7 Investment Funds Flashcards
Not comprehensive. Points to learn
Real Estate investment trusts (REITs)
Pool investors funds to invest in commercial and possibly residential property.
Main quoted property companies have converted to REIT status (land securities, British land)
Advantage is provide access to property returns without double taxation (ie corporation tax and dividend income/capital gains).
REIT pays no tax on property income or capital gains, providing at least 90%income (after expenses )is distributed to shareholders each year
Can be in SIPP or ISA
Closed ended.
Investment Trust companies
Open or closed? What is gearing? How priced? How traded? How managed? How supervised? How regulated?
Closed ended (number of shares fixed when launched - except when more.issued like a company). May have fixed end date.
Able to gear - long term borrowing to invest. Can improve returns in rising market, exacerbate losses in falling.
Prices is what someone is prepared to pay.
If priced above NAV trading at a premium
If priced below NAV trading at discount
Usually trade at a discount
Traded as a listed company-shares sold on LSE using SETS or via retail service provider. Settled on CREST.
Management:board of directors
Supervision: board of directors
Regulator: ukla
Note like a listed company.
Exchange Traded Funds
Open or closed?
What are 3 methods of physical index replication?
What is synthetic replication?
How priced?
Where traded?
Management?
Supervision?
Regulation?
Investmemt fund designed to track an index.
Use passive management
Although a company, are open ended. Shares created/destroyed on demand.
Fund portfolio may physically replicate index by
- full replication
- stratified sampling
- optimisation (uses computer model to find securities to mimic broad characteristics. Cheaper)
Synthetic replication requires a swap with counterparts for returns on index for payment.
Price largely based on NAV.Price may be premium or discount to NAV but difference usually minimal.
Traded on LSE (extraMARK). Settled via CREST.
No stamp duty on purchase. Low annual management charge.
Management: management company
Supervision: depository (as an open ended company like a OEIC)
Regulation: FCA and UKLA
Hedge funds
Most hedge funds are unauthorised so unregulated. Therefore cannot be marketed to private individuals/retail investors and can undertake a range of activity including gearing.
High entry levels
Usually focus on absolute returns, regardless of market direction.
Use one wholesale broker - prime broker
Cost -usually performance related fees. Can be high.
Private equity
Medium to long term finance provided for a stake in a company.
Principal return is through capital gain on exit (firm buying back share floating on stockmarker, selling on)
To reduce risk private equity investment often done through investment vehicle. High risk. Not liquid. Usually large investing institutions.
Alternative investments
Fine wine, art, antiques
