- 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 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 »
So far we have merely described an interest-rate swap and looked at its characteristics. Here we illustrate how they can be used in asset/liability management. Other types of interest-rate swaps have been developed that go beyond the generic or “plain vanilla” swap described and we describe these later.
An interest-rate swap can be used to alter the cash flow characteristics of an institution’s assets so as to provide a better match between assets and liabilities. The two institutions we use for illustration are a commercial bank and a life insurance company. Read the rest of this entry »
A total return swap in the fixed-income market is a swap in which one party makes periodic floating-rate payments to a counterparty in exchange for the total return realized on a reference obligation or a basket of reference obligations. A total return payment includes all cash flows that flow from the reference obligations as well as the capital appreciation or depreciation of those reference obligations. When the reference obligation is a bond market index, the swap is referred to as a total return index swap.
The party that agrees to make the floating payments and receive the total return is referred to as the total return receiver; the party that agrees to receive the floating payments and pay the total return is referred to as the total return payer.
Notice that in a total return swap, the total return receiver is exposed to both credit risk and interest-rate risk. For example, the credit risk spread can decline (resulting in a favorable price movement for the reference obligation), but this gain can be offset by a rise in the level of interest rates. Read the rest of this entry »
The pricing and bookkeeping agent is responsible for maintaining the fund’s accounting records, pricing the fund’s portfolio each day, calculating periodic distributions, determining the fund’s cash availability, preparing financial statements and filing the fund’s tax returns. A fund’s accounting records are very similar to those of a small corporation, consisting of revenue, expenses, assets, liabilities and shareholder’s equity. The pricing and bookkeeping agent is responsible for maintaining these records each day. The accounting records are the basis for calculating the fund’s NAV, the price at which shareholders buy into and sell out of the fund, as well as for determining the distributions the fund makes to its shareholders. Read the rest of this entry »
Driven by a combination of management-initiated efforts to improve defined contribution plans and increasing employee bottom-up requests for a wider array and range of investment options, the average number of choices offered by Benefits, Inc. clients is now 10, compared to 3 or 4 choices 10 years ago. Indeed, many large companies offer 75 or more options. However, a concern is whether these additional options are being used properly. Read the rest of this entry »
If everything you’ve read up to this point describes your investing behaviors, you should also know that the simple remedy to this sin is trading less and enjoying it more. Reducing the frequency of trading may sound easy to those who aren’t guilty of this sin, but to investing gluttons, it seems antithetical to their entire investing philosophy. If you’re a glutton, you firmly believe that highly active trading is the key to success. If you want to stop being a glutton and stop losing money, then you should be aware of two studies that will disabuse you of your belief in hyperactive trading.
The first study was completed in 1998 by Brad M. Barber and Terrance Odean, professors at the graduate school of management at the University of California at Davis. They examined the trading activity of 78,000 investors over a six-year period and found that the average investor turned over the stocks in his portfolio 80 percent annually, which may explain why individuals usually don’t perform as well as the overall stock market. More significantly, Professors Barber and Odean broke down households into groups based on how frequently they turn over their portfolios. The low turnover group averaged just 1.5 percent turnover per year, meaning that they rarely traded out of stocks. Read the rest of this entry »
For all the seven sins, the goal is to keep your emotions in check when making investment decisions, but it is especially important here. Anger flares up faster than any of the other sins and it can be so powerful that before you know it, you’ve made an ill-advised investment. Besides the previous recommendations, here are some proactive steps that can keep Your anger out of the process:
- FORCE YOURSELF TO TAKE BREAKS FROM THE INVESTMENT WORLD IN GENERAL AND YOUR PORTFOLIO IN PARTICULAR
The more you immerse yourself in an investing mindset, the angrier you’re likely to get, especially if things aren’t going your way. Rubbing your nose in your own mistakes or the market’s unpleasant surprises for hours every day will just raise your hackles. As a long-term investor, you don’t need to be tracking your stocks nonstop or be up on every market development. While I strongly advocate being aware of events that have an impact on your portfolio, you can maintain this awareness by monitoring it every few days or by spending just a little time on it daily. Reducing your exposure to the investing world will reduce your aggravation. You will be less likely to blow your stack or your investment dollars from the accumulated pain associated with nonstop market monitoring. Read the rest of this entry »
Some of you may have picked up this article because of some shock to your investing system. You were going along fine for a while, but some event caused you to lose a lot of money in the market and you vowed to make a change. Others may have heard about a friend or colleague who suffered a major loss, and you want to prevent the same thing from happening to you. Without experiencing these shocks or seeing how they affect someone you know, it’s easy to continue investing based on strong emotional states. If you haven’t suffered a shock yet, you are bound to experience one if you lack a disciplined, long-term strategy. Read the rest of this entry »
The investment management of a mutual fund’s assets is subject to compliance with the aims and policies stated in the prospectus (or equivalent offering document or explanatory memorandum) and to limitations imposed by regulations or, if more constraining, by the terms of the fund’s constituting deed or instrument of incorporation. This is the case if the investment management is carried out by the fund’s own sponsoring manager or management company, or by a third party appointed under contract to be portfolio manager or investment adviser.
Investors must be protected from unexpected and undesired changes in the purpose and practices of their chosen investment vehicle. Regulations therefore impose both a fiduciary responsibility and prescriptive rules on the operators of mutual funds to ensure there are no unauthorised or imprudent dealings.
Normally, investment is restricted to transferable securities that are listed on a recognised stock exchange, and, for funds that are to be marketed to the general public, investment in gold, oil, sugar and other physical commodities is generally not permitted but investment in property may be. The regulations usually reflect the general principles of collective investment, which are that the fund and its management should have the following characteristics: Read the rest of this entry »
Institutions obtain administrative and, sometimes, taxation benefits by using mutual funds to manage their own assets. Such funds are invariably not available to the general public. Funds that are authorised to be promoted to the general public (frequently referred to as ‘retail funds‘), usually extol the benefits to the private individual, namely:
1. Small investment required
Although both minimum holdings and minimum initial amounts are usually required, individuals can invest comparatively small sums of money in mutual funds, particularly through plans that accept regular subscriptions. So-called ’small investors‘ can thereby obtain the benefits of worldwide economic activity (hopefully growth) rather than allowing these to be enjoyed by the banks (and their shareholders) and others with whom they deposit their funds in return for an interest income. Read the rest of this entry »
