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AF4 Investment planning > PAIF & REIT, VCT/EIS/ SEIS, Portfolio Analysis, Portfolio Attribution > Flashcards

PAIF & REIT, VCT/EIS/ SEIS, Portfolio Analysis, Portfolio Attribution Flashcards

1
Q

Explain the main charectristics of Real Estate Investment Trusts ‘REITS’?

A
  • Closed ended
  • UK listed
  • Investment trust with public listing (incl. AIM)
  • Investor owns listed shares in a product that invests in property
  • Provides a liquid market in property investment with taxation broadly linked to that of direct property
  • Can add diversification into property sector without the need to purchase property directly.
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2
Q

What are the internal sub sections of a REIT?

A
  • Has two internal sub-sections providing two different income
  • streams
  • A tax-exempt (ring-fenced) section which contains the property
  • A non-tax exempt (non ring-fenced) section often providing property management services
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3
Q

Explain the ring fenced section of a REIT

A
  • Ring fenced property letting business must represent at least 75% of overall gross profits & 75% of fund in property
  • 90% of the rental profits from this part of the business must be distributed within 12 months of end of accounting period
  • Rental profits must cover costs of gearing by 125%
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4
Q

How is the ring fenced section of a REIT taxed?

A

Internal taxation of REIT (ring fenced business):
* Exempt from Corporation Tax on rental profits and capital gains

Taxation for investor:
* Treated as property income distribution (PID) and paid net of basic rate (20% tax)
* can be reclaimed by non taxpayers incl. ISAs and pension funds – no PSA!

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5
Q

Explain the non ring fenced section of a REIT

A
  • Non ring-fenced business (other property related activities)
  • Dividend paid gross
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6
Q

How is the non ring fenced section of a REIT taxed?

A

Internal taxation of REIT (non ring-fenced business):
* Corporation tax payable as usual

Taxation of investor:
* Usual dividend treatment i.e. Dividend allowances and dividend rates

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7
Q

Explain the main charectristics of Property Authorised Investment Funds (PAIFs) ?

A
  • Open ended
  • Must be structured as an OEIC
  • Investor owns shares in a product that invests in property
  • Structure is like a REIT but open-ended
  • Also contains cash element to aid liquidity.
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8
Q

Explain the three internnal sub sections of PAIFs

A
  • Has three internal sub-sections providing three different income streams
  • A tax-exempt (ring-fenced) section which contains the property
  • A non-tax exempt (non ring-fenced) section often providing property management services
  • A cash section to aid liquidity
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9
Q

Explain the ring fenced section of a PAIF

A
  • Ring fenced property letting business must represent at least 60% of overall gross profits & 60% of fund in property
  • No corporate investor can hold more than 10% of the funds Net Asset Value (NAV)
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10
Q

How is the ring fenced section of a PAIF taxed?

A

Internal taxation of PAIF (ring fenced business):
* Exempt Corporation Tax on rental profits and capital gains

Taxation of investor:
* Treated as oroperty income distribution (PID) and paid net of basic rate (20% tax)
* can be reclaimed by non taxpayers incl. ISAs and pension funds

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11
Q

Explain the non ring fenced section of a PAIF

A
  • Non ring fenced business (other property related activities)
  • Dividend paid gross.
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12
Q

How is the non ring fenced section of a PAIF taxed

A

Internal taxation of PAIF (non ring fenced business):
* Corporation tax payable as usual

Taxation of investor:
* Usual dividend treatment i.e. Dividend allowances and dividend rates

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13
Q

Explain the cash element of a PAIF

A
  • Cash element mainly held to ensure liquidity within the PAIF as fund is open-ended
  • Interest paid gross.
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14
Q

How is the cash element of a PAIF taxed for an investor?

A
  • Usual interest treatment i.e. Personal Savings Allowances and savings rates
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15
Q

What are the main differnces between a REIT & PAIF?

A

REIT
* Closed ended
* Investment trust
* 75% minimum in property
* 2 income streams - Property (Ring fenced) - Dividends (Non ring fenced)
* Can be in ISA

PAIF
* Open ended
* OEIC
* 60% minimum in property
* 3 income streams - Property (Ring fenced) - Dividends (Non ring fenced) - Cash element
* Can be in ISA

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16
Q

What are the tax treatments for VCT, EIS and SEIS?

A
17
Q

What does ESG stand for?

A
  • ESG refers to a set of criteria used to assess a company’s practices that investors can use to ‘screen’ their investments
  • Environmental - Factors including climate change or pollution
  • Social - Factors including human rights
  • Governance - Factors including Internal management and company ethos
18
Q

What is positive screening?

A
  • Selective inclusion

Funds are chosen based on:
* Most ‘green’ in their sector
* Or for their approach to the way that they do business
* When considering ESG measures and processes

_
* No exclusion of any sector such as fossil fuels / oil, more ‘socially responsible’ approach

19
Q

What is negative screening?

A
20
Q

What are the pitfalls of ethical investing?

A
  • Less diversification and fund choice
  • Increased volatility and higher risk
  • Typically higher charges
  • Limited growth or poorer performance
  • Limited opportunity for dividend income
  • Difficult to screen larger companies
  • Smaller companies more likely to be included
  • May be a need for higher degree monitoring
  • Who defines Ethical!
21
Q

What is the 5 step approach to performance attributon?

A
22
Q

In regards to performnce attribution, explain Step 1: Select an Appropriate Benchmark

A
  • A mix of assets which reflects the client’s long-term objectives
  • It establishes a neutral / independent long-term position for the portfolio to compare with
  • The portfolio manager can take a different view on asset allocation (i.e. overweight / underweight)
  • The benchmark provides a sound basis for comparison against which to evaluate the investment performance of a manager
  • Wealth Management Association benchmarks frequently used
23
Q

In regards to performnce attribution, explain Step 2: Benchmark asset allocation

A
24
Q

In regards to performnce attribution, explain Step 3: Benchmark Returns

A
25
Q

In regards to performnce attribution, explain Step 4: Comparison of Asset Allocation

A
26
Q

In regards to performnce attribution, explain Step 5: Stock selection and/or sector choice

A
27
Q

Explain what the sharpe ratio shows and how it’s calculated?

A
28
Q

Explain what the information ratio shows and how it’s calculated?

A

AF4 Investment planning (7 decks)

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