Chapter 7 - investment funds Flashcards

Question

what is dual-pricing

Answer 1

involves using the markets bid and offer price of the underlying asset to produce separate prices when buying/selling

Answer 2

AUTs typically used dual-pricing, OEIC typically used single pricing, but whichever is chosen it must be disclosed.

Answer 3

Because it is based on average prices, it does not provide ability to recoup dealing expenses, such as costs of funds/transaction costs. To get past this, fund managers apply extra costs, known as dilution levy

Answer 4

initial charges, AMC, legal audit fees, broker commission, fees for taxation

Answer 5

they are required to publish ongoing charge figures (OCF) and quote this in key investor information document (KIID). This includes all expenses costs, but does not include initial/exit and performance fees. other companies = total expense ratio

Answer 6

- directly with fund managers, telephone, internet, post - through Brokers or financial advisors - fund supermarket or platform essentially = always bought from FM

Answer 7

organisations that specialises in offering investors easy access to a range of unit trusts and OEIC, which offer valuations, portfolio planning

Answer 8

Takes place directly with each fund group, who will record ownership of relevant number of units or shares in fund which have been registered. If the investor decides to sell, the FM has 4 days to settle this trade. Since 2009 managers have been able to accepted instructions on phone or internet.

Answer 9

EMX - traditionally, used to enter customer orders, but was taken over by Euroclear UK and international, which is a company that owns CREST, and it now has an automated straight through platform for fund dealing and settlement.

Answer 10

A company, commonly referred to as an investment trust company, which has a director and shareholder, and is different from AUT and OEICs as the shares remain fixed so close-ended.

Answer 11

Investment company pools investors money into commercial or residential property and is close-ended and traded on LSE features - no more double taxation (previously investors would have to pay corporation, income, and capital gains tax, but it now no property income/disposable or capital gains tax if 90% paid to shareholders. form -It is held in individual savings accounts and self-invested pension funds. It provides diversified, no liquidity risk as not holding actual property.

Answer 12

Amount of money borrowed to invest into securities. This is unlike AUT and OEIC

Answer 13

unlike AUT and OEIC, these are priced on market demand. If the investment share price is above the NAV, it is a premium. If the investment shares price is below the NAV it is a discount. Most trades are at a discount. A smaller discount means investments truss are nearing their winding-up or going through a corporate action.

Answer 14

LSE, using the SETs trading system or via retail service providers

Answer 15

EFT = type of investment fund which has shares that are tradeable on a stock exchange and designed to track performance of an index. participants = Authorised Participant = usually large financial institutions, who are authorised to create/redeem ETF EFT Sponsor = entity that creates and managers EFTs. they design the investment strategy. Custodian = safekeeping/holds the underlying asset Market Maker = facilities the buying/selling of EFT on Lse

Answer 16

Creation - AP approaches custodians with large basket of assets (creation unit) - creation unit is divided into individual EFT shares and sold on SE Redemption - if APs want to cash out they will give the EFT shares back to provider - the provider gives AP underlying assets rather than cash This process allows price efficiency and liquidity

Answer 17

Physical replication - traditional form and favoured full replication - tracks all areas of index, it is accurate but expensive Stratified sampling - requires a represented sample of securities from each sector. It is less expensive, but could be bias Optimisation - uses sophisticated computer modelling techniques to find representative which mimic the index Synthetic replication - fund managers enter into a swap (OTC derivative) with a market counterparty to exchange the returns of the index for payments + passes responsibilities, costs cheaper - risk the counter-party may fail

Answer 18

- annual management charges - stockbroker chargers - difference in price brought and price sold

Answer 19

only AUT are referred to as trusts, everything else is company supervision for open-ended IC and ETF are provided by depositary only investment trusts are close-ended trading with unit trusts and OEIC are done by investment manager settlement is done on CREST with IT and ETF

Answer 20

Hedge fund is an investment fund that aims to make money in all market conditions and take use of short positions. main aspects: structure - not authorised, not for typical investors investment entries = minimum usually of 50K, some being 1M investment flexibilities = can investment in whatever gearing - can borrow prime broker liquidity - usually has a "lock-in" period between 1-3 months costs - charge performance fees

Answer 21

Involves companies that are not listed on the stock exchange. Investors (firms or wealthy indiv) put money into those companies to help them grow, aiming for future profits. They raise capital by gathering wealthy investors which is then pooled into investing into private limited companies. Private equity firms make money by: selling shares back to management of investee company, selling shares to another investor, trade sales, company achieving stock market listing

Answer 22

pricing directly links to underlying asset

Answer 23

a direct stake in company

Answer 24

traded on LSE, used for long-term borrowing and has fixed share capital

Answer 25

Audit fees

Answer 26

Hedge funds

Answer 27

to reduce market risk