Deck 7: Managed Funds

Question 1

The four main types of listed managed fund structures operating through the ASX are:

A) LICs, LITs, REITs and ETFs.
B) LIRs, LITs, RDITs and ETFs.
C) LICs, LITs, RDITs and ETAs.
D) none of the above.

Answer 1

A

Question 2

The indirect cost ratio (ICR):

A) measures management costs not deducted directly from investors' account balances to the average net assets of the fund.
B) measures the average net assets of the fund divided by the management costs deducted directly from investors' account balances.
C) approximates current performance bonuses.
D) all of the above.

Answer 2

A

Question 3

According to the Australian Securities and Investments Commission (ASIC), a managed investment scheme (MIS), commonly known as a managed fund, exists where:

A) people are brought together to contribute money to obtain an interest in the scheme.
B) money is pooled together with other investors or used in a common enterprise.
C) a responsible entity operates the scheme and hence investors do not have day-to-day control over the operation of the scheme.
D) all of the above.

Answer 3

D

Question 4

Nominate the incorrect statement in relation to standard deviation:

A) Standard deviation is the statistical measurement of dispersion of outcomes around a mean.
B) A higher measure of standard deviation infers higher risk.
C) In approximately 99% of the time, the returns will vary plus or minus two standard deviations from the average.
D) All of the above.

Question 5

A diversified managed fund adopting a conservative investor risk profile:

A) is designed for investors seeking short-term growth returns.
B) would include mainly longer-term growth-type investments.
C) would likely seek out investment in small companies, private equity funds and emerging markets.
D) none of the above.

Question 6

The main contributors to the overall growth in funds under management has/have been the:

A) deregulation of financial markets in the 1980s.
B) increase in superannuation contributions made by employers since 1990.
C) both a and b
D) an increase in the savings ratio in the domestic economy.

Question 7

Investing in asset classes directly or indirectly via managed funds results in:

A) different risk outcomes but the same return relationships.
B) the same risk outcomes but different return relationships.
C) the same risk and return relationships.
D) all of the above.

Question 8

The relationship that exists between unsystematic risk and the number of securities held in an investment portfolio is:

A) non applicable as no relationship exists.
B) inverse until unsystematic risk is removed.
C) positive until unsystematic risk is removed.
D) inverse up to a maximum of 10 securities and then positive.

Question 9

The information ratio:

A) ignores market movements from returns but instead adjusts for the risk undertaken.
B) is used as a risk-adjusted measure of the relative performance of a portfolio.
C) helps to answer the question, 'Was the manager sufficiently rewarded for the risk incurred by deviating from the benchmark?'.
D) all of the above.

Question 10

The management expense ratio (MER) is a ratio of fees charged to the:

A) book value of assets under management.
B) market value of assets under management.
C) unit price of the fund.
D) none of the above.

Question 11

Unlisted managed funds that have a bid-offer spread to allow for transaction costs:

A) provide a selling price higher than the buying price.
B) provide a buying price higher than the selling price.
C) provide a buying price equal to the selling price.
D) none of the above.

Question 12

The calculation of an absolute return arising from the recent sale of a managed fund requires which of the following information?

A) Purchase price, inflation rate and risk-adjusted sale price.
B) Purchase price and inflation rate.
C) Purchase price and risk-adjusted sale price.
D) Purchase price and actual sale price.

Question 13

The underlying value of units in an unlisted managed fund is based on the:

A) net prevailing market value of the fund's investment portfolio divided by the number of units issued.
B) supply and demand for those units.
C) inflation- adjusted value of the fund's net assets.
D) none of the above.

Question 14

Passive fund managers attempt to:

A) outperform the market.
B) time the market.
C) replicate the performance of the benchmark.
D) all of the above.

Question 15

Managed funds are popular because they allow investors to gain:

A) access to a wide range of different asset classes.
B) exposure to different industry segments.
C) diversification across a range of different investment types.
D) all of the above.

Question 16

The constitution of a managed investment scheme (MIS) includes matters such as:

A) the cost of buying interests in the scheme.
B) the name of the auditor of the MIS.
C) both a and b
D) none of the above.

Question 17

Cash management funds would be unlikely to invest in which of the following assets?

A) Overnight deposits.
B) Mix of short and medium-term government securities.
C) Mix of international short-term government securities.
D) Mortgage loans.

Question 18

With managed funds it is NOT possible to diversify across:

A) asset classes.
B) management styles.
C) investment sectors.
D) none of the above.

Question 19

Unlisted managed funds:

A) are closed ended structures.
B) are structured so that a prospective unitholder will purchase units from other unitholders.
C) operate as a trust structure and issues units to investors.
D) all of the above.

Question 20

Beta risk is particularly relevant for fund managers adopting which investment approach?

A) Passive investing.
B) Active investing.
C) Contrarian investing.
D) None of the above.

Question 21

Calculate the unit price of the Masterproc Balanced Fund ("Masterproc ") using the following information extracted from its latest financial statements including the detail that it had 63 million units on issue at the end of the latest financial year:
$\begin{array} { l c c } & \text { Book Value } & \text { Market Value } \\ { \text { Details } } & \text { \$ million } & \text { \$ million } \\\text { Cash and deposits }& 25 & 28 \\\text { Bonds } & 66 & 59 \\\text { Equities }& 135 & 296 \\\text { Property } & 100 & 112 \\ \text { Trade Creditors } & 45 & 45 \\\text { Mortgage Loans }& 167 & 167\end{array}$

Question 22

Briefly explain the reasons why the unit price of an unlisted managed fund is likely to change on a regular basis.

Question 23

Ricky Ocasek acquired 3,000 units in the XLNT Sharemarket Fund ("XLNT") at the start of the year for $7.10 per unit. After holding the investment in XLNT for 6 months, Ricky has decided that he wants to go on an around-the-world holiday and will need to sell all of his units in order to pay for the holiday. The current unit price of XLNT is now $8.86 and the fund has also recently made an income distribution to unit holders of 40 cents per unit. In the constitution for XLNT it states that sales of units within 2 years of acquisition are subject to an exit fee of 5% of the market value at the time of sale. Ricky is subject to a marginal tax rate of 30% on all income and realised capital gains.
(a) What is the total initial investment amount made by Ricky in XLNT?
(b) What will be the exit fee if Ricky sells his total investment after 6 months?
(c) What will be the total pre-tax proceeds that Ricky will realise assuming the investment is sold after 6 months?
(d) What will be the pre-tax annualised absolute return to Ricky assuming the investment is sold after 6 months?
(e) How much tax will Ricky be liable for upon the current sale of his total investment in XLNT?
(f) What will be the total after-tax proceeds that Ricky will realise assuming the investment is sold after 6 months?
(g) What will be the after-tax annualised absolute return to Ricky assuming the investment is sold after 6 months?

Question 24

Calculate the annual returns on each of the following managed funds (using only the information provided):
(a)
Amoeba Special Situations Fund:
$\begin{array}{cc}\text { Unit price at start of year } & \$ 3.40 \\\text { Unit price at end of year } & \$ 4.10\end{array}$
(b)
Broadchurch Trading Fund:
$\begin{array}{ll}\quad \text { Market value at start of year } & \$ 112 \text { million } \\\text { Market value at end of year } & \$ 144 \text { million } \\\text { Distributions } & \$ 5 \text { million } \\\text { Contributions received during year } &\$ 21 \text { million }\end{array}$

Question 25

Briefly explain the role of the single responsible entity.

Question 26

Briefly discuss the concept of 'pooling' as it relates to managed funds and how it can benefit the investor.

Question 27

Calculate the absolute return on a pre-tax and after-tax basis for Alicia Mallyon's current investment of 250 units in the Viber Commodities Fund ("Viber ") assuming it was sold after one year based on the information below:

Question 28

You have been able to research the following information on the Alpha Beta Securities Fund ("Alpha Beta"):
$\begin{array}{lc}\text { Unit price at start of year } & \$ 8.09 \\\text { Unit price at end of year } & \$ 9.14 \\\text { Standard deviation of the fund }\left(\sigma_{p}\right) & 1.8 \\\text { Risk-free rate }\left(R_{f}\right) & 2.75 \% \text { p.a. }\end{array}$
(a) Calculate the Sharpe ratio for Alpha Beta.
(b) Interpret your calculation of the Sharpe ratio for Alpha Beta.

Question 29

Briefly differentiate active and passive fund management styles.

Question 30

Briefly outline the 'three pillars' institutional framework for managed investments and securities in Australia.