Book - Chapter 4 ST Questions Flashcards
- What is the difference between the price paid to buy units in a dual-priced unit trust from shares in a single-priced OEIC?
In a dual-priced unit trust, a purchaser will pay the offer price which includes the initial charge. In a single-priced OEIC, the purchaser pays the single price and the initial charge is added on separately.
- A unit trust has a trustee. Who carries out a similar role in an OEIC?
A depositary carries out the same riole and is responsible for safeguarding the assets of the fund and overseeing the activities of the ACD.
- Which type of share issued by a split capital investment trust would carry the highest risk?
Capital shares receive no income but are entitled to all the capital in the trust, once any loans have been cleared and the income and preference shareholders have been paid out. Capital shares, therefore, carry the highest investment risk.
- What is the UK equivalent of a SICAV?
OEICs are the UK equivalent and both are investment companies with variable capital
- Why does synthetic replication present greater risks than full physical replication?
With full replication, an index tracker holds a portfolio of shares that match the index that is being tracked. Synthetic replication uses a swap to achieve the same result and so counterparty risk is introduced.
- What does the term ‘soft protection’ mean in relation to a structured product?
It refers to only partial capital protection being offered. A set return or income level is offered but capital protection is only provided so long as the underlying index does not decline below a set amount.
- How does a multi-asset fund differ from other types of fund?
Multi-asset funds take the concept ,:,f multi-manager funds and extend this to incorporate a greater range of investment strategies and assets, such as commodities, private equity and forestry.
- Why do managers of equity income funds often adopt a value investment management style?
Managers of ‘equity income’ or ‘income and growth’ funds often adopt this style, since ‘out-of-fashion’ stocks often have high dividend yields.
- Which type of bottom-up active management style would typically target shares that are out of fashion?
Fund managers that use a value investment style will typically look to identify shares that are undervalued.
What is tracking error in relation to a passive fund?
An index fund aims to track the performance of an index but the indexation methodology used, charges and delays in investing dividends lead to a degree of underperformance. Tracking error refers to the extent of this underperformance.
