In crude terms, in a unit trust, the manager performs all the functions of management of the trust assets that would have been carried out by the trustee if the trust were a private trust used as a means of disposition of properties. This leads to the question whether the manager can be considered as a trustee, by analogy to the statutory scheme contained in the Public Trustee Act 1906 that allows the simultaneous appointment of a custodian trustee and a managing trustee. A custodian trustee under this Act is one who gets in and holds the title to the trust property. The management of the trust property and the exercise of any power or discretion are vested in the managing trustee. As between the custodian trustee and the managing trustee, a custodian trustee has the custody of all securities and documents of title relating to the trust property, but the managing trustee is permitted free access to them and is entitled to take copies or extracts. A custodian has to concur in and perform all acts.’” Read the rest of this entry »
In respect of the manager, the following functions and duties are conferred explicitly or implicitly by the statutory provisions or trust deeds:
(1) Dealer in units.
One of the attractions of a unit trust is liquidity. The manager has since the early days of the unit trust been the provider of a ready market for the acquisition and disposal of units of schemes under its management. Under the Financial Services (Regulated Schemes) Regulations 1991, the manager must at all times during the dealing day be willing to issue units and be willing to redeem units. Similar provisions may also be found in trust deeds of non-authorized unit trusts. Read the rest of this entry »
Under section 83 of the Financial Services Act 1986, a manager of an authorized unit trust is not permitted to engage in activities other than acting as a manager of a unit trust, an open-ended investment company, a `body corporate whose business consists of investing its funds with the aim of spreading investment risk and giving its members the benefit of the results of the management of its funds‘,” or a collective investment scheme. The Act does not restrict the activities of the trustee of a unit trust and its position is governed by equitable principles above discussed.
As noted earlier, dealing in units is the contractual right of the manager. Any gain by the manager from issuing and redeeming units is not a secret profit and therefore is not accountable to anyone. This is the position of the manager of an authorized unit trust if it discloses prominently in the scheme particulars a statement to this effect. Read the rest of this entry »
The trust in a unit trust is a trust with two limbs, a primary trust and a secondary trust. The primary trust is a trust whilst the scheme is a going concern. It may be interpreted as a trust of the Re Denley’s type or as a trust subject to the contractual provisions of the trust deed and, in the case of an authorized unit trust, the regulations made under section 81 of the Financial Services Act 1986. The secondary trustonly arises at the very moment when the trust scheme is terminated. It is a trust for sale and distribution.
The provisions to which the primary trust is subject depend on whether the unit trust is an authorized unit trust or non-authorized unit trust. The most important of these provisions will be those along the line of regulation 7.02.2 and regulation 7.09.1. Regulation 7.02.2 provides: Read the rest of this entry »
Although the manager has extensive control over the ways that the trust assets are to be invested or dealt with, it is not a trustee. This is because the title to assets does not vest in it.
The first question is whether the manager’s power is a fiduciary power or a beneficial power for its own benefit. Scott and the American Restatement draw a clear distinction between such powers in the discussion of a private trustee being subject to directory or veto powers of others. It has been questioned if such a distinction exists in English cases. Indeed, judges in early English cases did not appear to be particularly concerned with enunciating such a principle. However, there is no reason to doubt that Scott’s position represents the English position as well. The early case Discconson v. Talbot supports such a proposition. So do cases on veto powers and some cases on powers of appointment. Read the rest of this entry »
- The trustee must not follow a direction of the manager if such direction is in breach of the express provisions of the unit trust. This is so irrespective of whether the power in question is beneficial or fiduciary. If it were otherwise, the duty of supervision would be completely hollow.
In respect of every investment proposed by the manager, this means that the trustee has to check each proposal against the letter of the unit trust deed. Read the rest of this entry »
The power is to direct the investment of the capital in such investments as the testatrix’s son may from time to time direct. Upon the language of the power as a whole, in my judgment, provided he acts in good faith, [the son] is entitled to give directions to the trustees to realise any investments constituting the trust fund which they from time to time may hold. In my judgment, upon the language of the clause, the trustees are bound to comply with those directions save that they are to satisfy themselves, the shares not being shares in which there is a free and open market, that the price which they pay for them is a reasonable and proper price at the time they make the purchase. Read the rest of this entry »
Secondly, the holder of a directory power is under a positive duty to initiate a decision on matters covered by the power. In making that decision, the power holder is under a duty of skill and care. A veto power, however, is a power of review that only arises when the holder of the substantive power makes a decision. From the standpoint of the substantive power holder, the seeking of consent is only a condition of an exercise of the power. As a consequence, a veto power holder is not under a primary duty to initiate a decision. For example, if the unit trust deed requires the manager to seek the consent of the trustee in any investment in a single asset that exceeds 5 per cent of the value of the portfolio, there is no dutyon the trustee to initiate the investment. The initiating obligation remains with the manager. In principle, responsibilities for decision making and for reviewing a decision are different in scope. Read the rest of this entry »
This covers the situation where the unit trust deed directs the appointment of agents or delegates in certain circumstances and the trustee or the manager is given no discretion. In some offshore unit trusts, the appointment of a custodian or investment adviser in certain markets or abroad may be made mandatory by the trust deed. Sometimes, an investment adviser’s contract may have been entered into prior to units being offered to the public. Thus, a property manager may have been appointed for a property trust. It is also very common for advisers to be appointed for futures and options funds, country funds, and trusts of specialized sectors. Read the rest of this entry »
Shortly after Charles was decided by the High Court of Australia, another fixed investment trust was the subject of taxation proceedings. This time, it was before the Supreme Court of Canada in MNR v. TransCanada Investment Corporation Ltd. The trust was a typical fixed investment trust. Under the trust deed, an administrator (i.e. the manager) was to purchase a fixed number of predetermined shares of common stock of companies to constitute a trust unit. Upon all the shares of underlying companies of a unit being vested in the trustee, the trustee would issue shares of a trust unit. Each share of a trust unit represented an undivided equal interest in the unit. Read the rest of this entry »
B. Baker v. Archer-Shee in Unit Trusts
So far, the position is this. With regard to the number of beneficiaries, the effect of Nelson v. Adamson and New Zealand Insurance Co. Ltd. v. CPD is that Baker is not limited to trusts with one beneficiary and the existence of a number of beneficiaries, whether in successionor concurrently, does not affect their respective claims to proprietary interests in the subject matter of a trust. Ironically, the expansive application of Baker was achieved in New Zealand Insurance only at the price of admitting that a beneficiary may not have a proprietary interest in the trust assets in some fixed trust situations, such as where the beneficial interest is ‘a specified sum to be provided out of an unidentified part of a body of assets‘. Read the rest of this entry »
The trust is by nature a relationship fastened upon the properties of the trust. Considerable debate has been focused upon the rights of a beneficiary in the trust properties.5 In a private trust, the trust is a means of disposition of properties by way of gift. The trust corpus in the private trust, even when the settlor is one of the beneficiaries, is the subject matter of a gift. In this sense, the trust has a distributive character that makes use of equity’s recognition of a multiplicity of interests within a trust. A beneficiary’s interest is an interest in a gift. His interest is a matter of degree of ownership. If he is a beneficiary under a discretionary trust, he has nothing more than a right to be considered as a beneficiary. Read the rest of this entry »
All freely traded liquid markets share common traits related to psychological pressures (fear and greed), but each differs as to fundamental relationships, trading mechanisms, and structural factors. Each market’s individual characteristics must be understood. Once this understanding has been achieved, proper evaluation of similarities or differences, as well as interrelated pricing effects, with other markets can be accomplished.
One market that allows easy application of Drach’s common stock analysis is closed-end funds, also known as publicly traded funds or closed-end investment trusts (CEITs).
Although one of the oldest forms of investment, closed-end funds are among the most misunderstood and consequently often overlooked investment areas. Their origin can be traced back to the establishment of a Belgian fund in 1822; thereafter they flourished, particularly among English and Scottish investors in the latter 1800s. The first U.S. fund was formed in 1893 and, until the time of the stock market crash of 1929, closed-end funds were the dominant form of publically owned investment companies. Read the rest of this entry »
The ease of adapting Drach’s methods to closed-end funds is based on the similarity of scanning for relative discounting. The essence of the timing technique is to attempt to expand common stock investment when the overall market is relatively low, confining investment interest to stocks that qualify for the Master List, which appear relatively discounted to the others.
Scanning for the most appropriate closed-end fund based on discounts has the same objective: isolating the cheapest. In Drach’s objectives, he is searching for specific stocks that are overly discounted. In Herzfeld’s closed-end fund analysis, he is searching for the most discounted fund. The focus of both techniques is to isolate excessive discounts relative to historical/statistical norms.
A significant differential between Drach’s concentration on specific stock and Herzfeld’s concentration on specific funds is that the funds, by their structure, involve diversity in the number of different positions. Read the rest of this entry »
In both the primary and many of the ancillary criteria that determine buy/sell signals, interest rate projections play an important role. Whenstocks are priced at reasonable or discounted levels relative to historical fundamental norms, lowering interest rates can have a strong positive effect. Conversely, especially when stocks are overvalued relative to fundamentals, higher interest rates can be shown to have a very negative effecton stock pricing.
The effect on bonds (and bond funds) resulting from interest rate changes are more straightforward than stock pricing relationships because the effect on stocks at any given time depends on stock price levels. The effect on bonds is direct: Lower rates create higher bond prices, and higher rates result in lower bond prices. The effect of rate changes on bond prices can be more dramatic than many investors realize, with the greater price shifts associated with longer maturities. Read the rest of this entry »
You need to be concerned with the psychological aspects of investing in a managed futures program from two distinct points of view. First, what type of investment best meets your needs? And second, if you’re going to personally interview and select a CTA, what psychological characteristics should you be looking for?
The type of futures investment you are suited for depends on your attitude toward risk. If you are an aggressive risk-taker, you might be looking for an emerging CTA with a short, but incredible, track record. A moderate risk-taker might select a seasoned trader with a five- to ten-year track record in the moderate volatility range. Safety-conscious investors prefer to define their maximum risk in advance. They look for limited partnerships and “guaranteed” funds. We’ll have a discussion of the various types of offerings later in this text. Read the rest of this entry »
For the fourth scenario, we chose a qualified pension plan for the following reasons:
- A lot of very well-known companies are adding managed futures to their investment portfolios for the reasons already documented in this book, particularly because they can often increase the overall return while reducing risk. For example, some of the corporations currently using managed futures are Intel, Libby Owens Ford, Weyerhauser, World Bank, and Virginia Supplemental Retirement System.
- These plans are highly regulated by the Department of Labor, IRS, SEC, CFTC, and state banking, insurance, and securities agencies. All these organizations scrutinize the investment practices of these plans for the protection of the employees who invest. If managed futures can pass the muster of all this regulatory oversight, there must be something worth consideration for just about every serious investor.
Read the rest of this entry »
Client research by Benefits, Inc. shows that plan participants may be usefully grouped into three major segments based on their attitudes toward, and sophistication with, investment concepts. Plan sponsors should consider positioning options to relate to the needs of each segment.
Insecure investors usually compose the largest single participant group. These individuals describe themselves as “beginner” investors. They express a lack of confidence and understanding in matters related to investing and doubt their ability to accumulate enough assets to retire. Their lack of confidence has pushed them into relatively safe investment choices such as money market, fixed income and stable value options. They tend to be the least well diversified. Some avoid participating in a 401(k) plan altogether because of their lack of confidence. Read the rest of this entry »
Focusing on the Investor, Not the Investments
Every day, defined contribution plan participants make investment decisions that will affect their income in retirement. Some make these decisions easily; others are less confident that they are making appropriate choices. Benefits, Inc. understands that participants‘ investment decisions should be driven primarily by an accurate assessment of their retirement income needs and the time they have to accumulate the appropriate nest egg. But Benefits also understands that participants‘ own personalities and attitudes toward investing are often a barrier that prevents them from doing the right thing. Benefits therefore attempts to target the plan design and communication programs it develops for its clients to take into account these behavioral differences. By understanding that there are different types of investors with varying concerns and needs, plan sponsors have an opportunity to provide employees with suitable investments—ones that improve the likelihood of being utilized effectively by participants. Read the rest of this entry »
- Use of a broker affiliated with a fund A fund management company may have an affiliated broker-dealer and may use that broker-dealer to trade under certain circumstances. For example, Merrill Lynch may act as a broker on behalf of a fundfund to the NYSE for executionbroker in the trading crowd or an order held by the NYSE specialist. Rules adopted by the SEC under the 1940 Act generally permit a broker who is affiliated with a fund’s adviser to effect trades for the fund as an agent, so long as the commission charged is no more that the “usual and customary” commission prevailing in the market. The SEC’s rules require a fund’s board of directors to adopt procedures that are designed to monitor compliance in this regard and to make determinations on at least a quarterly basis that all trades carried out by a fund’s affiliated broker meet the “usual and customary” commission standard.
Although an affiliated broker may act as agent for the fund (and receive a brokerage commission for executing the fund’s trades), the 1940 Act broadly prohibits a fund’s adviser and affiliates of an adviser from acting as a dealer in relation to the fund—that is, from selling any security or other property to (or purchasing any security or property from) the fund. This core provision of the regulatory scheme is intended to preclude conflicts of interest that could arise if a fund’s affiliated broker “dumps” unwanted securities from its inventory into the portfolio of the fund. Read the rest of this entry »
