Deck 4: Funds Management

Question 1

The asset class described as 'alternative investments' includes property and overseas assets.

Answer 1

False

Question 2

The superannuation schemes that are operated on a for-profit basis are the 'retail' and 'corporate' schemes.

Answer 2

False

Question 3

Superannuation fund trustees are responsible for a fund's performance.

Answer 3

False

Question 4

Fund managers arrange the collective investment of (mainly)retail investments.

Question 5

Each individual superannuation scheme can choose its mix of assets.

Question 6

Superannuation schemes are supervised by either APRA or the Australian Tax Office.

Question 7

Many insurance policies are similar to securities except for the contingent basis for future payments to the holder of the policy.

Question 8

Given an individual contributes to their superannuation fund over a 40-year working life, the biggest influence on their accumulated sum at retirement is the size of their contributions.

Question 9

Superannuation is a long-term savings scheme since the funds are accessed on retirement.

Question 10

Most superannuation schemes in Australia are defined benefit schemes.

Question 11

The problem of travellers not taking due care of their luggage because they have purchased a travel insurance policy is known as information asymmetry.

Question 12

Investment risk is the chance that an investment will not achieve its expected return.

Question 13

Public unit trusts are the largest category of fund managers (in terms of funds managed).

Question 14

Funds management is a form of indirect financing.

Question 15

'Growth assets' can be broadly defined as being lower risk and lower return assets such as bonds, money market securities and bank deposits.

Question 16

The rate of return on superannuation funds is volatile and so contributors to accumulation schemes face investment risk.

Question 17

Insurers face the problem of adverse selection which is the risk that policies are only taken out by individuals who pose above-average risks.

Question 18

'Balanced portfolios' can be broadly defined as those with a lower proportion of growth assets and a higher proportion of defensive assets when compared to 'growth portfolios'.

Question 19

Compulsory superannuation in Australia is in the form of defined contribution schemes.

Question 20

Compulsory superannuation will provide an adequate retirement income and so overcome the need for the age pension.

Question 21

General insurance refers to policies including those that transfer risks arising from accidental events that could cause losses for firms and households.

Question 22

Private equity funds are collective investment vehicles that buy established firms on a leveraged buyout (LBO)basis.

Question 23

Momentum investment is the practice of buying assets once their price has started to rise and selling them once their price has begun to fall.

Question 24

Unit holders in listed property trusts have greater liquidity than investors in unlisted property trusts.

Question 25

A unit trust is an investment vehicle that raises funds through the sale of units and invests the funds collectively.

Question 26

Funds of hedge funds invest in groups of hedge funds.

Question 27

A benefit of funds management is that portfolios are diversified to eliminate risk.

Question 28

An ETF is public unit trust that is listed on the share-market.

Question 29

Reinsurance is the practice of individuals taking multiple insurance policies to over-insure certain risks.

Question 30

Most equity trusts are listed on the ASX.

Question 31

Hedge funds are unregulated.

Question 32

Term life insurance is a policy that always lasts until the beneficiary dies.

Question 33

Hedge funds use a variety of non-traditional investment strategies in the attempt to earn profits both when share prices are increasing and decreasing.

Question 34

Contrarian traders sell stocks because their price is rising and buy stocks because their price is falling.

Question 35

Term life policies are the dominant life insurance product.

Question 36

Private equity funds are usually listed to provide investors with liquidity.

Question 37

Active funds management involves 'selection and timing' decisions to constantly re-position portfolios in the attempt to out-perform the market.

Question 38

Managers of public unit trusts can invest contributor's funds as they wish, with the aim of maximising returns.

Question 39

A long/short strategy is the strategy of taking long positions in anticipation of falling prices and taking short positions in anticipation of rising prices.

Question 40

Active funds management is consistent with the efficient market hypothesis.

Question 41

Asset consultants:

A)give financial advice to retail investors
B)provide advice to trustees on the allocation of funds between asset classes
C)consolidate retail savings to make collective investments
D)facilitate long-term savings to provide a retirement income.
E)All of these.

Question 42

Management expense ratios (MERs)for passive funds are less than for active funds.

Question 43

If aggregate superannuation fund assets experienced a significant increase over a period of a year the most likely explanation would be:

A)increased payments from contributors
B)strong positive returns on investments
C)decreased payments from funds to retirees
D)reduced fees charged by managers
E)changes to superannuation tax rules by government.

Question 44

Managed funds invest in a range of asset classes.The asset class used for managed fund investments most often is:

A)equities and units in trusts
B)bonds and money market securities
C)cash and deposits
D)overseas investments
E)other investments such as property, hedge funds and private equity funds.

Question 45

Fund managers:

A)bear the investment risk posed by the variability of returns on investments
B)earn net interest revenue in return for their services
C)collect retail investor's funds and arrange the investment of pooled funds
D)invest the pooled funds in shares.
E)All of these.

Question 46

The evidence mostly indicates that active fund managers provide good value for money.

Question 47

Creating an index fund is an example of active portfolio management.

Question 48

What category of superannuation scheme is NOT supervised by APRA?

A)Retail
B)Self-managed
C)Corporate
D)Public service
E)Industry

Question 49

Superannuation:

A)facilitates long-term savings to provide a retirement income
B)contributions and earnings are taxed at 15%, a concessional rate
C)is compulsory for workers in Australia
D)is the government's approach to reducing reliance on the aged-pension.
E)All of these.

Question 50

Fund managers are rated by Morningstar using a five-star scale.

Question 51

What category of superannuation scheme achieved the lowest returns in a recent study?

A)Retail
B)Industry
C)Corporate
D)Public service
E)Not-for-profit schemes

Question 52

Which of the following statements is true about fund managers?

A)Fund managers generally provide payment services and investment products.
B)Fund managers provide a 'safe haven' for investors' funds.
C)Fund managers earn an interest rate spread.
D)Fund managers have both low- and high-risk investment products.
E)None of these.

Question 53

The consolidation of retail savings to make collective investments is called:

A)intermediation
B)funds management
C)superannuation
D)financial planning.
E)All of these.

Question 54

Tracking error will be zero where an index fund is always able to perfectly replicate the underlying index.

Question 55

Which of the following can be described as a 'defensive' asset class?

A)Australian equities
B)Overseas equities
C)Property
D)Alternative investments
E)Debt securities

Question 56

Investment managers are compared on the basis of their rate of return on funds invested.

Question 57

Which of the following investment vehicles does NOT use debt to leverage investor's funds?

A)Property trusts.
B)Hedge funds.
C)Superannuation funds.
D)Private equity.
E)All of these.

Question 58

Passive fund managers do not trade because they hold onto their portfolios.

Question 59

The activities of superannuation schemes include:

A)the collection of regular payments by employers on behalf of their employees
B)the investment of funds over various asset classes
C)the release of funds to the employee at retirement
D)earning fees for the services they provide.
E)All of these.

Question 60

Which of the following is NOT a fund manager?

A)Public unit trusts.
B)Superannuation.
C)Life and general insurance.
D)None of these.
E)All of these.

Question 61

Which of the following is NOT generally a benefit offered by funds management?

A)They generally guarantee a minimum return on investor's funds.
B)They can achieve economies of scale in relation to research and brokerage costs.
C)Managed funds can give investors access to diversified portfolios.
D)Fund managers hire investment experts that most individuals could not afford to hire directly.
E)All of these.

Question 62

Identify the correct statement regarding investment management approaches.

A)Active investment managers are advocates of the EMH.
B)Active portfolio managers pursue above-average returns through superior asset selection and timing decisions.
C)Active managers will form index funds.
D)Passive managers will try to outperform the market by picking 'winners'.
E)None of these.

Question 63

General insurance policies cover an extensive range of events that cause losses.Which of the following cannot be covered using a general insurance policy?

A)Permanent disability
B)Motor vehicles
C)Household fires
D)Professional indemnity
E)Travel

Question 64

Hedge funds use a variety of non-traditional investment strategies including:

A)a long/short strategy
B)very high levels of gearing
C)arbitrage
D)program trading
E)All of these.

Question 65

Describe the process of funds management.

Question 66

Which of the following is NOT a benefit of investing through managed funds?

A)Reduced research costs
B)Reduced transactions costs
C)Customised portfolios
D)Diversification
E)Expertise

Question 67

Identify the correct statement regarding traditional public unit trusts.

A)Property unit trusts are usually not listed on an exchange.
B)Public unit trusts are established by financial institutions to earn a spread between the cost of funds and the returns earned on investments.
C)Property trusts mainly buy large commercial real estate such as shopping centres.
D)Most property trusts have an 'open-ended' structure.
E)Most equity trusts have a 'closed-ended' structure.

Question 68

'Growth', 'income' and 'balanced' are terms used to describe:

A)insurance policies
B)private equity funds
C)cash management trusts
D)equity trusts
E)hedge funds.

Question 69

Which of the following is NOT a central belief held by technical analysts?

A)Prices tend to follow a random walk.
B)Price patterns tend to reappear in a cyclical fashion.
C)Appropriate research can identify patterns.
D)Price patterns identify when to buy and sell assets and so will achieve above-market returns.
E)None of these.

Question 70

An investment approach that is based on the belief that markets overreact and will eventually self-correct is:

A)technical analysis
B)fundamental analysis
C)passive investment
D)momentum trading
E)contrarian investment.

Question 71

Private equity funds are organised as:

A)partnerships
B)unlisted companies
C)listed companies
D)ETFs
E)unlisted public unit trusts.

Question 72

Benefits offered by public unit trusts to retail investors include:

A)access to investments in the wholesale financial markets
B)the services of professional portfolio managers
C)liquidity, whether provided by the trust setting bid and offer prices, or by units being listed on an exchange.
D)All of these.
E)None of these.

Question 73

Of the following, who is directly exposed to the investment risk posed by assets?

A)Superannuation fund managers
B)Insurance companies
C)Managers of public unit trusts
D)Hedge fund managers
E)None of these.

Question 74

A funds management style that aims to replicate the performance of a particular market index is:

A)active investment management
B)passive investment management
C)technical analysis
D)fundamental analysis
E)contrarian investment.

Question 75

US hedge funds:

A)do not use financial leverage
B)hedge risk exposures to minimise the risks to investors
C)are also referred to as 'mutual funds'
D)aggressively pursue high returns
E)only charge performance-based fees.

Question 76

Standard & Poor's ratings of fund managers:

A)rate funds on the basis of their past performance only
B)do not have an influence on the flow of funds
C)reveal that five-star funds do not generally outperform lower-ranked funds
D)are based on both quantitative and qualitative analysis.
E)None of these.

Question 77

Identify the correct statement regarding life insurance.

A)Term life policies cover an undefined period which ends with the policyholder's death.
B)Most life policies are held as part of superannuation schemes.
C)Life insurance pays a benefit to the insured policyholder when they die.
D)Usually life insurance policies do not pay out in the event of permanent disability.
E)All of these.

Question 78

Individuals are willing to pay for general and medical insurance:

A)because of the high investment returns
B)to achieve the benefits of diversification
C)because they are low-cost
D)because they wish to avoid the risk of incurring a large loss as a result of a specified event.
E)All of these.

Question 79

An advantage of index funds over an active investment approach is:

A)consistently higher returns
B)consistently lower risk
C)lower management expense ratios.
D)All of these.
E)None of these.

Question 80

Risks faced by insurance companies include:

A)adverse selection
B)fraudulent claims
C)investment risk
D)moral hazard posed by insured individuals not taking due care to avoid an insured event.
E)All of these.