Chapter 11 - Other Investment Classes Flashcards
Collective investment schemes (CISs)
Open or closed ended
Collective investment schemes (CISs)
Regulation
Categories of assets that can be held
Unsuited assets held?
Max level of gearing
Any tax relief available
Investment trusts
Stated investment objective
Key parties: board, investment managers, shareholders
Investors buy shares
Share prices at discounted NAV per share
Closed ended
Public companies
Gearing allowed
Unit trusts
Stated investment objective Key parties: trustees, management company, unit holders Investors buy units at NAV per unit Open ended Trusts Limited power to use gearing
Differences between closed ended and open ended funds
Closed ended less marketable
Closed ended can gear implies volatility
Assets at less than NAV per share in closed ended
Closed ended higher return
Sgares in Closed ended more volatile tan underlying assets
Uncertainty true NAV per share in closed ended
Closed ended can invest in wider range
Different tax treatment
CISs vs direct investment
Advantages
Expertise Diversification Direct costs avoided Holdings divisible Tax advantages Better marketability
CISs vs direct investment
Disadvantages
Loss of control
Management charges
Tax disadvantages
Futures and options
Derivative
Financial instrument with value dependent on underlying asset
Futures and options
Forward
Non standardized OTC contract set future date
Futures and options
Future
Standardized exchange tradeable set future date
Futures and options
Long position
Positive economic exposure
Delivery of asset in future
Futures and options
Short position
Negative economic exposure
Deliver asset in future
Futures and options
Options
Call - right to buy
Put - right to sell
American - exercised before expiry
European - exercised at expiry
Warrant - option over own shares
Overseas market
Reasons
Match liabilities
Increase expected returns
Increase diversification
Overseas market
Drawbacks
Different market performance, mismatching risk Currency fluctuation risk Cost of obtaining expertise Additional admin: custodian, dividend track and collection Tax disadvantages Different accounting practices Lack of good quality info Language problems Possible time delays Poorly regulated markets Political risks Lack of liquidity Restriction on ownership
