Chapter 22 Flashcards
Managed Product
a pool of capital gathered and invested in a portfolio of individual securities according to a specific investment mandate
Mutual Fund
an open-ended investment company, structured either as a corporation or a trust, that raises capital by issuing shares (in the case of a mutual fund corporation) or units (in the case of a mutual fund trust)
Wrap Funds
portfolios of managed products “wrapped” together and sold as a single product
Wrap Accounts
accounts for which a qualified portfolio manager is authorized to select securities and execute trades on behalf of a client (can include mutual funds, pooled funds, or individual securities )
Funds of Funds
invest in portfolios of other managed products, usually mutual funds
Separately Managed Wraps
target investors with higher levels of investable assets. Accounts are managed on a segregated basis, thereby enabling the client to own individual securities
Synthetic ETFs
Do not hold the same underlying exposure as the index they track, instead they are constructed with derivatives such as swaps to achieve the return effect of the index
Leveraged ETFs
The fund uses borrowed capital, in addition to investor equity, to provide higher exposure to the underlying index
Uses derivates such as swaps to achieve the leveraged return effect
Inverse ETFs
constructed with derivatives such as swaps to achieve an inverse return effect
3 Commodity ETFs
- physical based
- future based
- equity based
Future Based ETFs
Invest in futures contracts of different commodities, with an underlying portfolio of money market instruments to cover the full value of the contracts
Equity Based ETFs
Invest in listed companies that are involved in exploration and development or in the processing or refining of a commodity
Risk of roll yield loss
Occurs when the future price of the asset is above the expected future spot price, and so the investor will lose money when rolling contracts into the next month
Risk of Front Running
Since commodity ETFs must periodically roll over their holders as future contracts expire, In anticipation of the rollover, traders have been known to buy the new contract and attempt to profit on the tide created by the ETF’s large buy orders
Counterparty risk in derivatives
ETFs that employ swaps face this risk that the other side of the swap may not be able to fulfill its obligations over the life of the contract (failure to receive payments, not loss of principal
Why do swaps carry more counterparty risk than ETFs?
Because they are processed and guaranteed through a clearinghouse
What happens when a Canadian ETF distributes a non-Canadian dividend?
no further tax is deducted because US tax is withheld (if held in taxable account)
Investor can get the withholding tax back by claiming a foreign tax credit (if held in taxable account)
How are distributions taxed from US listed ETFs?
As ordinary income (even capital gains)
Core and Satellite
- Core: intended to contribute the majority of the returns
- Satellite: more focused on riskier sectors that are intended to be traded based on market condition changes and boost returns
6 ETF Investment Strategies
- Core and Satellite
- Rebalancing
- Tactical Asset Allocation
- Cash management
- Simplified exposure to once hard to access asset classes
- tax loss harvesting
Hedge Funds
Lightly regulated pools of capital with managers who have great flexibility in their investment strategies and are often referred to as alternative investment strategies
Hurdle Rate
Minimum rate of return that a hedge fund must make before a performance fee can be taken
High Water Mark
contract provision preventing a hedge fund manager from collecting a performance fee until the higher previous net asset value is exceeded
hedge Fund Prime Broker
Investment dealer or brokerage that supplies services to the hedge fund in the implementation of trading strategies
Responsible for trade execution, financing agreements, and collateral management
Hedge fund Custodian
responsible for holding and tracking all of the assets and for transferring securities and cash to and from the prime broker as required
Hedge fund administrator
Processes subscriptions and redemptions and calculates the hedge fund’s NAV
Bitcoin the token
piece of code that represents ownership of a digital concept (a bitcoin) with financial value
Bitcoin the protocol
the distributed network, or blockchain, that maintains the ledger of balances of bitcoin the token
Blockchain
Bitcoin is powered by open-source code, known as blockchain, which creates a shared public ledger
Each transaction is a “block” that is “chained” to the code, creating a permanent record of the transaction
Bitcoin mining
Members of the peer-to-peer bitcoin platform independently confirm the transactions using high-speed computers through a process called bitcoin mining
PPNs
debt instrument issued by a bank in the form of a deposit note
Delivers a return (if any) in the form of interest and has a maturity date upon which the issuer promises to return the face value (i.e., the principal) of the note
Overlay Management
a service that combines several managed investment products into a single account controlled by a single authority
unified managed accounts
essentially software tools and data feeds so that the wealth manager is able to monitor the client’s overall portfolio
