Chapter 7 - Investment Funds Flashcards
What is UCIS?
Unregulated Collective Investment Scheme (UCIS) are considered high risk as they have different rules to a regulated collective investment scheme. The fund manager has a greater opportunity to pursue new or unorthodox investment strategies.
Higher risk and not covered by the FSCS.
Open-ended Funds
Unit Trusts
OEIC - Open-ended investment companies
European funds
Funds that are held out with UK, central Europe.
ETF - Exchange Traded Funds
Index tracker funds that aim to produce the same return they are tracking
What is Real estate investment trust (REIT)
REITS pool investors funds to invest in commercial and possibly residential property.
REITS can provide investors with tax-efficient and diversified exposure to rental properties as they are tax-transparent property investment vehicles.
For a REIT to be exempt from corporation tax, several conditions must be satisfied
At least 75% of the companies total profits have to come from property letting
At least 90% of the rental profits from each accounting period must be paid as a dividend to investors.
Distributions from REITs
A payment from the element that is exempt from corporation tax, which is classed as property income and is typically paid net of 20% tax
A dividend payment from the element that is not exempt from corporation tax, which is taxed as any other UK dividend
Gains on REIT shares are subject to capital gains tax in the normal way
What are Reporting Funds
A reporting fund does not have to distribute all its income, but must report its income to HMRC.
Dividends and CGT taxed at UK rate
What are Non-reporting funds?
These are usually roll-up funds, meaning that all income is accumulated and no dividends are paid
Non-UK domiciled investors gain inheritance tax benefits by investing offshore. Their IHT liability is based only on their UK assets.
What charges will an investor pay
Initial charges
Annual management fees
Performance fees
Exit charges
What charges will a ETF or investment trust receive
Brokers commission changed when buying and selling
Purchase of shares are liable for stamp duty (ETF funds are exempt)
Annual fees
What is momentum investing
Momentum investing aims to capitalise on the continuance of existing trends in the market
What is Contrarian investing
Contrarian investing involves going against the conventional wisdom. It is the opposite of momentum investing
What is negative screening
Funds that use negative screening to exclude companies involved with areas such as;
Armaments
Tobacco
Fossil Energy
What is positive screening
Looking for the best assets in the class, no restrictions
What is full replication
This method tracks the index exactly and is accurate, however is expensive so only recommended for large portfolios.
What is Stratified sampling
This requires a representative sample of securities from each sector of the index to be held.
What is Optimisation?
Costs less than full replication however is more complex as its all based on computer modelling
What is tracking error
Tracking error is often measured as the difference between a portfolios return and the return of the benchmark or index it was to match.
Low tracking - means it is is following the benchmark
High tracking - means it is not following the benchmark
Sterling Strategic Bond
Minimum of 80% of assets being bonds or fixed interest.
Value Investing
Investment strategy seeks to invest in companies that have seen falls in their share price to below their intrinsic value
