Chapter 7 Investment Funds Flashcards
What are the two types of management style?
Active Management and Passive Management
Which 4 investment styles are categorised as part of the ‘bottom-up’ approach.
Growth Investing - Shares of companies that long-term will grow.
Value Investing - Shares of companies that are undervalued.
Momentum Investing - Shares that are rising, and will continue to.
Contrarian Investing - Shares that are out of favour and have ‘hidden’ value.
What is the key feature of Passive Management?
The mimicking of indexes. Described as index tracker funds at times, passive funds construct an index-esque portfolio.
What are the advantages of indexation?
Very few active managers outperform equity indexes.
These funds charge significantly lower fees than actively managed funds.
Generally less expensive to run, lower ratio of staff to funds and lower portfolio turnover.
What are the disadvantages of indexation?
Performance is affected by the need to manage cash flows and adjusting the index for stocks coming in, and falling out of the index.
Most indices reflect the effect of the value of dividends.
May not meet investor’s objectives.
Follow the index down in Bear Markets.
What is the IA (Investment Association)
The trade body for the UK authorised open-ended funds industry.
Who is the association for closed-ended companies (investment trusts)
The association of investment companies (AIC)
What are UCITS?
They are a series of EU Regulations that were designed to facilitate the promotion of funds to retail investors across the EU and EEA.
What was an effect that Brexit had on UCITS?
It meant British investment funds lost their right to be a UCIT fund, and have since set up ROI or LUX subsidiaries as such.
What is a NURS?
NURS stands for ‘Non-UCITS retail scheme’ and these are funds that are deemed by UK regulators to be suitable for retail investors.
What are the roles of the trustee and the unitholders in a ‘Unit Trust’
The trustee is the legal owner of the underlying assets and the unitholders are the beneficial owners.
How does investing in a Unit Trust typically work?
Investors pay money into the trust in exchange for units.
How are Units in a Unit Trust priced?
They are priced by the Unit Trust manager dynamically based on the net asset value of the underlying constituents.
What is an OEIC?
An open-ended investment company, which typically have variable capital.
What are two requirements when an OEIC is set-up?
That an authorised corporate director (ACD) and a depository are appointed.
