CAPM - Unit Investment Trust Fund (UITF)

ASSET MANAGEMENT COMPANY (AMC), - also known as UITF,

- is a business that manages client funds that are pooled
together and invests them in a variety of assets, such as
stocks, bonds, real estate, and other investments.
Types of Asset Management Firms
• Regulated investment companies
• Exchange traded funds
• Separately managed accounts
• Hedge funds
• Pension funds
Regulated investment companies (RICs)
- are financial intermediaries that sell shares to the
public and invest those proceeds in a diversified
portfolio of securities. Each share sold represents a
proportional interest in the portfolio of securities
managed by the RIC on behalf of its shareholders.
- regulated by the BSP.
- sells participation unit and its
- price is based on Net Asset Value per Unit (NAVPU)
Investors in RICs bear two types of costs:
- SHAREHOLDER FEE,
“sales charge”, which is a “one-time” charge;
- ANNUAL FUND OPERATING EXPENSE,
“expense ratio”, which covers the fund’s expenses.
Exchange traded fund (ETF)
- is very similar to mutual funds and its structure is
comparable to open and close ended funds. The main
difference between mutual funds and ETF lies in the
place where it can be bought and the management of
its portfolio.

Types of Regulated Investment Companies

Open-Ended Funds
- mutual funds, numbers of fund shares are not
fixed.
- All new investments into the fund are purchased
at the NAV
- All redemptions (sale of the fund) or redeemed
from the fund are purchased at the NAV
-Mutual funds who sell shares
- Regulated by SEC
Hedge funds
Close-Ended Funds - engage in a variety of investment activities. They cater
to sophisticated investors and are not subject to the
- do not issue additional shares or redeem shares. - - the
regulations that apply to mutual funds geared toward
number of fund shares is fixed at the number sold at the
the general public. Fund managers are compensated on
issuance.
the basis of performance rather than as a fixed
- Investors who want to sell their shares or investors percentage of assets. “Performance funds” would be a
who want to buy shares must do so in the secondary more accurate description.
market where the shares are traded. Prices are based Hedge Funds uses the following strategies:
supply and demand. • Leverage
• Short selling
• In Close-ended funds the price of shares could • Derivatives
either be “Trading at a Discount” or “Trading at
a premium”
 • Simultaneous buying and selling of related
financial instruments to realize a profit from the
temporary misalignment of their prices.
Instead of investing directly in stocks or bonds, or
by means of alternatives such as mutual funds, ETFs, or
hedge funds,
SEPARATELY MANAGED ACCOUNTS
ASSET MANAGEMENT FIRMS offer individual and
institutional investors the opportunity to invest in a
separately managed account (called as INDIVIDUALLY
MANAGED ACCOUNT).
In such accounts, the investments selected by the
asset manager are customized to the objectives of the
investor.
SEPARATELY MANAGED ACCOUNTS offer the
customers of an asset management an investment
vehicle that overcomes all the limitations of RICs, they
are more expensive than RICs in terms of the fees
charged.
PENSION FUNDS
A pension plan fund is established for the eventual
payment of retirement benefits. A plan sponsor is the
entity that establishes the pension plan.
A plan sponsor can be:
- A private business entity on behalf of its employees.
- A federal, state, and local government on behalf of its
employees.
- A union on behalf of its members.
- An individual.
TYPES OF PENSION FUNDS
- Defined Benefit Plan - the plan sponsor agrees to
make specified dollar payments to qualifying employees
beginning at retirement
- Defined Contribution Plan - the plan sponsor is
responsible only for making specified contributions into
the plan on behalf of qualifying participants with the
amount that it must contribute often being either a
percentage of the employee’s salary and/or a
percentage of the employer’s profits.
Investment Banks - Functions
Public offering of securities
Private placement of securities
Trading of securities
Mergers, acquisitions, and financial restructuring
advising
Merchant banking
Securities finance and prime brokerage services
Asset management
What is risk and return?
Risk is a measure of the uncertainty surrounding the
return that an investment will earn or, more formally,
the variability of returns associated with a given asset.
Return is the amount of money that you can make from
an investment.
Systematic vs Unsystematic Risk
Systematic Risk, sometimes referred to as market risk.
Is a risk that is inherent to the entire market.
Unsystematic Risk is also known as specific risk, are
risks that are unique to single company or industry.
Investment Diversification is the action of investing in
to different types of investment to reduce or mitigate
exposure to risk of losses.
The Concept of Risk and Return
“The higher the risk the higher the return, the lower
the risk the lower the return”.
Measurement of Returns
Total Rate of Return is the total gain or loss experience
from an investment over a given period of time.
rt = actual, expected, or required rate of return
during period t
Ct = cash (flow) received from the asset investment
in the time period t - 1 to t
Pt = price (value) of asset at time t
Pt-1 = price (value) of asset at time t - 1