Investment Companies Flashcards
What are the three types of investment companies?
Open end, closed end, Unit Investment Trust.
What distinguishes open end and closed end companies?
Closed end companies begin with a fixed number of shares and never add more. Their shares may trade at, above, or below NAV.
Open end companies have unlimited shares. Shares always trade at NAV.
What distinguishes UIT’s
They are passively managed, they have a trustee rather than a manager.
They are self-liquidating.
They usually hold fixed income assets.
What does a growth fund invest in? A value fund?
Growth fund: high P/E, little or no dividends, growing earnings rapidly.
Value fund: low P/E, high dividend yields, positive future outlook.
Why are index funds more tax efficient than mutual funds?
They have fewer capital gains because there’s less trading within the fund.
Describe A shares.
Front-end load, small 12b-1 fee, appropriate for investors because of low 12b-1.
Describe B shares.
Maximum 12b-1 fee of 1%, back end load, not commonly offered anymore.
Describe C shares
Max 12b-1 of 1%, smaller back end load, appropriate for ST investors.
What are ETF’s?
A portfolio of stocks that represents an index, and can be traded intra-day. Usually passively managed, and few cap gains (so good for taxes), because they’re tracking an index.
Why are REIT’s a good part of a portfolio? What 3 types are there?
What % of income must they pay investors to remain tax free?
Low correlation with the stock market gives good diversity, and an edge against inflation.
They invest in either buildings or mortgages or blend.
They must pay investors 90% of income to maintain tax free status.
What are ADR’s?
Do they carry exchange rate risk?
American Depository Receipts
Foreign stock held in domestic bank’s foreign branch.
Dividends in $, but cap gains in foreign coin, so they don’t eliminate exchange rate risk.
What do global funds invest in?
Both US AND International equities.
