Table of Contents
Preface xi
About the author xiii
1 INTRODUCTION 1
Economic background 3
‘Money makes the world go round’ 4
‘Money doesn’t grow on trees’ 5
Risks and rewards 6
Considerations 9
Markets 10
Investment instruments 11
‘Neither a borrower nor a lender be’ 12
2 ROLE OF FUNDS 13
Definitions 14
Investment businesses 15
Types of fund 16
Open-ended and closed-ended funds 23
Uses of funds 24
Associated packaging 25
Features and characteristics 25
Purpose, providers and players 25
Costs, benefits and comparisons 27
How to invest 31
Sales, marketing and disclosure 31
Categories, sectors and statistics 32
Investor protection 33
‘Be it enacted by the Queen’s most Excellent Majesty . . .’ 33
Regulation in practice 42
Establishing a fund 47
Who wants one and why? 47
Options and approaches 48
Documents and authorisations 50
Launching the fund 51
3 PORTFOLIO MANAGEMENT 53
Strategies, styles, objectives and policies 54
Meeting investors’ requirements 56
Risks to be managed 57
Hedging 59
‘Please don’t ask for credit . . .’ 62
‘You can’t do that!’ 63
Asset allocation versus stock selection 65
Choosing the investments 66
‘First, pick your markets’ 66
Portfolio weightings and profiles 68
Income and growth 69
Liquidity 70
Evaluating alternatives 71
Data, ratios and measurements 75
Dealing with events 78
News and announcements 79
New issues and underwriting 81
Rights, splits and scrip 83
Breaches of regulations 85
4 PORTFOLIO ADMINISTRATION 87
‘Day by day in every way . . .’ 88
Buying and selling 88
Delivery and settlement 89
Registration 89
Custody 91
Use of nominees 91
Stock exchange reporting 93
Records and regulations 93
Portfolio accounting and controls 94
Profits, income and taxation 96
Valuation and pricing 98
5 INVESTOR ADMINISTRATION 103
Agents, agreements and delegation 104
Investor transactions 105
Registration 108
Communicating with investors 109
6 PERFORMANCE MEASUREMENT 115
Sector comparisons – ‘my fund is better than your fund’ 116
Yields and returns 119
Time- and money-weighted returns 123
Indices and benchmarking 127
Volatility and risk adjustments 130
7 INVESTMENT MATHEMATICS 133
The arithmetic of indices 134
Standard deviation 137
Capital Asset Pricing Model 139
Glossary 147
List of abbreviations 155
Index 157
