Portfolio Management Techniques

Question 1

Registration Categories under NI 31-103

Answer 1

Firms in Ontario must be registered wit the appropriate regulator, either the Ontario Securities Commission or an approved self regulatory organization, namely the Investment Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA). Firms can fall into several categories of registration, under two main categories of dealers and advisors.

Question 2

Dealer

Answer 2

A dealer is a person or company who is in the business of trading securities in the capacity of a principal or agent.

Question 3

Investment Dealer

Answer 3

A dealer who engages in the business of trading in securities in the capacity of an agent or principal and is a dealer member of IIROC. An investment dealer also has the authority to act as an underwriter.

Question 4

Mutual Fund Dealer

Answer 4

A dealer registered exclusively for the purpose of trading in shares or units of mutual funds. Other than in Quebec, a mutual fund dealer must be a member of MFDA.

Question 5

Scholarship Plan Dealer

Answer 5

A dealer who is restricted to scholarship plans, educational plans, or educational trust investments.

Question 6

Exempt Market Dealer

Answer 6

A dealer who trades or advises in the exempt market , such as private placements.

Question 7

Restricted Dealer

Answer 7

An open category that will allow flexibility in registration

Question 8

Portfolio Manager

Answer 8

Persons or companies who manage the investment portfolios of clients through discretionary authority granted by the clients

Question 9

Restricted Portfolio Manager

Answer 9

Persons or companies who act as an adviser in respect of a security in accordance with the terms, conditions, restrictions or requirements applied to its registration.

Question 10

Dealing Representative

Answer 10

An individual who may act as a dealer or an underwriter in respect of a security that the individual’s sponsoring firm is permitted to trade or underwrite.

Question 11

Canadian Securities Administrators

Answer 11

A working group of regulators from each provincial and territorial regulator and is charged with forging uniformity in regulation where possible.

Question 12

High Closing

Answer 12

Entering a higher bid price at closing to artificially inflate the price and increase the NAV

Question 13

Late Trading

Answer 13

Mutual fund allows a trader to enter an order to either purchase or sell after the established cut off time

Question 14

End Values

Answer 14

The end towards which a person strives and influence how a person acts today to achieve tomorrow’s goals. They include a sense of accomplishment, family security, self respect, social recognition, and wisdom.

Question 15

Means Values

Answer 15

Actions taken to achieve a future goal. These include ambition, competence, honesty, independence, and responsibility.

Question 16

Unified Value System

Answer 16

A system in which the ends and means mutually reinforce and support each other. Individuals and corporations get into trouble when their means values do not support their end values.

Question 17

The Value System of a Portfolio Manager will:

Answer 17

Influence the portfolio manager’s perception of situations and problems

Influence their decisions and solutions to problems

Sets limits on their understanding of what constitutes ethical behaviour

Help them resist when they are being pressured to s=do something they believe is wrong

Question 18

Ethical Dilemma

Answer 18

When two or more of the possible choices pit different values against each other. Eg. one choice would lead to the fulfillment of an end value such as social recognition, yet at the cost of a means value such as honesty, while another would fulfill the end goal of self respect, yet at the cost of a mens value such as ambition.

Question 19

Truth vs Loyalty

Answer 19

The values of honesty or integrity clash with the values of commitment, personal responsibility, or keeping a promise.

Question 20

Individual vs Group

Answer 20

The vaques of the individual clash with the rights or values of the group. This yup of dilemma may appear in the form of ‘us vs them’ or ‘self vs others’.

Question 21

Short vs Long Term

Answer 21

Immediate needs or desires run counter to future goals or prospects

Question 22

Justice vs Mercy

Answer 22

The values of fairness, equity, and righteousness conflict with the values of compassion, empathy, and love.

Question 23

What are the three things that must be present for their to exist a trust based relationship between the portfolio manager and client

Answer 23

The portfolio manager has a specialized knowledge and skill that the client does not have

The portfolio manager belongs to an industry that is well regulated

The portfolio manager places the interests of the client before his own

Question 24

20. What are the three constant elements in a client relationship is trust expressed

Answer 24

Disclosure of information

Influence over Decisions

Exercising Control

Question 25

Prudent Man Rule

Answer 25

Directs the fiduciary to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of capital invested.

Question 26

Institutional Investors

Answer 26

``` Pension Plans Mutual Funds Insurance Companies Endowments Charitable Foundations Family Trusts/ Estates Corporate Treasuries ```

Question 27

Defined Benefits

Answer 27

Pension plan entitlements are typically calci=ulated on the basis of the employees salary profile and tenure of employment. These entitlements formally represent liabilities to the sponsor who is responsible for making contractual pension payments regardless of how the investment performs

Question 28

Defined Contributions

Answer 28

The beneficiary is typically provided with a menu on investment choices among which to allocate regular contributions. The investment risk is borne entirely by the beneficiaries, with payouts determined by the cumulative performance of the investments.

Question 29

Endowment Funds

Answer 29

Portfolios that are managed to produce income for a beneficiary organization. Endowments usually invest in long term assets and attempt to earn a targeted rate of return, typically in the range of 5% per annum. This income finances part of the annual cost of operation of the beneficiary's organization.