Unit Trusts And OEICS Flashcards
Benefits of Collective Investment Schemes (5)
- Good way to invest small sums of money
- Professional fund managers managing
- Balanced portfolios
- Can pursue particular objectives
- individuals risk is reduced by wide spread of investments
Characteristics of Unit Trusts or OEICs (Funds)
- Units or Shares sold representing a small portion of a bigger investment
- Unit Trusts - Investments held by Trustees
- OEICs - Investments held by independent depositary
- Fees include: Annual mgmt. charge and sometimes initial charge
- Are open ended - units/shares can be created and cancelled
Name the Investment Association sectors focuses
- Capital protection
- Income
- Growth
- Specialist fund
- Targeted funds
Who checks the IAs sectors and rules
- Overseen by Sectors Committee who check monthly
- Must invest 80% of assets in relevant class
- If income, it must achieve a yield of at least 90% of the relevant index
Explain Index-Tracking funds
- Aim to mirror performance of particular index
- If big enough may match exactly
- otherwise use sampling or optimisation
What do supporters of index trackers argue
- few manages out perform consistently
- Outperformance generally mean higher risk
- lower charges
Explain Ethical Funds
- Use negative screening or positive criteria
- Somewhere in between Ethical and normal investing is investment in Socially Responsible Companies
What are the Investment risks with OEICs/Unit Trusts
- Depends on the underlying investment
- wide spread of investments reduce impact of 1 company
Explain the investment powers and restrictions
- FCA Handbook COLL sets out rules for establishing and operating auth schemes.
- Trust deed must contain that the fund can invest in any securities or derivatives market eligible under FCA regulations
- Detailed investment limits must be set out in scheme particulars.
what % of OEIC / Unit trust must be invested in approved securities?
90%
What makes a market ‘eligible’
- must meet the following criteria:
- regulated
- operating regularly
- recognised (by stat body or govt)
- open to public
Explain what is meant by UK UCITS
- UK Undertakings for Collective Investment in Transferable Securities.
Explain the diversification rules of UCITS
- Non-Tracker: cant hold more than 10% of funds in 1 company
- Only 4 at 10%
- rest must be below 5%
- Tracker: can hold up to 20% in one company (35% in exceptional circumstances)
- Max holdings of 20% in any one group
- If more than 35% held in govt gilts by a single issuer - must be in at least 6 companies - none more than 30%
- up to 20% in other unit of collective scheme
- no more than 20% in cash
How much can UK UCITS borrow?
- Retail UCITS - 10% on temporary basis against known future cashflows
- Non-Retail UCITS - 10% on permanent basis
Which funds can be freely marketed
- Funds authorised by the FCA
What are unregulated funds called and how are they categorised by the FCA?
- UCIS - Unregulated collective investment schemes
- A type of Non-mainstream pooled investments (NMPI)
- A tyoe of Non-mass-marketed investment (NMMI)
Who can NMMIs be marketed to
- Only:
- certified high net worth individuals
- certified sophisticated investors
- self-certified sophisticated investors
Name the 2 type of multi-manager products
- Fund of Funds
- Manager of Manager Funds
What are Fund of Funds + types
- A Fund that invests in multiple other funds and monitors performance
- Can be ‘Fettered’ - only funds run by same mgmt group
- ‘Unfettered’ - can invest in funds from any mgmt group
- Unfettered - usually more expensive due to external fund costs
Explain Manager of Manager Funds
- Fund manager appoints several investment managers with specific mgmt style to part of portfolio
- Fund manager decides asset allocation
- Employs different inv. managers to run each asset class.
