Robinson S.

Mojica April 12, 2019

4FM3 FIN 112
Assignment for Treasury and Trust Management

1. What is the meaning of KIIDS?

 The Key Investor Information Document (KIID) is a document that provides key
information about investment funds, in order to help a potential investor compare
different investment funds and assess which fund meets their specific needs.
 It is a two-page document describing the key information that a potential investor needs
to know about a fund before investing, such as the nature of the fund, its charges, and
the risk associated with investing into.
 It is a new way of providing essential information and key facts about funds, to help a
potential investor assess whether a particular investment fund meets their specific
needs.
 The aim is to enable potential investors to make clear, fair comparisons between
different funds and to make informed investment decisions.
 Information contained in the KIIDS is required by law and enables easy fund comparison
across different asset management companies.

2. Give 10 types of different information that can be found in the KIIDS and describe each
briefly.

Every KIID sets out the key facts and information about funds within the following
categories:

1) Fund Objectives and Investment Policy

 The fund manager is required to tell the potential investor what the fund’s
investment objective is and explain how it hopes to achieve it.
 It also explains any specific investment management techniques that may be
used by the fund manager.
 If the fund recommends a minimum investment period, that will also be stated
here.

2) Risk and Reward

 This section gives an idea of the risk attached to investing in the fund.
 This is shown using a risk indicator, which consists of a set of numbers from
one to seven.
 The lowest number indicates a fund that has the lowest risk of losing the
money but has a lower likelihood of providing a large return on an investment.
 The highest number indicates a high risk fund, so there is a greater risk of
losing the money but the possibility of achieving greater returns.
 Once the potential investor considered his risk appetite, he can refer to the
indicator to help select a fund that most closely matches his needs.
 In addition to the indicator, this section also includes a number of statements
describing other types of risk, which could affect the performance of the fund.
 This could include risks associated with a change in exchange rates where
the fund invests in another currency or where a guarantee from a third party
may have a material effect on the fund (counterparty risk).

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3) Charges
 This section tells about the charges that will be taken from the investment in
order to pay the costs of running the fund.
 These costs include paying for:
 The investment manager
 Administering and safeguarding the investment
 Promoting and distributing the fund.
 As the charges for running the fund are deducted from the investment, the
return is reduced.

4) Past Performance
 Information provided in this section enables the investor to see how the fund
has performed in previous years.
 It also provides an indication of the extent to which the fund’s investment
returns have fluctuated over the years.
 Although past performance is a useful indicator of how the fund has
performed to date, it is not a promise that it will continue to perform in the
same way in the future.

5) Other Practical Information

 The fund manager is obliged to give investors practical information including:
Where and how to obtain more detailed information about the fund,
such as in the Fund Prospectus, and the annual and semiannual
reports
 The name of the depository, which has been appointed to safeguard
the fund’s assets
Details of both the fund and fund manager’s authorization (i.e. whether
the fund is authorized in the UK or elsewhere in Europe)

In addition to the foregoing, particular additional content requirements are prescribed in

relation to KIIDS. Some of these additional content requirements are:

6) Fund Performance and Statistics

 Includes Fund’s Net Asset Value Per Unit (NAVPU) in relation to the
Benchmark (PSEI) and the Risk-Free Rate (91-day Treasury Bill Auction
Rate).

7) Client Suitability
 A client profiling process should be performed prior to participating in the
Fund to guide the prospective investor if the Fund is suited to his/her
investment objectives and risk tolerance.

8) International Securities Identification Number (ISIN) code

 A 12-digit code used to uniquely identify a security, such as a stock or a
bond.

9) Name and Group of Portfolio Managers

10) Other Disclosures such as Related Party Transactions and Outlook and Strategies

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3. What is the difference between YTD and YoY return?

Year-to Date (YTD)

 Year-to-Date (YTD) refers to the period from the beginning of the current year to a
specified date before the yearend.
 It represents the time period of a business starting with the first day of the year
leading up to the present day.
 Based number of days beginning of the calendar year up until a specified date.

 It is widely used by financial analysts to provide details about a firm’s performance

during a specified period or to compare the return of a portfolio during a specified
period.
 By calculating YTD results, managers can perform a comparison between the firm’s
current performance and the performance of past years.
 Moreover, it is used for the calculation of investment returns on a security or a firm’s
income to a current date.
 It is also commonly used in accounting and finance for financial reporting purposes.

Year-over-Year (YOY)
 Year-over-Year (YOY) is a method of evaluating two or more measured events to
compare the results at one period with those of a comparable period on an
annualized basis.
 Common YOY comparisons include annual, quarterly, and monthly performance.
 YOY comparisons are a popular and effective way to evaluate the financial
performance of a company.
 Investors seeking to gauge a company’s financial performance use YOY reporting.
 YOY comparisons are popular when analyzing a company’s performance because
they help mitigate seasonality, a factor that can influence most businesses.
 Sales, profits and other financial metrics change during different periods of the year
because most lines of business have a peak season and a low demand season.

4. What is the difference between cumulative return and annualized return/CAGR?

Cumulative Return
 Cumulative return is the aggregate amount an investment has gained or lost over
time, independent of the period of time involved.
 It measures the entire return of an investment relative to the principal amount
invested over a specified amount of time.
 The amount of time may be months, one year or many years; the measurement term
depends completely on the party making the measurement.
 To calculate cumulative return, subtract the original price of the investment from the
current price and divide that difference by the original price. Express the answer as a
percentage.

Annualized Return
 Annualized return is the geometric average amount of money earned by an
investment each year over a given time period.
 It is calculated as a geometric average to show what an investor would earn over a
period of time if the annual return was compounded.

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5. Why is there a need to disclose related party transactions in the KIIDS?

IAS 24 Related Party Disclosures

 IAS 24 Related Party Disclosures requires disclosures about transactions and
outstanding balances with an entity’s related parties.
 The standard defines various classes of entities and people as related parties and
sets out the disclosures required in respect of those parties, including the
compensation of key management personnel.
 The objective of IAS 24 is to ensure that an entity’s financial statements contain the
disclosures necessary to draw attention to the possibility that its financial position
and profit or loss may have been affected by the existence of related parties and by
transactions and outstanding balances with such parties.

Purposes of Related Party Disclosures

 Related party relationships are a normal feature of commerce and business. For
example, entities frequently carry on parts of their activities through subsidiaries, joint
ventures and associates. In those circumstances, the entity has the ability to affect
the financial and operating policies of the investee through the presence of control,
joint control or significant influence.
 A related party relationship could have an effect on the profit or loss and financial
position of an entity. Related parties may enter into transactions that unrelated
parties would not. For example, an entity that sells goods to its parent at cost might
not sell on those terms to another customer. Also, transactions between related
parties may not be made at the same amounts as between unrelated parties.
 The profit or loss and financial position of an entity may be affected by a related party
relationship even if related party transactions do not occur. The mere existence of
the relationship may be sufficient to affect the transactions of the entity with other
parties. For example, a subsidiary may terminate relations with a trading partner on
acquisition by the parent of a fellow subsidiary engaged in the same activity as the
former trading partner. Alternatively, one party may refrain from acting because of
the significant influence of another—for example, a subsidiary may be instructed by
its parent not to engage in research and development.
 For these reasons, knowledge of an entity’s transactions, outstanding balances,
including commitments and relationships with related parties may affect
assessments of its operations by users of financial statements, including
assessments of the risks and opportunities facing the entity.

6. What is a benchmark and why is there a need to compare the fund’s return vis-à-vis a
benchmark?

 A benchmark is an unmanaged group of securities which are considered as a

‘benchmark’ to measure a fund or a stock’s performance.
 It gives the investor a point of reference for evaluating a fund’s performance.
 Benchmarks are generally broad market indices.
 Benchmarks can be used to assess the quality and/or quantity of a company’s
performance by comparing its performance with that of its peers and competitors.
 A benchmark indicates directly the fund manager’s performance.

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To help clients meet their objectives, a benchmark should meet certain criteria:
 Investability
o The benchmark should be composed of assets that can be bought and sold
by the fund manager. For passive fund managers, it would be difficult to
mimic the benchmark if it contained assets that they could not buy. For active
fund managers, not being able to invest in some of the benchmark’s
components could limit their ability to outperform it.
 Compatibility
o The benchmark should have an appropriate composition and level of risk for
the investor. In other words, it should match the investor’s objectives.
 Clarity
o The rules governing the construction of the benchmark should be clear. This
clarity should extend to the weighting of individual benchmark constituents, to
the method used to calculate benchmark returns, and to the process used to
add and remove constituents to and from the benchmark over time.
 Pre-specification
o The benchmark should be specified before an investment is made so that the
manager is clear about the client’s objectives and expectations and so the
manager can construct a portfolio accordingly.

7. Enumerate and define 4 types of investment risks that maybe inherent in a UITF.
 Interest Rate Risk
o The potential for an investor to experience losses due to changes in interest
rates
 Market/Price Risk
o The potential for an investor to experience losses due to changes in the
market prices of securities (e.g. bonds and equities)
 Liquidity Risk
o The inability to sell or convert assets into cash quickly or where conversion to
cash is possible but at a loss
 Credit Risk
o The risk of loss due to a borrower or issuer’s failure to repay principal and/or
interest on securities issued.

8. What are some major differences between a UITF and a Mutual Fund?
UITFs Mutual Funds
Regulator Bangko Sentral ng Pilipinas Securities and Exchange
Commission
Structure Contractual Corporate
Instrument Units of participation Common shares
Governance Bank/Non-Bank FI’s Trust Independent Investment Company
Committee Adviser/Fund Manager
Sales License No licensing required; a TOAP Sales agents need SEC license to
certified trainer should train sales sell funds
force
Annual Stockholders No Yes
Meeting
Liquidity Requirement None Yes. 5% of NAV subject to
submission of liquidity plan to
SEC, otherwise 10% of NAV

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References

 https://www.ig.com/uk/investments/support/glossary-investment-terms/key-investor-
information-document--kiid--definition
 https://www.theinvestmentassociation.org/assets/components/ima_filesecurity/secure.ph
p?f=factsheets/KIIDfactsheet.pdf
 https://www.imscapital.co.uk/45/196/key-investor-information-documents-kiids
 https://corporatefinanceinstitute.com/resources/knowledge/accounting/year-to-date-ytd/
 https://www.myaccountingcourse.com/accounting-dictionary/year-to-date
 https://www.investopedia.com/terms/y/year-over-year.asp
 http://www.businessdictionary.com/definition/year-over-year-YOY.html
 https://bizfluent.com/info-8526561-cumulative-vs-average-annualized-returns.html
 https://www.iasplus.com/en/standards/ias/ias24
 http://www.assb.gov.sg/docs/attachments/fr-assb_frs_1Jan2017/SB-FRS_24_(2017).pdf
 https://economictimes.indiatimes.com/definition/benchmark
 http://www.morningstar.com/InvGlossary/benchmark_index.aspx
 https://www.cfainstitute.org/-/media/documents/support/programs/investment-
foundations/19-performance-evaluation

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