Section II.A. Flashcards
What are Exchange Traded Products (ETPs)?
*a derivative security that trades on a national securities exchange on an intra day basis
*the underlying asset is often a commodity, currency,
equity share price, or interest rate
*ETPs may be indexed or actively managed
*examples include exchange traded funds and notes
What are Exchange Traded Funds (ETF’s)?
Description
* a security that trades on an exchange
* shares may be bought and sold throughout the day
* commonly, passive strategies that track an index
* allows smaller investors access to professional money managers
Application
* usually lower annual fees and expenses (vs. mutual funds)
Potential Advantages and Disadvantages of ETFs?
What are Exchange Traded Notes (ETNs)?
How do you calculate NAV for Mutual Funds?
What are the types of Managed Investment Companies?
–Open End
* Fund issues new shares when
investors buy in and redeems
shares when investors cash out
* Priced at Net Asset Value (NAV)
–Closed End
*no change in shares outstanding; old
investors cash out by selling to new
investors
*Priced at premium or discount to NAV
Closed End Funds (CEFs)? Description and Application.
Description
* publicly traded investment company
* raises capital through an IPO
* trades like a stock on a stock exchange
Application
* strategies usually include sector, industry or geographic focus or specialization
* may be sold at a premium or discount to NAV
What are Closed End Funds (CEFs)?
*a closed end fund is an investment pool managed by an advisor that is actively priced and traded on a
stock exchange
*capital is raised through an initial public offering (IPO)
*CEFs differ from exchange traded funds (ETFs) and open ended mutual funds in that CEFs may not raise new funds (contributions)
How are Mutual Funds taxed?
What are Separately Managed Accounts (SMAs)?
Description
* SMAs are individually segregated accounts that are actively managed by professional money managers
* an investment advisor usually oversees the account
* SMAs offer the benefit of individual cost basis
Application
* Usually recommended/sold through traditional brokerage houses
* SMAs can invest in REITs
* Less popular now given new products available and the
rise of the independent advisor
What are Unit Investment Trusts (UITs)?
*a UIT is an investment vehicle that offers a fixed, unmanaged portfolio of stocks and/or bonds
*usually issued in increments of $1,000
*UITs can be traded on a secondary OTC market and every trust has an expiration date
*a UIT may be a registered investment corporation (RIC) where investors are joint owners, or a grantor trust offering proportional ownership
What are Unit Investment Trusts (UITs)? Description and Application.
Description
* offer fixed, unmanaged portfolio of stocks and/or bonds
* redeemable units offered for a specific period of time
* usually offered in $1,000 units through brokers
* registered investment corporation (RIC) investors are joint owners
* grantor trusts investors receive proportional ownership
Application
* more popular with retirees seeking income
* more susceptible to inflation as interest is fixed for the life of the
security
* allows concentrated positions
* bond UITs more popular than stock UITs
What are Real Estate Investment Trusts (REITs)?
Description
* may be public (trades on exchange) or private
* considered a form of UIT
* invests in real estate directly
* must distribute 90%+ of income to shareholders
* receives special tax treatment
* offers diversification, professional management, higher yields, tax
advantages, liquidity
Application
* equity REITs
* mortgage REITs
* hybrid REITs
REIT Taxation on Entity?
Rental income is treated as business income to REITs (applies to expenses)
*Income distributions to shareholders is not taxed to the REIT (tax liability is passed thru)
*Exempt from tax at the trust level if they meet requirements including 90% distribution rule
*REITs still face corporate tax on retained earnings and income
- Used to be tested often, now much less so.
