Extras Flashcards
Risks
CILD MICE PIGS
Currency, Interest Rate, Liquidity, Default
Market (systematic), Inflation, Counterparty, Event
Political, Institutional, Gearing, Shortfall
REIT vs. PAIF
Closed ended vs. Open ended
Inv trust vs. OEIC
75% min assets and income in/from property vs. 60% min in property
2 income streams (prop & div) vs. 3 income streams (prop, div, cash)
Both 90% of tax-exempt profits must be distributed within 12 months of accounting period.
REIT Listed, 125% borrowing covered by income
PAIF no more than 10% NAV owned by corp. investor
Additional info needed?
Athlete v corplecs
ATR
Timeframe
Health
Liabilities / assets
Ethical
Tax
Emergency fund
Vulnerability
CFL
Objectives
Risk
Performance
Liquidity
Experience
Costs
Style of Mgmt.
What is measured by Macauley Duration?
Weighted average term, in years, for purchase price to be repaid by coupons and redemption value.
Used to predict returns
What is measured by Modified duration?
Sensitivity of bonds price to changes in interest rates.
Used to reduce interest rate risk.
Define recession
2 consecutive quarters of negative GDP growth
Economic Factors leading to decrease interest Rates
Loosening Monetary policy
Tightening Fiscal Policy
Reduction in inflation expectations
QE
Currency strengthening
Business cycle
Benefits of TWR
Better for comparing funds than MWR.
Not influenced by cashflow/timing as outside managers control.
Focuses on performance.
Shows change over entire period.
Components of UK Capital Account within the BoP
Foreign investments.
Foreign loans.
Foreign currency.
Components of UK Current Account within the BoP
Goods.
Services.
Investment income/overseas earnings.
Capital and asset movement.
Behavioural Finance
Anchoring - Focussing on one piece of info
Mental Accounting - money in pots
Over Confidence - overestimate own abilities
Herding - following others
Endowment Effect - inherited has greater value
Hindsight - done well in past
Loss aversion- won’t sell a losing asset
Define std. Dev
measures Volatility through variation in actual return against mean.
Difference between CPI and RPI
National Statistic vs. not national stat.
Lower vs. higher.
Excludes housing costs vs. includes.
used for state pension vs. used for index-linked gilts.
CPI key inflation measure for BOE target.
What is Strategic Asset Allocation
- For the long term
- Fixed Asset Allocation
- only adjusted in extreme circumstances
- or if clients circumstances change
What is Tactical Asset Allocation
- Short Term
- Variable Asset allocation
- Reviewed frequently
- Trades more
- aims to take advantage of market movement
Differences between Unit Trust Vs. OEIC
Trust vs. Ltd Company
Trustees vs. Auth. Corp. Director
Assets held by trustees vs. independent depository
Units vs. Shares
Dual Pricing vs. Single Pricing
No dilution Levy vs Dilution Levy
Rules for both Unit Trusts and OEICS
Both open ended
Max 10% of fund value in any on company.
Max 4 holdings at 10%, rest max. 5%
10% short term borrowing
compensation limit £85,000
Income as dividend or interest (60% rule)
Qualifying Rules for Investment Trust
FCA:
- Adequate experience of Mgmt.
- Adequate spread of risk
- Cant control or look to control any of holdings
- Can’t be dealer in investments
- Board independent of management
HMRC:
- Not a close company (less than 5 people controlling)
- Must be listed on LSE
- Must not retain >15% of gross income
Define Correlation
relationship between two assets adjusted for the risk.
Limitations of using Alpha
- Doesn’t explain reason for out performance
- Ignores Costs
- Assumes Beta is correct measure of risk
- Assumes market rate/risk free rate is correct
Explain Stochastic Modelling
- Forecast likely range of returns and volatility under different scenarios.
- Inputs: Returns, volatility, time period
Explain the OCF
Single Percentage figure that shows the annual cost of investing in a fund.
Includes:
- AMC
- Admin Fee
- Audit Fee
- Regulatory Fees
- Marketing Fees
Why would a fund be holding Cash
- inflows into fund
- Cant make new deals
- cover redemptions
- about to make new purchase
- income come into fund
effects of holding high cash
- reduce risk
- dilutes yields
- drag on performance
Define sequencing risk
Effect of volatility on the order and timing of withdrawals and the sustainability of income and capital values.
Effect greater in early years.
Ratios for growth and value
Growth
P/E ratio - high suggests profits expected to grow - share price increases
Value
Dividend yield / cover - high
low P/E ratio - under valued
Why choose inv trust over oeic
- lower charges
- can borrow
- price fluctuates independent of NAV
- liquidity
- real time pricing
Define cfl
The ability to absorb negative inv event without detrimental effect on std of living
Explain momentum investing
- Trend likely to continue
- sell before trend ends
- ignores intrinsic value
- short term
Explain GAARP
- Pay premium for
- stock With specific qualities
- mix of growth + value
- longer term
Explain contrarianism
- Consensus usually wrong
- returns from going against hard
- price less than intrinsic value
- long term.
Why rebalance
- Realign to original asset allocation
- bring in the With ATR and CFL
- review funds
- invest cash
- adjust to change in circumstances
Main characteristics of Vance based inv
- Bottom up.
- under valued stocks
- low p/e
- high divided yield
- mean reversion
- long term view
- contrarianism
