Collectives Flashcards
1
Q
Structure of investment trust (10 marks)
A
- run as a company under company law
- closed ended
- gearing is allowed
- can borrow on a permanent basis
- share price is driven by supply and demand
- shares traded related to the NAV
- could be a premium or discount to the NAV
- usually at a discount as gearing brings additional risk
- live pricing
- can invest anywhere in the world
- can invest in listed or unlisted shares
- can issue options to attract investors on day 1 and protect them from drop in value
- different types of shares can be issued
2
Q
How can gearing in an investment trust enhance returns (3)
A
- investment trust can borrow money
- and then invest the borrowings
- to get a return above the cost of the borrowings
3
Q
Reasons for a premium (of an investment trust) to NAV to narrow (4)
A
- reduced demand/ increased supply
- sector out of favour
- fund manager out of favour
- poor performance
4
Q
Reasons why performance of an investment trust and unit trust that are invested in a similar way may differ (4)
A
- gearing
- changes in premium/discount
- different holdings
- charging structure
5
Q
5 differences between the structure of IT and UT
A
- IT is closed ended / UT open
- IT is public listed company / UT is a trust
- Shares / units
- listed on stock exchange / not listed
- company directors / trustees
- appointed investment managers/ in house manager
- UT are single priced / IT are dual priced
- gearing not allowed in UT/ is allowed in IT
6
Q
What are ‘UCIS’ funds
A
Unregulated collective investment schemes
- any scheme which is not regulated by the FCA
- they are perfectly legal
- but their marketing must be carried out subject to certain rules and often only to certain types of investors
- it can not be marketed to retail investors in the UK
Because they are unregulated:
- may be greater risk of loss to client
- and so are classed as high risk investments
- may not be covered by FSCS
- marketing is restricted to sophisticated and high net worth individuals
7
Q
What is a UCITS fund?
A
- Undertakings for Collective Investments in Transferable Securities
- once authorised in it’s host country it can be marketed anywhere in EU
- subject to marketing rules within the other country being met
- in UK that means a UCITS fund from France must register with the FCA
- then wait two months before marketing
- under FCA rules
8
Q
Main differences between UCITS and UCIS which lead to UCIS being higher risk (8)
A
- UCITS is authorised by EU
- for retail distribution
- UCIS not for retail distribution
- UCITS have better liquidity
- UCITS regulated by FCA / UCIS is not
- better investor protection for UCITS
- UCITS has better transparency
- UCITS are more diversified
- UCITS has more favourable borrowing restrictions
9
Q
Who can UCIS be promoted to (5)
A
- existing holders
- certified HNW individuals
- Enterprise and charitable investors
- eligible employees of the fund
- institutional clients
- certified sophisticated investors
- self certified sophisticated investors
10
Q
Safeguarding regulations that govern UCITS in respect of diversification (6)
A
- not more than 10% of fund in any one company
- no more than four companies at the maximum (4x10%)
- remainder must have maximum of 5% of fund value
- minimum of 16 holdings
- maximum 10% in unquoted shares
11
Q
Safeguarding regulations that govern UCITS in respect of borrowing (4)
A
- borrowing only permitted
- up to 10% of fund value
- in a temporary basis
- if supported by expected receipts
