Deck 6: Managed and Superannuation Funds

Question 1

Which of the following is an appropriate industry benchmark?

A) MSCI World Index.
B) UBS Bank Bill Index.
C) UBS Composite Bond Index.
D) All of the above.

Answer 1

D

Question 2

The purpose of performance 'benchmarks' is to:

A) provide a yardstick against which the performance of funds can be measured.
B) reduce the risk of a passive fund.
C) promote 'short- termism'.
D) demonstrate that fees paid are declining.

Answer 2

A

Question 3

The minimum required contribution by Australian employees to their superannuation fund is of salary.

A) 9%
B) 4%
C) 11%
D) 7%

Answer 3

A

Question 4

Which of the following statement is incorrect?

A) In defined benefit funds, the final payment is defined in advance.
B) In defined contribution (or accumulation) funds, the investment risk is borne by the members.
C) In defined contribution (or accumulation) funds, the member's contribution is defined and the final benefit depends on the fund's investment performance.
D) None of the above.

Question 5

A low price- earnings ratio on an asset would indicate that the asset is:

A) overvalued.
B) undervalued.
C) indexed.
D) not indexed.

Question 6

A tool being developed by banks to fight back in the competition with superannuation funds for investor dollars is:

A) retirement savings accounts.
B) eligible termination payments.
C) allocated pensions.
D) reasonable benefit limits.

Question 7

The category of fund in which most trusts are listed on the stock exchange, rather than unlisted, is trusts.

A) property
B) cash
C) equity
D) mortgage

Question 8

The single responsible entity of a fund has a responsibility to:

A) create a constitution for the fund.
B) ensure the funds assets are valued at regular intervals.
C) ensure compliance with the Corporations Law.
D) all of the above.

Question 9

The term 'herd behaviour' refers to:

A) the way in which returns on various investment classes tend to converge.
B) the tendency for different fund managers to adopt the same portfolio mix.
C) the way in which funds use fee structures to group customers together.
D) none of the above

Question 10

Fixed- interest trusts invest in:

A) shares.
B) derivatives.
C) bonds.
D) property.

Question 11

Studies of fund performance show:

A) no fund has ever outperformed the market.
B) it is very difficult to find funds that consistently outperform the market.
C) every managed fund has outperformed the market at one stage or another.
D) fixed- interest funds have consistently outperformed fund equity funds.

Question 12

A common definition used by superannuation funds for a member's entitlements upon retirement is:

A) final salary × percentage return on the fund last year.
B) number of years of membership × percentage return on the fund last year.
C) multiple × final salary × number of years of membership.
D) tax rate × final salary.

Question 13

The coefficient known as 'beta' measures:

A) the covariance of a particular share with another share.
B) the correlation between fund returns in different countries.
C) the extent to which a fund outperformed the government bond rate.
D) the relationship between the return on a particular share and the market return.

Question 14

An investor who wants to track a market index should put their money in a(n) fund.

A) value
B) capital secure
C) growth
D) indexed

Question 15

With a managed investment fund, investors can:

A) avoid the principal- agent problem.
B) hold a larger number of assets than would be possible with direct investment.
C) pay zero tax.
D) obtain direct ownership of shares or property.

Question 16

Which of the following is a public unit trust?

A) Equity trusts.
B) Property trusts.
C) CMTs.
D) All of the above.

Question 17

The term 'hedge funds' is misleading because:

A) they only invest in fixed interest and so should be known as 'fixed- interest funds'.
B) hedge funds are not really funds but are more akin to banks.
C) they only ever exist off- balance sheet.
D) the standard hedge fund strategy is very risky.

Question 18

The 'volatility' of an investment fund refers to:

A) a fund's exposure to foreign currency fluctuations.
B) fluctuations from year to year in its entry and exit fees.
C) the frequency of breaches by the fund of government regulations.
D) the variation in the fund's performance relative to a line- of- best- fit.

Question 19

Short- selling implies:

A) selling call options.
B) selling an undervalued asset that you own.
C) selling an overvalued asset that you own.
D) selling an asset that you do not have.

Question 20

Superannuation funds are regulated by the:

A) Reserve Bank.
B) Australian Competition and Consumer Commission.
C) Australian Securities and Investments Commission.
D) Australian Prudential Regulation Authority.

Question 21

The strongest form of the 'efficient markets hypothesis' says that market prices fully reflect:

A) the past history of the asset price.
B) all publicly available information.
C) all publicly and privately available information.
D) all current and future publicly and privately available information.

Question 22

When equity trusts invest in overseas shares, the investor will be automatically protected from any foreign currency exposure.

Question 23

The assumption of market efficiency says that fund managers:

A) cannot consistently outperform the market.
B) will always outperform the market.
C) can at least outperform 10,000 monkeys choosing investments at random.
D) can never outperform the market.

Question 24

A university student wishes to invest in a vehicle which offers the prospect of a high return. He will most likely choose a(n) trust.

A) cash management
B) bond
C) mortgage
D) equity

Question 25

Fund X has a return of 12% and fund Y has a return of 9%. From these data we can conclude:

A) fund Y has outperformed fund X.
B) fund X has outperformed fund Y.
C) fund X has outperformed the market.
D) more information is needed about the risk of each fund before we can make a judgment.

Question 26

Approved deposit funds are deposit products offered by banks that allow the investor to access high- yielding assets like shares and property.

Question 27

In the past, property trusts have come under pressure because they have invested highly in liquid assets and yet declined to offer immediate redemption to investors.

Question 28

Funds into which superannuation lump sums and eligible termination payments can be rolled in order to preserve their tax status are known as funds.

A) approved deposit
B) capital diversified
C) ethical investment
D) fixed- rate

Question 29

An attractive feature of allocated pensions is that the pension payments received are tax- free.

Question 30

Public unit trusts represent a form of investment that is:

A) direct.
B) indirect.
C) declining.
D) off- balance sheet.

Question 31

Which of the following statements about unit trusts is NOT true?

A) Capital- guaranteed funds ensure investors receive their original investment back.
B) Property trusts invest in retail, commercial and industrial property.
C) Unit trusts can be listed on the stock exchange.
D) A unit trust prospectus is registered with APRA.

Question 32

Indexed funds are actively managed funds which simply strive to outperform a benchmark.

Question 33

To measure the performance of a fund, we commonly compare it with a comparable market benchmark. The most suitable benchmark for evaluating an Australian equity management fund is the index.

A) SBC 90- day bank bill
B) Morgan Stanley World
C) ASX 200
D) Commonwealth bond

Question 34

The term 'funds under management' refers to funds that have been put into trusts or other vehicles by investors with professional managers.

Question 35

Which of the following conditions must a self- managed superannuation funds (SMSF) satisfy?

A) If the trustees of the fund are individuals, each of them is a member of it.
B) If the trustee of the fund is a company, each director of the trustee company is a member.
C) There are fewer than five members.
D) All of the above.

Question 36

Unlike deposit- taking institutions, long- term savings institutions:

A) are not capital guaranteed.
B) offer no tax advantages.
C) are listed on the stock exchange.
D) are not affected by market movements in asset prices.

Question 37

Since 1 July 1998 superannuation funds have been regulated by the Reserve Bank.

Question 38

A suitable measure of Rf, the risk- free rate, is the yield on a Commonwealth Government bond.

Question 39

An institution in which investors can buy portions and where the funds are invested by a funds manager is called a:

A) listed company.
B) public unit trust.
C) life insurance office.
D) superannuation fund.

Question 40

If Rp = fund return, Rf = the risk- free return, Rm = the market return, and Bp = the beta of the fund, then the fund's alpha statistic is defined as Rm - Bp(Rf - Rp).

Question 41

The major downside of managed investments is the fees that investors must pay.

Question 42

DIY superannuation funds are also called self- managed superannuation funds (SMSFs).

Question 43

Hedge funds started in 1949.

Question 44

An active fund manager realises he or she cannot beat the market and therefore adopts a strategy of seeking to track the market index.

Question 45

If a share trust reports a high return in a period, it does not necessarily follow that the fund manager has performed well.

Question 46

The maximum size limit on retirement savings accounts (RSAs) is $10,000.

Question 47

Eligible termination payments can be rolled over into an eligible rollover fund but not into a deferred annuity.

Question 48

In recent years, there has been a sharp increase in public unit trusts' holdings of equities at the expense of other asset forms.

Question 49

'Short- termism' refers to the observation that Australian fund managers tend to stay in their position for only a brief period before moving on.

Question 50

An example of the 'principal- agent problem' is fund managers not paying sufficient attention to questions of corporate governance.

Question 51

Most share trusts are listed.

Question 52

Most unlisted trusts stand ready to buy units back from members at a price determined by a formula set out in the prospectus.

Question 53

An indexed fund tracks the sharemarket, giving the same return as the chosen share price index.

Question 54

Public unit trusts in Australia are not permitted to hold Commonwealth Government securities.

Question 55

Mananged funds allow investors to have their assets managed and protected by professional fund managers.

Question 56

Normal tax applies up to the reasonable benefit limit, and thereafter concessions apply.

Question 57

Mortgage trusts hold mortgages as investments.

Question 58

Attribution analysis aims to determine the contribution of various decisions to a fund's performance.

Question 59

A beta below unity shows that the return on a fund is more volatile than the market average.

Question 60

The introduction of compulsory superannuation in Australia is to blame for Australia's poor saving performance.

Question 61

If the market is efficient, the tracking error between indexed funds and the market return will be zero.

Question 62

A suitable benchmark for measuring the performance of a share fund would be the SBC 90- day bill index.

Question 63

What are RSAs and why were they introduced?

Question 64

Explain the concept of hedge funds and critically evaluate their role.

Question 65

Identify and describe three different types of public unit trust.

Question 66

The income earned by superannuation funds is generally taxed at the concessional rate of only 15%.

Question 67

Investment through managed investments allows investors to save on costs of information and record keeping.

Question 68

Discuss the advantages and disadvantages of managed investment funds.

Question 69

A master trust allows investors to choose between a range of managed funds.