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International Introduction to Investment > Investment Funds > Flashcards

Investment Funds Flashcards

1
Q

What is a direct investment?

A

Where an individual personally buys shares.

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2
Q

What is a indirect investment?

A

Where an individual buys a stake in an investment fund.

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3
Q

What are collective investment schemes?

A

Where investor funds are pooled together.

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4
Q

What does CIS stand for?

A

Collective Investment Scheme.

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5
Q

What are investment funds also known as?

A

Mutual Funds, unit trusts or OEICs.

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6
Q

What constitutes a UCITS fund?

A

A fund that is set up in Europe but marketed internationally.

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7
Q

What does UCITS stand for?

A

Undertakings for Collective Investment in Transferable Securities.

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8
Q

What are the EU UCITS directives seen as a measure of?

A

Quality.

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9
Q

What location is the main hub for investment funds?

A

Luxembourg.

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10
Q

What is an OEIC in Luxembourg called?

A

A SICAV.

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11
Q

What does SICAV stand for?

A

Societe Investisement a Capital Variable.

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12
Q

What types of fund of those set up in the UK or Jersey likely to be?

A

OEIC or a unit trust.

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13
Q

What does ICVC stand for?

A

Investment Company with Variable Capital.

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14
Q

What are the benefits of pooled funds?

A

Diversification, access to management, regulation and tax deferral.

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15
Q

How can the risk of one investment be offset?

A

By have a diverse portfolio.

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16
Q

Who manages a fund?

A

A fund manager.

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17
Q

What is passive fund management?

A

When a portfolio is set up to mimic the performance of a recognized index.

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18
Q

What is assumed in passive investment management?

A

That the index markets are effectively priced.

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19
Q

What are the advantages of passive management?

A

Less expensive and few active managers out perform benchmark indices.

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20
Q

What are the disadvantages of passive management?

A

Tracking errors can occur, can only invest in dividends once they are received and it will follow the market down in bear markets.

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21
Q

What is active fund management?

A

Where the fund manager seeks to outperform a predetermined benchmark and employs technical analysis to forecast future events.

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22
Q

What is top down active management?

A

Where the manager focuses on economic and industry trends.

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23
Q

What is bottom up active management?

A

Where the manager focuses on company specific indicators.

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24
Q

What are the 3 styles within the bottom up approach?

A

Growth investing, value investing and momentum investing.

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25
Q

What is growth investing?

A

Picking shares with significant growth opportunities in the long term.

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26
Q

What is value investing?

A

Picking shares that are undervalued relative to present o future profits.

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27
Q

What is momentum investing?

A

Picking shares where the price is rising.

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28
Q

What is contrarian investing?

A

Picking shares with hidden value.

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29
Q

What is core satellite management?

A

Where both passive and active management styles are used within one portfolio.

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30
Q

What is the alternative to the active/passive managed funds approach?

A

Smart beta funds.

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31
Q

What are smart beta funds?

A

They combine passive and active management and seek to outperform passive strategies by targeting value creating ideas.

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32
Q

What is the main characteristic of an OEIC?

A

That shares can be issued and redeemed and it expands or contracts based on investor demand.

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33
Q

What are OEICs called in the US?

A

Mutual Funds.

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34
Q

What is the legal name of a mutual fund?

A

An open ended company.

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35
Q

Where does one buy or sell shares in a mutual fund?

A

From the fund itself.

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36
Q

What is the share price of a mutual fund based on?

A

The funds NAV.

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37
Q

What does NAV stand for?

A

Net asset value.

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38
Q

Who manages a mutual fund?

A

Advisers.

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39
Q

What does SEC stand for?

A

Securities Exchange Commission.

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40
Q

How often does a mutual fund value its portfolio?

A

Daily.

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41
Q

What type of tax is payable on a stake in a mutual fund?

A

Income tax on dividends or any gains made when shares are sold and maybe on capital gains.

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42
Q

What are the 3 types of European fund?

A

SICAVs, unit trusts and OEICs.

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43
Q

What is UCITS?

A

EU regulations that were designed to promote funds to retail investors.

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44
Q

What does a UCITS fund first seek authorization as?

A

A UCITS fund.

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45
Q

What non-EU countries also recognize UCITS funds?

A

Switzerland and Hong Kong.

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46
Q

What are the main characteristics of a SICAV?

A

An investment company with variable capital, are open ended, valued daily, single priced and structured as an umbrella fund.

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47
Q

What is the difference between an FCP and a unit trust?

A

An FCP does not have a legal personality and is based on a contract between investors and managers.

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48
Q

Who is the legal owner of a unit trust?

A

The trustee.

49
Q

Who is the beneficial owner of a unit trust?

A

The unit holders.

50
Q

What is the difference between a unit trust and an open ended investment company?

A

The parties involved and how the units are priced.

51
Q

Who are the two main parties in a unit trust?

A

The Trust Manager and the Trustee.

52
Q

What does the trust manager of a unit trust do?

A

Decides which investments are included in the portfolio, what to buy and when and provides market daily pricing.

53
Q

What does the Trustee of a unit trust do?

A

Is the legal owner of the assets, protects the interests of investors and monitors the trust manager.

54
Q

Who is usually appointed as Trustee of a unit trust?

A

Large insurance companies or banks.

55
Q

Are unit trusts open or close ended?

A

Open.

56
Q

What is the unit price of a unit trust based on?

A

The NAV.

57
Q

Is a unit dual or single priced in a unit trust?

A

Dual.

58
Q

How is the portfolio of a unit trust valued?

A

Daily for bid and offer prices, which produces 2 NAVs.

59
Q

What is the difference between the bid and offer price called?

A

The bid offer spread.

60
Q

What are OEICs known as in Ireland?

A

Variable Capital Company.

61
Q

What does VCC stand for?

A

Variable Capital Company.

62
Q

What is required when setting up an OEIC?

A

An Authorised Corporate Director and a Depository.

63
Q

Who holds an OEICs investment?

A

The depository.

64
Q

Who is the legal owner of an OEIC?

A

The depository.

65
Q

Who is the beneficial owner of an OEIC?

A

The OEIC itself.

66
Q

Who maintains the shareholder register of an OEIC?

A

The Authorised Corporate Director.

67
Q

Is an OEIC single or dual priced?

A

Can be either but typically is single and refers to the mid market value.

68
Q

If a fund is single priced what will its value be based on?

A

The mid market value of its underlying investments.

69
Q

What constitutes a CEIC?

A

A company where there are a set number of shares issued to the investing public and the capital is fixed.

70
Q

In what jurisdictions can CEICs be found?

A

US and Europe.

71
Q

What are CEICs known as in the US?

A

Close ended funds.

72
Q

What type of fund is allowed to invest in more illiquid assets than mutual funds?

A

Close ended funds.

73
Q

What is the definition of an illiquid security?

A

A security that cannot be sold within 7 days.

74
Q

What does UIT stand for?

A

Unit Investment Trust.

75
Q

What is a unit investment trust?

A

A fund that does not actively trade but buys a fixed portfolio of securities.

76
Q

How does a close ended fund raise capital?

A

By making an IPO.

77
Q

What are CEICs known as in Europe?

A

Investment Trusts or Companies.

78
Q

What was the first investment trust called?

A

Foreign and Colonial Investment.

79
Q

Who are the parties in an investment trust?

A

Directors and shareholders.

80
Q

What is a split capital investment company?

A

An investment company that has both ordinary and preference shares.

81
Q

What type of investment fund is allowed to borrow long term?

A

A CEIC.

82
Q

When an investment trust buys stocks and shares using borrowed money what is this called?

A

Gearing or leverage.

83
Q

Who buys and sells units in a unit trust?

A

The fund manager.

84
Q

Who buys and sells shares in an OEIC?

A

The ACD.

85
Q

Who buys and sells shares in a CEIC?

A

A stock exchange.

86
Q

Which type of investment funds value is not based on the underlying assets?

A

A CEIC.

87
Q

What is the definition of trading at a premium?

A

If the share price is above the NAV.

88
Q

What is the definition of trading at a discount?

A

If the share price is below the NAV.

89
Q

What does REIT stand for?

A

Real Estate Investment Trust.

90
Q

Where can REITs be found?

A

The UK, US, France, Australia and Canada.

91
Q

What is a REIT?

A

A trust that pools investor funds into commercial and residential property.

92
Q

What is the main benefit of a REIT?

A

It provides access to property returns without double taxation.

93
Q

What type of tax is not payable on a REIT?

A

Corporate tax.

94
Q

What type of fund is a REIT?

A

A close ended fund.

95
Q

Are REITs quoted on stock exchanges?

A

Yes.

96
Q

What does ETF stand for?

A

Exchange Traded Fund.

97
Q

What does an ETF do?

A

Tracks a recognized index.

98
Q

Are ETF shares quoted on stock exchanges?

A

Yes.

99
Q

What type of fund is an ETF?

A

A open ended fund.

100
Q

What type of management approach does an ETF use?

A

Passive.

101
Q

What type of indices are ETFs based on?

A

Market capitalization weighted indices.

102
Q

What are the 3 methods of physical replication that an ETF might use?

A

Full replication, stratified sampling and Optimisation.

103
Q

How is synthetic replication conducted by an ETF?

A

The manager of the ETF will enter into a swap to exchange the returns on an index for a payment.

104
Q

What are the shares of an ETF priced on?

A

The value of investments in the fund.

105
Q

What are the returns given in an ETF?

A

Dividends.

106
Q

How does one buy and sell shares in an ETF?

A

Through a broker.

107
Q

What are the charges when buying or selling shares in an ETF?

A

A spread, annual management fee and broker commission.

108
Q

What does an absolute return hedge fund mean?

A

A hedge fund that is aimed to profit regardless of market performance.

109
Q

What are hedge funds established as?

A

Unauthorized and unregulated CISs.

110
Q

What is typically the minimum investment amount of a hedge fund?

A

USD50,000.

111
Q

What does CIS stand for?

A

Collective Investment Scheme.

112
Q

Can hedge funds use gearing?

A

Yes because they are unregulated.

113
Q

What do hedge funds usually impose for 3 months?

A

A lock in period.

114
Q

How much can performance fees be in a hedge fund?

A

20% or more.

115
Q

What is a high water mark?

A

A high-water mark is the highest peak in value that an investment fund or account has reached.

116
Q

What is private equity provided in return for?

A

An equity stake in a company.

117
Q

How can a private equity firm realize its capital gains?

A

By selling its shares back to management, by selling its shares to another investor, a trade sale or by a stock market listing.

118
Q

What are private equity funds established as?

A

Limited partnerships.

International Introduction to Investment (9 decks)

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