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 »
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 »
A primary reason for discounts is a lack of sponsorship. If a securities salesperson (dependent on commissions) has a choice of selling someone an existing closed-end fund (say at a regular stock commission of around 1 percent) or a load mutual fund with a sales charge (that can be as much as 8 percent), the incentive is to direct “investors” to the open-end fund.
The incentives associated with higher sales charges can be easily observed when new closed-end funds are issued. In new issues, compensation is by underwriting fees. A typical fee is 7 to 8 percent. If a fund was coming public at $10 per share, an 8-percent underwriting fee would be 80 cents per share. Read the rest of this entry »
In the published common stock portfolio modeling the Continuous Full Investment portfolio models were included to function as a control to allow objective comparisons with the market timing models.
Although intended as a control, allowing demonstration of the validity of the timing technique, the Continuous Models have significantly outperformed the broadly based popularized market averages. The reasons for this superior performance are twofold. First, the rigid requirements for stocks to qualify for the Master List results in the stocks comprising the Continuous Models to be of usually superior fundamental quality, thereby giving the group an upward bias relative to the overall market. Second, the Continuous Models change positions in a gradual, relatively slow process in which new positions are selected that are among the most discounted (low-priced relative to the others) on the list. In effect, a rotational process adds those that have become more discounted and deletes those less discounted. Read the rest of this entry »
Buying foreign stocks is cumbersome for an individual investor because it requires currency conversion, opening an account with a foreign broker, taking custody of a foreign company’s shares, and all the associated transactions. Many domestic brokers now offer trading in foreign stocks, but it is still a lot more difficult to buy and sell foreign stocks than it is to trade domestic stocks.
There are, however, alternatives available that do not require direct trading on foreign stock exchanges. These are American depository receipts (ADRs), mutual funds, exchange-traded funds, and multinational companies. Details are provided below.
ADRs are negotiable registered certificates that stand in for the underlying stock of foreign companies. A U.S. bank (called a custodian bank) holds shares of foreign companies and issues receipts (ADRs) against those shares. There could be one ADR for several shares or several ADRs for one share of stock—the custodian bank picks a ratio that puts the ADR in a tradable range of $50-100. For example, each share of British Petroleum is subdivided into six ADRs and each share of British Airways is equal to ten ADRs, while two Honda shares make one ADR but one Sony share is equal to one ADR. Read the rest of this entry »
Despite the huge growth of mutual funds, the marked shift in fund types and the creation of new distribution channels, the concentration of market share within the fund management industry remained remarkably stable during the 1990s. The industry has continued to be led by 10 fund managers with 45% to 55% of all mutual fund assets under management and 25 managers with 70% to 75% of all mutual fund assets under management. But many of the leaders changed places over the decade—some because of strong performances and others due to mergers and acquisitions. At the same time, the number of fund complexes overall has continued to increase as new fund managers have taken advantage of the mutual fund industry’s low barriers to entry.
1. Overall industry concentration and turnover In 1990, there were 464 mutual fund complexes, of which the top 10 managed 56% of total industry assets and the top 25 managed 76% of total assets. By the end of 2000, the mutual fund industry was modestly less concentrated at the top. There were 654 complexes at that date, with the top 10 accounting for 46% of total assets and the top 2, accounting for 71% of total assets.The list of top 25 fund complexes has changed significantly, with some complexes dropping out and others stepping in. Read the rest of this entry »
The presence of dominant local shareholders characterizes the governance structure of many foreign companies.The dominant shareholders typically seek to preserve their influence by relying on a variety of structures designed to frustrate the exercise of rights by minority shareholders and “outside” investors.
France, for example, has a strong tradition of government involvement in the economy. Accordingly, the state maintains several devices to influence corporate decision making, which undermine minority shareholder rights. Read the rest of this entry »
Buying and selling
Although some funds are exchange-traded, the shares or units of most mutual funds are bought and sold by making an application to the manager. This can be in writing, by telephone or via the Internet, directly by the investor or by the investor’s adviser or agent. Many managers have pre-printed application and redemption forms and their advertisements and other promotional mailing material often include an application form. Once accepted by the manager, applications constitute a binding contract, and the manager issues a contract note stating the details of the transaction.
For purchases, payment can be included with the application. Some managers may insist on this for the initial investment of a first-time investor. Alternatively, the contract note will specify when payment is required. For large investments, the manager may be required by law to obtain confirmation of the investor’s identification and of the source or destination of money involved in the transaction: if there is any suspicion that the money is being laundered, or used to support terrorist activity, the suspicion must be reported to the authorities. Read the rest of this entry »
