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Equity > overview > Flashcards

overview Flashcards

1
Q

negative screening

A

the practice of excluding certain sectors or companies that deviate from accepted standards in such areas as human rights or environmental concerns

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2
Q

positive screening / best-in-class

A

identify companies or sectors that score most favorably
with regard to ESG-related risks and/or opportunities

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3
Q

thematic investment

A

Focus on opportunities presented by new technologies, changes in regulations, and economic cycles

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4
Q

impact investing

A

+ seek to targeted social / enviromental objectives with measurable return
+ method:
* engagement with company
* direct investment to the company

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5
Q

popular approach to segmenting the equity universe

A

+ Size: ( large/small/mid cap)
+ Style: value, growth, blend (core)
+ Geography: developed/ emerging / frontier markets
+ Economic activity: production - oriented, market - oriented

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6
Q

production-oriented

A

approach group of companies have
+ the same products. Eg: commercial airlines in transportation sector/ travel sector / leisure sector
+ same inputs in manufacturing process. Eg: coal company in materials/mining sector,

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7
Q

market-oriented

A

group of companies have:
+ the markets they serve
+ the way revenue is earned
+ the way customers use companies products

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8
Q

4 main global segment in equity universe by economic activity

A

(1) the Global Industry Classification Standard (GICS);
(2) the Industrial Classification Benchmark (ICB);
(3) the Thomson Reuters Business Classification (TRBC);
(4) the Russell Global Sectors Classification (RGS).

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9
Q

2 main portion of dividend income

A

+ Special dividends
+ Optional stock dividends

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10
Q

securities lending income

A

involve securities the seller does not own

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11
Q

ancillary investment strategies

A

include
+ dividend captue
+ selling (writing) options

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12
Q

dividend capture

A

Step 1: purchase stock before ex-dividend dates
Step 2: hold stock through ex-dividend dates to earn the right to receive dividend
Step 3: sell the stock

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13
Q

administration fees

A

processing of corporate action:
+ custody fees: phi luu ky
+ depository fees:
+ registration fees

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14
Q

marketing & distribution cost

A

6 costs:
+ costs of employing mkting, sales, client servicing staff
+ advertising costs
+ sponsorship costs
+ producing, distributing brochure, communication to customer
+ Flatform fee
+ Sales commission

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15
Q

trading costs

A

include 3 costs:
+ Bid-offer spread
+ market impact
+ delay costs

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16
Q

market impact

A

the effect of trade on transaction prices

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17
Q

Delay costs (definition, cause)

A

inability to complete desire trade because:
+ order size
+ lack of market liquidity

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18
Q

shareholder engagement

A

+ refer to investor/manager interacting with companies and impact the stock price.
+Benefit: improve company governance
+ Action: participating in calls with company, vote in general meeting

19
Q

free rider problem

A

Investors who did not participate in shareholder
engagement benefitted from improved performance but without the costs necessary
for engagement

20
Q

segment by style

A

(1) growth
(2) value
(3) Core (mix)

21
Q

Advantage of segmenting by size and style include

A

(1) address client investment considerations in terms of
risk and return characteristics
(2) diversification benefits
(3) construct relevant benchmarks for funds that invest in a specific size/style category
(4) The ability to analyze how company characteristics change over time.

22
Q

Advantage of segmenting by size and style include

A

the categories are not stable over time

23
Q

segment by geography

A

(1) Developed markets
(2) Emerging markets
(3) Frontier markets

24
Q

advantage of segment by geography

A

better understand how to diversify across international markets.

25
Q

2 disadvantage of segment by geography

A

(1) currency risk
(2) overestimation of the diversification (Eg: MNC, ..)

26
Q

segment by economic activity

A

Product oriented
Market oriented

27
Q

GICS

A

+ Global Industry Classification standard
+ market-oriented approach

28
Q

ICB - TRBC - RGS

A

production-oriented approach

29
Q

advantage and disadvantage of segment by economic activity

A

(1) Advantage
+ allows portfolio managers to analyze, compare, and construct performance benchmarks based on specific sector/industries.
+ diversification benefits.
(2) Disadvantage
+ some companies, especially larger may have business operations that are not easily assigned to one speciassigned to one specification

30
Q

type of dividend income

A

(1) Special dividends
(2) Optional stock dividends

31
Q

rebate rate

A

Related to repo, the rate back to the borrower

32
Q

ad-valorem fee

A

management fee (%AUM)

33
Q

custody fee

A

phi luu ky

34
Q

Depository fees

A

so du toi thieu can duy tri

35
Q

advantage of share holder engagement

A

(1) will have more information about companies or the sectors in which companies operate
(2) improved the value of his portfolio
(3) also have an interest in the process and outcomes of shareholder engagement
(4) non-financial interests, such as ESG considerations, may also benefit from shareholder engagement.

36
Q

disadvantage of share holder engagement

A

(1) time consuming and can be costly for both shareholders and companies
(2) pressure on company management to meet near-term share price or earnings targets could be made at the expense of long-term corporate decisions
(3) result in selective disclosure of important information to a certain subset of shareholders, which could lead to a breach of insider trading rules while in possession of specific, material, non-public information about a company
(4) conflicts of interest can result for a company

37
Q

reputation risk

A

from the potential violation of rules, regulations, client agreements, or ethical principles

38
Q

key person

A

relevant for active managers if the success of an investment manager’s firm is dependent on one or a few individuals (“star managers”) who may potentially

39
Q

Benefit of shareholder engagement

A

(1) Company:
+ can assist in developing a more effective corporate governance culture.
(2) Investors:
+ will have more information about companies or the sectors in which companies operate
+ some investors could benefit from the shareholder engagement of others under the so-called “free rider problem.”
+ non-financial interests, such as ESG considerations

40
Q

advantages & disadvantages of segmentation by size/style
+ Size: marge - mid - small
+ Style: value - core - growth

A

Advantages:
(1) can construct portfolio that reflects desired risk, return, and income in a relatively STRAIGHTFORWARD and MANAGERABLE way
(2) given the BROAD RANGE of companies within each segment, across economic sectors or industries
(3) can construct PERFORMANCE BENCHMARK for specific size/style segments
Disadvantages:
(1) the categories may CHANGE OVER TIME and may be defined DIFFERENT AMONG INVESTOR

41
Q

advantages & disadvantages of segmentation by size/style

A

Advantages:
(1) useful to equity investors who have considerable exposure to their domestic market and want to diversify by investing in global equities
Disavantages:
(1) investing in a specific market may provide lower-than-expected exposure to that market
(2) potential currency risk

42
Q

advantages & disadvantages of segmentation by Economic Activity

A

Advantages:
(1) enables equity portfolio managers to construct performance benchmarks for specific sectors or industries.
(2) obtain better industry representation (diversification) by segmenting their equity universe
according to economic activity
Disadvantages: the business activities of companies—particularly large ones—may include more than one industry or sub-industry

43
Q

the reason to consider passive/active

A

(1) Confidence to Outperform
(2) Client Preference
(3) Suitable Benchmark
(4) Client-Specific Mandates
(5) Risks/Costs of Active Management
(6) Taxes

44
Q

local richness/ cheapness

A

are deviations of individual maturity segments from the fitted yield curve, which was obtained using a curve estimation technique

Equity (4 decks)

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