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Investment Planning > Investment Companies (Lesson 7) > Flashcards

Investment Companies (Lesson 7) Flashcards

1
Q

What are three types of investment companies

A
  • Closed End
  • Open End
  • Unit Investment Trust (UIT)
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2
Q

What are closed end funds

A
  • have a fixed initial market capitalization because a specific number of shares are initially sold to the public
  • No new shares are issued
  • Shares may trade at a premium or discount to net asset value
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3
Q

What are open end funds

A
  • have an unlimited number or shares
  • As long as an open end fund receives contributions the fund family will continue to issue shares
  • Shares trade at Net Asset Value
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4
Q

What is the Net Asset Value Formula

A
  • NAV = (Assets - Liabilities) / Shares Outstanding
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5
Q

What are unit investment trusts

A
  • Can be equity or fixed income unit investment trust
  • Managed by a Trustee there is no investment manager
  • Are self liquidating, passive management and no trading of assets within the trust
  • issue units not shares
  • Units can be sold back to the UIT at NPV
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6
Q

(Types of Mutual Funds)

Aggressive growth

A
  • invests in small caps and offers the greatest potential for capital appreciation
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7
Q

(Types of Mutual Funds)

Growth

A
  • invests in equities that have a high P/E
  • little to no dividends
  • are growing earnings and revenue rapidly
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8
Q

(Types of Mutual Funds)

Growth and Income

A
  • Invests in equities and income producing assets
  • Primary objective is to provide capital appreciation and income
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9
Q

(Types of Mutual Funds)

Value Fund

A
  • invests in undervalued funds that have a low P/E
  • high dividend yields
  • positive future outlook
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10
Q

(Types of Mutual Funds)

Balanced Fund

A
  • Invests in more bonds than a typical equity fund
  • seeks well balanced return in the form of both income and capital appreciation
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11
Q

(Types of Mutual Funds)

Bond Fund

A
  • Provides investors with a liquid bond investment that is cost effective and fairly conservative
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12
Q

(Types of Mutual Funds)

Money Market Funds

A
  • Highly liquid
  • appropriate for an emergency fund
  • invests in securities with maturities of less than 90 days
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13
Q

(Types of Mutual Funds)

Index Funds

A
  • Tracks the performance of various market indices
  • passive investment strategy that are tax efficient
  • low turnover rates which minimizes capital gains distributions
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14
Q

(Types of Mutual Funds)

Sector Funds

A
  • invest in sectors of the US economy
  • not well diversified
  • have a low r squared (0.50-0.60)
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15
Q

(Types of Mutual Funds)

Asset allocation funds or Lifecycle funds

A
  • Well diversified portfolios including stock, fixed income, international, and money market securities
  • allocation changes as investor gets closer to retirement
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16
Q

(Types of Mutual Funds)

Global Funds

A
  • Invest in international and US securities
17
Q

(Types of Mutual Funds)

International Funds

A
  • Invests only in international securities and excludes US securities
18
Q

(Fund Expenses)

No Load Funds

A
  • do not charge a sales commission when purchased or redeemed
19
Q

(Fund Expenses)

Load Funds

A
  • charge a sales commission when purchased or redeemed
  • Ex: A Shares, B Shares, C Shares
20
Q

(Fund Expenses)

A Shares

A
  • Have a front end load (Up front sales commission)
  • Small 12b-1 fee (marketing fee)
  • No redemption fee or back end load
  • appropriate for long term investors because of the low 12b-1 fee
21
Q

(Fund Expenses)

B Shares

A
  • contain a back end sales load (redemption fee)
  • High 12b-1 fee (the maximum of 1%)
  • do not have front end sales load
  • can be converted into A shares
  • many funds no longer offer B shares
22
Q

(Fund Expenses)

C Shares

A
  • do not charge a front end load
  • usually charge a small back end load and charge the maximum 12b-1 fee of 1%
  • usually appropriate for short term investors
  • do not convert to A shares
23
Q

What are Exchange Traded Funds (ETFs)

A
  • portfolio of stocks that represent an index
  • can be traded intraday
  • most are tax efficient and passive investments
  • can be either actively and passively managed
24
Q

What are Real Estate Investment Trusts (REITs)

A
  • have low correlation with the stock market and the diversification benefit that they provide a portfolios
  • real estate is a hedge against inflation
  • must distribute 90% of investment income to shareholders to maintain tax exempt status
25
Q

What are the three types of REITs

A
  • Equity
  • Mortgage
  • Hybrid
26
Q

What is an equity REIT

A
  • invest in real estate for capital appreciation
  • income is generated from rental income and appreciation
27
Q

What is a mortgage REIT

A
  • invest mostly in mortgages and construction loans
  • make the spread between the lending and borrowing rate
28
Q

What is a Hybrid REIT

A
  • Combo of both equity and mortgage
29
Q

What is an American Depository Receipts (ADRs)

A
  • Used to trade foreign securities in US markets
  • represent foreign stock held in domestic banks foreign branch
  • entitle the shareholder to dividends and capital gains
  • trade on US exchanges and are denominated in US dollars and trade in US dollars
  • dividends are paid in US dollars
30
Q

What is a capital gain in an ADR

A
  • currency fluctuation
31
Q

What risk do ADRs not eliminate

A
  • Exchange rate risk
32
Q

What currency are ADRs denominated in and what currency are their dividends paid in

A
  • US Currency
33
Q

Any asset that does not fit into cash, equities, or bonds is considered

A
  • alternative investments
34
Q

What are characteristics of alternative investments

A
  • not for the average investor
  • typically high risk, large minimum purchase, and high fees
  • Actively managed and may use leverage
  • Very low liquidity
35
Q

What are common alternative investments

A
  • hedge funds
  • collectibles
  • precious metals
  • CMOs
  • LPs
  • REITs

Investment Planning (8 decks)

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