investment products

Question 1

regulated CIS (can market themselves to retail clients)

Answer 1

ICVC/OEIC
authorised unit trust
recognised schemes (overseas)

Question 2

authorised unit trust (supply = demand)

Answer 2

UCITS scheme
qualified investor scheme (only professionals)
non-UCITS retail scheme

Question 3

regulated unit trusts bid and offer spread

Answer 3

no more than 15%
> covers dealing cots and stamp duty

Question 4

single price dilution levy and dilution adjustment (swing)

Answer 4

> costs of buying or selling units is passed on to buyers and sellers of units at an ADDITIONAL charge
costs of buying or selling units is passed on to buyers and sellers of units by incorporating them within the unit price

Question 5

OEICS ACD and depositary

Answer 5

ACD responsible for investment decisions and pricing
depositary has custody of assets and ensures ACD acts within regulatory framework
one way pricing
no secondary market

Question 6

UCITS restrictions

Answer 6

transferable securities (trade on eligible market)
approved money market instruments
units in CIS
derivatives and forwards
deposits
for CIS, movable and immovable property

Question 7

eligible markets characteristics

Answer 7

regulated
regular hours
recognized by regulator
open to public
liquid
arrangements for settlement

Question 8

ITC properties

Answer 8

fixed share capital
listed on LSE
borrow funds
not subject to FCA restrictions
investment in single company to 15% of NAV
governed by company law, FCA listing rules and tax law
closed-ended
after launch do not normally contract or expand
RETIS /VCT
two share class (preference and ordinary)
pay dividends 2 yearly
share price usually trades at a discount

Question 9

strucutred products

Answer 9

> Combo of security and derivative have a fixed life and at the end payment to investor
eligible for tax efficient wrappers : ISA + SIPP
1. strucutred deposit : interest linked to performance of asset. deposit protected by FSCS
2. strucutred capital protected product: zero-coupon bond + long option. not protected by FSCS
3. strucutred capital at risk product: some or of the investors capital at risk to gain additional return

Question 10

HEDGE FUNDS ARE NOT REGUALTED BUT STILL

Answer 10

MANAGER REQUIRES AUTHORISATION BY FCA

Question 11

fixed and mngmnt fees

Answer 11

1-2% can be up to 5%
25% of any upside performance

Question 12

hedge fund investm characteristics

Answer 12

> short selling
borrowing
derivatives

Question 13

private equity funds

Answer 13

> venture capital (new firms)
growth capital (minority stake in an established firm)
buyouts (public to private firm) less risky than venture capital

Question 14

general partners and limited partners

Answer 14

run the fund and invest in it
commit capital (usually 10yrs)

Question 15

basic types of investment

Answer 15

primary investment : commit capital to new fund,very risk primarily because as co not yet bought
secondary investment : limited partner sells holding. new investor benefits from shorter holding period and knowledge of the assets
co-investment : limited partners invest directly in the co held in the fund allows for greater exposure to the cos than fund rules allow
fees : mngnt fees 1-2% + carried interest 20% of total returns or returns in -excess (hurdle rate)

Question 16

1. unit trust manager
2. trustee
3. investment manager

Answer 16

1. defines terms of trust
   markets trust
   receive payments
   appoints trustee
2. create and redeem units
   legal owner (bank or insurance company)
   ensures compliance with trust deed
3. purchase and sale of securities
   provision of valuations to trustee
   investment strategy

1 and 3 can be the same body

Question 17

dilution levy (authorised unit trust)

Answer 17

cots of buying and selling passed on buyers or sellers of units at an additional charge

Question 18

dilution adjustment (authorised unit trust)

Answer 18

costs of buying and selling passed on to buyers and sellers of units within unit price

Question 19

CIS restrictions:
Borrowing
Single issuer securities
units in CIS from a single fund
Government securities from a single issuer
Government securities from a single issue

Answer 19

of NAV:
max 10%
max 5% (can be 10% for max 4 firms)
max 20%
max 35% (at least 6 issuers)
max 30%
=> min level of diversification exists

Question 19

CIS restrictions:
non-voting shares
debt securities
money market instruments
CIS units

Answer 19

% of a single institutions securities owned :
max 10%
max 10%
max 10%
max 25%

=> fund does not seek to control an issuer of securities

Question 20

ETP

Answer 20

OPEN-ENDED fund
primary and secondary mrkts
UCITs compliant
recognition status

Question 21

physical and synthetic ETF

Answer 21

> portfolio mngr constructs the portfolio by replication
use derivatives to gain exposure to index e.g. equity swaps

Question 22

synthetic ETF

Answer 22

> cheaper than physical replication > greater leveraged exposure
short exposure to tracked index (inverse fund)
risk:
default
collateral (can vary from value from the index)

Question 23

characteristics of ETF

Answer 23

> open-ended (not affected from supply and demand)
tracker index fund
trade on secondary markets
low charges (nav on primary market different to share prices in secondary market)
no stamp duty
can be shorted

dis:
leverage
unique trading costs
differing underlying assets

Question 24

offshore fund

Answer 24

overseas unit trust
does not pay UK tax

Question 25

hedge funds classification

Answer 25

> event-driven (mergers, restructuring)
market neutral (little or no correlation with a traditional market)
long/short funds
tactical trading
fund-of-funds