Chapter Ten Flashcards
Describe an investment trust?
The legal form is a plc. This is a company in which investors invest by buying shares in the company and the investment trust company itself then invests in other companies
What is a unit trust?
A legal trust structure where investors buy units in the fund that distributes income and achieves capital gains
What is a wrap account?
A fund that offers tax advantages which allows funds from many providers to be held in a single account
Do investors control what assets are held within the fund?
No
Are unit trusts or invnestment trusts legal trusts?
Unit trusts are legal trusts, whereas investment trust companies are plc’s listed on the LSE
What type of trust can invest in overseas equity?
Both unit trusts and investment trusts can
What restriction is there on borrowings for a UCITs retail fund?
A scheme may only borrow up to 10% of the NAV of the fund
Are all unit trusts authorised?
No, unauthorised unit trusts exist but cannot be promoted to the public
When must a unit trust be authorised?
If it is to be advertised and promoted to private customers
Is an authorised unit trust an open or closed ended investment?
It is an open-ended investment
Who regulates authorised unit trusts?
The FCA
What is the responsibility of the Depositors in respect of an open ended investment company?
To safeguard the assets of the OEIC
What circumstances can lead to a unit trust manager holidng a box?
Re-purchase of units from unit holders
What is a ‘box’ in a unit trust?
The units held in the box enables the unit trust manager to match buyers and sellers of units. When an investor subscribes to a unit trust, the money is sent to the unit trust manager who credits the investor with the units held in the box
What happens if in a unit trust no units are held in the ‘box’?
If no units are held or additional units are required, the unit trust manager requests the trustee to create units
How much of the total fund can an authorised unit trust that is not a tracker fund invest in any one security?
10%
How much of the shares in any one company that is not itself a collective investment scheme can an authorised unit trust that is not a tracker fund acquire?
10%
Why are investment trust companies always closed-ended?
Because they have fixed share capital
What are the three main types of structured products?
- Structured capital protected products
- Structured capital at risk products
- Structured deposits
Under COLL Sourcebook rules, how much of a UCITs retail scheme’s assets can be invested in the issues of one government body?
No more than 35%
When can a UCIT’s scheme breach the government investment limit?
It may breach the 35% limit for a single issuer provided that no more than 30% of the scheme is invested in a single issue and that the scheme’s assets compire at least six different government bond issues
What is a split capital trust?
Trusts where capital shares are paid any surplus assets on the winding up of the trust
What are the three main classes of share in an investment trust?
Income share, zero-dividend preference share and a capital share
What is generally the most risky type of share to hold in an investment trust?
Capital shares as they receive the remainder of the investment trust’s funds once the other classes of shares have been paid on winding-up
Describe the significance of UCITS
A classification of funds enabling cross border marketing within the EU
Why was UCITS created?
To facilitate cross-border marketing of collective funds
What determines the price of shares in an investment trust?
Supply and demand for the shares in the investment trust
Where are shares in an investment trust company traded?
On the LSE and the price reflects supply and demand
When is a dilution levy most likely to be applied in respect of an OEIC?
There are exceptionally large fund outflows
What does a dilution levy do?
If there are exceptionally large outflows of funds, the costs involved with altering the underlying assets of the fund may have a negative effect on the shares held by the existing investors. This may cause a problem for the fund manager who has to go into the market to sell the underlying assets, thus incurring costs. These costs can be recouped by the use of a dilution levy
Can Individual savings accounts hold investments in OEICs?
Yes
Who looks after the assets of an OEIC?
A depository
Are unit trusts dual-priced?
Many unit trusts are dual priced, with a spread between the buying and selling prices of units
How are OEIC equity fund distributions paid?
They are paid gross
What do the ICVC regulations cover?
Open ended investment companies
What does ICVC stand for?
Investment company with variable capital
What is true about OEIC shares’ price?
They have a single price, with no bid/offer spread
Can OEIC shares be held in an ISA?
Yes
What can an investment in an OEIC provide?
Diversification
Can you buy OEIC shares in the market when their valuation stands at a discount to the aggregate market value of its shares?
No, the market price of OEIC shares will reflect the net asset value
Does an investor in a unit trust benefit from an increase in value of a portfolio of equities, government and corporate bonds?
Yes
Does a unit trust have an independent trustee?
Yes
Does a unit trust have the benefit of fund management?
Yes
Does an investor in a unit trust benefit from the ability to select individual equities?
No, the whole point of investing in a unit trust is that you purchase units representing a large number of investments of shares, bonds, etc…
What can a UCITS fund not invest in?
Single property
What are the requirements of securities in a UCITS fund?
They must consist of transferable securities, approved money-market instruments, units in collective investment schemes, derivatives and forward transactions and deposits
Can a UCITS fund invest in property?
It can invest in property, e.g. via shares in a property company, however it cannot invest in single properties
What are the ARC Private Client Indies available for?
- ARC cautious PCI
- ARC balanced asset PCI
- ARC steady growth PCI
- ARC equity risk PCI
Are investment trusts closed or open ended?
Closed as they have fixed share capital
Are ICVCs open or close ended?
They are open-ended
Are unit trusts open or close ended?
They are open-ended
Which investment vehicle is subject to the Companies Act 2016?
UK investment trust company. As they are companies they are governed by company law
Are ETFs structured as a company?
Yes
Are ETFs priced at set valuation points throughout the day?
No, ETFs are continuously priced throughout the trading period
Are ETFs open or close ended?
They are open-ended
Are ETFs listed?
Yes
A client has been told that their holding is trading at a significant discount to NAV. What investment is the client likely to be holding?
A closed-ended fund such as an investment trust company may trade at a premium or discount. They normally trade at a discount
Where do open-ended funds such as unit trusts, OEICs and ETFs trade?
At the value of the underlying investments
