2.5 Collective Investments

Question 1

What is collective investment

Answer 1

An arrangements that enables a number of investors to pool their assets and have these professionally managed by an independent manager

Question 2

Unregulated collective investment scheme in UK

Answer 2

UCIS (hedge fund)

Question 3

Regulated collective investment scheme in UK

Answer 3

Recognized: UCITS. can market to EEA

Authorized: Domestic funds- market to domestic only

Question 4

What restrictions do regular collective investment schemes have

Answer 4

• concentration (must be diversified)
• controlling interest (max exposure to a company)
• Borrowing (cannot be highly geared)

Question 5

Look at summary table

Question 6

Investment trust

Legal structure
open/closed
holdings
supervision
managed
investment rules
borrowing powers
pricing
value

Answer 6

Company
Closed ended
Shares
Independent auditors
Fund manager
Flexibility
Can borrow
Bid-offer
Market sentiment

Question 7

Unit trust

Legal structure
open/closed
holdings
supervision
managed
investment rules
borrowing powers
pricing
value

Answer 7

Trust
open ended
units
Trustee
Fund manager
Defined rules
limited ability to borrow
bid-offer
NAV

Question 8

OEIC/ICVC

Legal structure
open/closed
holdings
supervision
managed
investment rules
borrowing powers
pricing
value

Answer 8

Company
Open
Shares
Depositary
AUTHORISED CORPORATE DIRECTOR
Defined rules
Limited ability to borrow
SINGLE
NAV

Question 9

Is SICAU open or closed

Answer 9

open ended

Question 10

What does open ended mean

Answer 10

Supply can be changed infinitely to match demand

Units/shares not transferrable

No secondary market

Question 11

Major disadvantage of CIS

Answer 11

Lack of price transparency - true value of unit assessed once a day

Question 12

What can closed ended funds do

Answer 12

• Shares trade on secondary market (ordinary and preference)
• Can use gearing

_ can invest in unquoted private companies

Question 13

What is a venture capital trust

Answer 13

Closed ended vehicles, which invest in relatively new start up companies. traded on LSE

Question 14

What is a split investment trust

Answer 14

Companies set up for limited period eg 5 years

Issues 3 types of shares

• 0 div pref
• Income shares
• Capital shares (no income), whatever left after above paid

Question 15

What is an ETF (exchanged traded fund)

Answer 15

Open ended, trades at NAV
BUT ALSO TRADEABLE ON SECONDARY market

Question 16

Difference between structured deposit and structured investment

Answer 16

Structured deposit- returns on deposit linked to performance of another asset (affects interest). GUARANTEED BY FSCS

Structured investment has NO FSCS GUARANTEE

Question 17

LOOK AT PAYOUT STRUCTURES

Question 18

Disadvantage of open ended property fund

Answer 18

Management costs can erode returns

Redemption moratoria- redemptions infrequent

Question 19

Who is responsible for repairs in residential vs commercial property

Answer 19

residential - landlord responsible

commercial - tenant responsible

Question 20

From which of the following organisations would an investor normally buy shares in an exchange-traded fund?

Answer 20

Broker

Shares in an ETF would normally be purchased from a broker as they trade on exchange.

Question 21

Which of the following products can be traded real-time, giving an investor the ability to track an index at low cost?

Answer 21

ETF

Question 22

With regard to an open-ended investment company, where would you acquire shares?

Answer 22

Authorised corporate director

Question 23

Who can an investor buy units in a unit trust from?

Answer 23

Manager

Question 24

How are shares in an open-ended investment company MOST LIKELY to be priced?

Answer 24

Single-pricing based on the value of the underlying shares

Question 25

Investment trusts are normally:

Answer 25

Limited companies