5QQMN532
Asset Management
Tutorial 1
Practical applications that involve working out fund returns for investors and a case study of a UK fund
Question 1
Consider UK Investment Trust, a closed-end fund devoted to finding undervalued, thinly traded stocks. The table shows the NAV and premiums (discounts) relative to NAV indicated by + (-). Period 0 is the initiation date. Assume the investor paid no front-loaded fees when buying the stocks.
a) Calculate the return per period for an investor who bought 100 shares of UK Investment Trust at the fund initiation date and sold the position at the end of Period 4?
b) What is the average growth rate of the NAV over that same period?
c) Calculate the return for another investor who bought 100 shares in UK Investment Trust at the end of Period 1 and sold his position at the end of Period 2.
d) What is the growth rate in NAV between Period 1 and 2?
Question 2
How do you rate ( / ) the suitability of open-end and closed-end investment companies for the following investment strategies.
Question 3
You are an advisor at King’s Wealth Management. You have been approached by a client who wishes to invest a significant share of her wealth in Asian equities. Your client tells you she believes Asia’s economic growth potential far outstrips that of other markets which is why she is looking to invest in a broad Asian portfolio.
You are considering purchasing Asia Dragon Trust on behalf of your client. Using the Morningstar report for Asia Dragon Trust (uploaded on Keats), answer the following questions:
a) Is Asia Dragon Trust an open or closed-end fund?
b) Who are the fund managers and fund management company?
c) Which benchmark is the performance measured against?
d) How would you invest in the fund and what costs would your client pay to buy into the fund?
e) What costs would your client pay on an ongoing basis?
f) Your investor buys at 524 p. If the fund’s net asset value falls by 6% and the fund sells on a discount of 15%, what is the return? Assume no dividends are paid.
g) Can you think of better alterna ives that meet your client’s preferences? Feel free to search morningstar.co.uk or other websites to make alternative investment suggestions for your client.