Last section (Multiple response)

Time-weighted Return

How well the fund manager performed minus withdrawals and contributions

Eliminates the distortions caused by timing of contributions and withdrawals

• Breaks down each cash flow change into different sub-periods

Think of it like:

• Time = managers talent

• Money = my return

Discretionary vs advisory portfolio management

Advisory:

• the adviser gives advice and client makes final decision

Discretionary:

• Client gives permission once and port manager makes decisions without asking

Discretionary can react to market changes quicker

Structured Product

An investment whose return depends on the performance of something else such as:

• FTSE100

• S&P500

• Gold

• Oil

It has special rules:

• If the FTSE100 rises by 40%, you get 40%

Subject to CGT or income tax

Participation Rate

How much of the markets growth you actually receive

FTSE rises 20%

Participation rate is 80%

So you don’t get the full market return

Kick out facility (Auto call)

It means the investment can end early

Doesn’t reduce liquidity

Convertible loan stock

A corporate bond + option of changing into stock

• It’s value depends on interest rates and company’s share price (because of the conversion option)

Could be subject to CGT after converting when selling stock

NSI Green Bond

• Max contribution - £100,000

• Fixed rate for 3 years

• Full protection

• Income tax on interest received

T-bills

• Backed by government

• Return on T-bills is generated by buying at a small discount to the nominal value that will be returned at the end of loan

Modified duration

• Higher the MD - Higher the price volatility

• If interest rates are going down, the price would fall, with MD showing by how much

Income Bonds

• Max can be placed in one is £1million

Sovereign Bond

Loans to national governments

If not a gilt will create currency risk

Money-weighted Return

The investors actually return

Includes the effects of contributions, withdrawals and when contribution went in

Sharpe Ratio

Return - Risk-Free Rate / SD

The return you get for the degree of risk taken

Information Ratio

Measures how much a fund manager beats the benchmark for each unit of tracking error they take

It’s asking was the extra return worth the extra risk

Negative IR means investor would have received better returns from a tracker fund

Fund return - Benchmark Return / Tracking Error

For clients with large equity portfolios what reporting is needed

• Portfolio shown against benchmark

• Client must receive statements every 6 months

• If adviser is to carry out regular suitability assessments, this must be agreed in writing

What can be directly attributed to portfolio manager returns

Asset allocation

Stock selection