Misc Flashcards
Purpose of ir sharpe etc (3)
Compare against benchmark
Assess risk adjusted returns
Outperformance, value alpha
Reasons for outperformance (3)
Sector
Consistency manager
Skill manager
Reasons for cash high (4)
Inflows
Failed deals
Redemptions
Recent disposal
Effects of high cash (4)
Drag on performance
Protects in falling market
Dilutes yield
Buying opps
Paif rules - 4
60% of income from property
60%of assets property
No corporate investor 10% more than nav
90% property income to shareholders within 12m TYE
How is paif taxed
Tax free on property
Ct on shares/cash
How are investors taxed on paif/reit
20% paid at source
Otherwise div/interest
List of risks
Protection
Non systematic
Systematic
Sector risk:not diversified
Define sequencing risk
Impact of volatility
On order and timing of withdrawals
On sustainsimg income
Greater in early years
5 reasons to rebalance
Change objectives
Market conditions
Clients asks
Underperformance
Value of investment returned
Index linked gilts price go down when?
Inflation lower than expected
Deflation
IR faster than inflation
How to calculate IL gilt rise 4
Rpi 3 months before
Divided by rpi at issue
X coupon and capital
Divide by 2
IL risks and drawbacks
Price volatility before maturity -ir
No fscs held directly
Possible capital loss
Deflation risk
Reinvestment risk at maturity
Benefits of IL
Retain buying power
No default risk
Tradable
Income stream
Break even calc
Conventional minus IL
Reasons 4 and effects 3 of holding cash
inflows
to cover redemptions
dividend payments
recent disposal
Drag on performance
reduce volatility
take advantage of opportunities
liquidity crisis open ended and close ended
Dilution levy
Gate
suspend redemptions
Gear
suspend
sell properties
5 limitations of EMH
- Assumes standard deviation as measure of risk.
- Does not take into account attitude to risk/capacity for loss.
- Uses historic data to predict expected returns.
- Excludes impact of costs and charges.
- Assumes portfolio uses passive funds/cannot factor Alpha.
definition 5 tactical
- Varying weightings/allocation;
- short term;
- with frequent rebalancing.
- Substantial variation from objective.
- Take advantage of market changes
5 benefits of capm
- Easy to calculate/uses widely available information.
- Takes account of systematic/market risk.
- Reflects fact most portfolios are diversified to remove unsystematic risk.
- Robust/trusted.
- Gives an expected return/benchmark.
6 fees in ocf
- Management fee/Annual Management Charge.
- Administration fees/secretarial/directors fees/insurance.
- Marketing.
- Audit/tax compliance fees.
- Registration/regulatory fees.
- Custody/depositary/trustee.
5 additional fees to OCF
Transactions fees/initial charge/spread/Stamp Duty.
* Performance fees.
* One off legal/professional charges.
* Interest/gearing costs.
* Adviser charge.
8 whether to invest in…
- Charges.
- Tracking error
- Standard deviation
- Dealing frequency.
- performance
- Dividends.
- passive/active.
- Counterparty risk.
Sovreign debt risks 8
- Local economics
- Govnt policy
- Unsecured
- Rating of country
- Local inflation
- Can’t be sued
- Currency
1 note on PIBS 1 note on pre shares
con cumulative, nominal amount paid out not share price
5 features of money markets
- Tradable
- fixed term
- lowish credit risks
- £Big
- Institutions & &
How does SONIA work
o Interest rate benchmark
o Administered by B of E
o Average interest rate banks
pay to borrow overnight
from other institutions
whats sub investment grade
2 B or less bad
Macaulay defintion 5
weighted average
number of years
an investor must retain a bond
where the cash flows
equals the amount paid for the bond.
2 factors that effect duration
Term to redemption and coupon rate
Standard deviation calcs
average
distance
square
average
square
5 systematic risks
IR
Inflation
Currency
Political
Tax
7 non systematic
default
credit
liquidity
Operational
shortfall
reinvestment
regulatory
2 passive risks
Market - follows
Style - replication causes tracking error
6 factors where to invest
Charges
Style/objective
Alpha
Sd
Sharpe/ir
Financial strength
Manager
Dividend yield
5 effects of current account ring n deficit
Increase ir to slow demand for imports or increase foreign investment
Growth falls due to fiscal and monetary
Weak pound
Uses foreign reserves
Inflation increases
Tracking error caused
Inaccuracy of method eg sampling
Fees
Currency hedging
Cash drag
Tax
Div reinvestment lag
Capm mpt assumptions
Risk averse
Information available to all same time
Costs
Holding period same for everyone
Buyers sellers can’t affect price
Unlimited borrowing risk free
Manu buyers sellers
3 benefits and 3 drawbacks platform not direct
Income flexibility
Pre funding
Institution class
Services not used
Can’t hold alternative income products
Exit charges
3 platform due diligence
Cash account ir
Continue existing income uninterrupted
Income options on platform via cash account
Pay natural income
Pay regular income
Pay ad hoc
4 benefits of platform consolidation
Consolidated payments
Bed and isa
Transaction history
Migrate to Lower find charges
3 impacts to consider on advice firm platform switching
Reputation
Conflict of interest
Cost to firm
3 client impact platform switching
Data breach
Transaction history loss
Income outage
3 objectives to rebalancing
CFL
Invest cash
Change of objectives
5 rebalance issues to consider
Frequency
Auto manual
Retain benchmark or alter
Liquidity
Trading costs
Reasons for investments falling (3)
One off event
Poor sector
High beta or sd
2 issues with sharp ratio
Costs
Assumes sd as measure of risk
2 limitations of roce
Single period
Distorted by one off factors
Not just sh but creditors too
Ucits rules 3
16 holdings
4 10%
5% others
2 wp bonuses
Annual - regular, variable, can’t be removed
Final - one off, on maturity, death, surrender, not guaranteed
Unitised versus conventional (4)
Units
Bonus in advance
Easier to switch
Easier to value
3 things acd does oeic
3 depositary
Valuations/pricing
Prepares accounts
Reporting
Custodian
Monitors acd
Monitors borrowing limits
5 Segmentation benefits
Can encase whole segments
Assign
Reduce chargeable gain
Defer chargeable gains
Maximise top slicing
Active v passive better 4
No alpha to be had
Market efficient
Technical analysis doesn’t work
Costs
Risks list 6
Geography
Non systematic
Sector
Economic
Liquidity
Protection
Manager style factors
Administration and access
Bespoke/bulk buying
Costs/charges/control
Diversifications
Expertise/exercise voting rights
Regulatory
Drawbacks of mwr hpr 4 bullets
Timing of cash flows
Outside control of fund manager
Was it a result of who or when
Not good for comparing
Suitability factors 1
Atr
Timescales
Health
Liabilities
Experience
Tax
Ethical
Vulnerability
Suitability factors 2
CFL
Objectives
Risk
Performance
Liquidity
Emergency
Costs
Style
