp): 15.20%

A

Fund A Sharpe Ratio: 1.45
Fund B Sharpe Ratio: 1.86

→ Higher returns does not mean the fund is performing better, also need to account for risk taken by the Fund Manager

→ Although Fund Manager B generated lower absolute returns, it was able to generate higher returns for every additional unit of risk taken compared to Manager A.

63
Q

tells an investor how much excess return is generated from the amount of excess risk taken relative to the benchmark. The higher the number the better.

A

Information Ratio

64
Q

How to Calculate Information Ratio:

A

Information Ratio = (Rp – Rb)/TE
→ (Rp - Rb): Active return (or outperformance) = Excess returns generated by the Fund over benchmark
→ TE: Tracking Error = Standard deviation of active returns (Rp – Rb)

Where:
Rp = Return of the Portfolio
Rb = Return of benchmark of the Portfolio
TE = Tracking Error = Standard Deviation of the difference between Portfolio and Benchmark returns

65
Q

General Rule:

 __________ IR number, the ______.

 _______________ means Fund Manager failed to add value to the Fund

A

 Higher; better
Shows that Fund Manager is skillful to deliver higher returns over benchmark, given the risk taken.

 Negative IR

66
Q

Information Ratio EXAMPLE:

Fund A
Annual Portfolio Return (Rp): 30.60%
Annual Benchmark Return (Rb): 17.60%
Standard Deviation of Rp - Rb
(Tracking Error): 15.40%

Fund B
Annual Portfolio Return (Rp): 24.80%
Annual Benchmark Return (Rb): 17.60%
Standard Deviation of Rp - Rb
(Tracking Error): 6.80%

A

Information Ratio of Fund A: 0.84
Information Ratio of Fund B: 1.06

→ Fund Manager B generated lower portfolio returns but better IR. This shows that Manager B was able to generate outperformance over benchmark more efficiently by taking on lower active risk, compared to Manager A.

67
Q

is a standard against which the performance of the fund will be measured. In choosing the benchmark for a fund, it is important that the benchmark and the fund are composed of similar securities.

A

benchmark

68
Q

is an aggregate value produced by combining several stocks or other investment vehicles together and expressing their total values against a base value from a specific date. Market indexes are intended to represent an entire market and thus track the market’s changes over time.

A

Market Index

69
Q

The Plan Rules shall include the following:
 ______________ and ____________________ of the benchmark
 its use relative to the fund’s ___________ or _________________
 references from which __________________ on the benchmark can be obtained.

A

 description; key characteristics
 objectives; investment strategies
 detailed information

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