A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on the trust, it may invest in securities such as shares , bonds , gilts , and also properties, mortgage and cash equivalents . Those investing in the trust own "units", whose price is called the " net asset value " (NAV). The number of these units is not fixed and when more is invested in a unit trust (by investors opening accounts or adding to their accounts), more units are created.
28-714: Tracker Fund of Hong Kong or TraHK is a unit trust which provides investment results that correspond to the performance of the Hang Seng Index in the Hong Kong stock market . In 1998, the Hong Kong SAR Government acquired a substantial portfolio of Hong Kong shares to sustain linked exchange rate during the Asian Financial Crisis . To minimise disruption to the market, the Government chose to launch
56-667: A loss to traders that are more informed, as well as a cost of immediacy, that is, a cost for having a trade being executed by an intermediary. The realized spread isolates the cost of immediacy, also known as the "real cost". This spread is defined as: Realized Spread k = 2 × | Midpoint k + 1 − Traded Price k | Midpoint k × 100 {\displaystyle {\text{Realized Spread}}_{k}=2\times {\frac {|{\hbox{Midpoint}}_{k+1}-{\hbox{Traded Price}}_{k}|}{{\hbox{Midpoint}}_{k}}}\times 100} where
84-437: A specified investment objective to determine the management aims and limitations. A unit is created when money is invested and cancelled when money is divested. The creation price and cancellation price do not always correspond with the offer and bid price. Subject to regulatory rules these prices are allowed to differ and relate to the highs and lows of the asset value throughout the day. The trading profits based on
112-543: Is 1.5763, this means that currently you can sell the EUR/USD at 1.5760 and buy at 1.5763. The difference between those prices (3 pips ) is the spread. If the USD/JPY currency pair is currently trading at 101.89/101.92, that is another way of saying that the bid for the USD/JPY is 101.89 and the offer is 101.92. This means that currently, holders of USD can sell US$ 1 for 101.89 JPY and investors who wish to buy dollars can do so at
140-399: Is an accepted measure of liquidity costs in exchange traded securities and commodities. On any standardized exchange, two elements comprise almost all of the transaction cost —brokerage fees and bid–ask spreads. Under competitive conditions, the bid–ask spread measures the cost of making transactions without delay. The difference in price paid by an urgent buyer and received by an urgent seller
168-581: Is increased latitude to hide charges in the OEIC Dilution Adjustment (more commonly referred to as "Swinging Single Price") whilst maintaining the veneer of simplification . In the United States, unitholders of Unit Trust Funds are often treated as partners for tax purposes. Much like investments in MLPs , unitholders are typically issued a K-1 rather than a Form 1099 at the end of each tax year. In
196-431: Is more difficult to measure than the quoted spread, since one needs to match trades with quotes and account for reporting delays (at least pre-electronic trading). Moreover, this definition embeds the assumption that trades above the midpoint are buys and trades below the midpoint are sales. Quoted and effective spreads represent costs incurred by traders. This cost includes both a cost of asymmetric information, that is,
224-439: Is the liquidity cost. Since brokerage commissions do not vary with the time taken to complete a transaction, differences in bid–ask spread indicate differences in the liquidity cost. The simplest type of bid-ask spread is the quoted spread. This spread is taken directly from quotes, that is, posted prices. Using quotes, this spread is the difference between the lowest asking price (the lowest price at which someone will sell) and
252-665: The IPO of the exchange-traded fund , "the Tracker Fund of Hong Kong", in 1999 as the first step in its disposal programme. In August 1998, the Hong Kong Government acquired a substantial portfolio of Hong Kong shares during a market operation. The Exchange Fund Investment Limited (EFIL) was established in October 1998 by the Government to advise on the disposal of this portfolio in an orderly manner. When seeking to dispose of these shares,
280-455: The bid–offer spread . The bid–offer spread will vary depending on the type of assets held and can be anything from a few basis points on very liquid assets like UK/US government bonds, to 5% or more on assets that are harder to buy and sell such as property. The trust deed often gives the manager the right to vary the bid–offer spread to reflect market conditions, with the purpose of allowing the manager to control liquidity. In some jurisdictions
308-404: The transaction cost . If the spread is 0 then it is a frictionless asset . The trader initiating the transaction is said to demand liquidity , and the other party ( counterparty ) to the transaction supplies liquidity. Liquidity demanders place market orders and liquidity suppliers place limit orders . For a round trip (a purchase and sale together) the liquidity demander pays the spread and
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#1732849011717336-538: The Government chose a stock neutral solution that would create minimal disruption to the market. An Exchange Traded Fund, the Tracker Fund of Hong Kong (TraHK), which met these requirements and added depth to Hong Kong's capital markets, was launched in November 1999 as the first step in the Government's disposal programme. State Street Global Advisors was appointed as the Fund Manager and State Street Bank and Trust Company
364-775: The IPO, approximately HK$ 140.4 billion (by 15 October 2002) in Hang Seng Index constituent stocks has been returned to the market through TraHK's unique tap mechanism. In March 2022, Hang Seng Investment Management replaced State Street Global Advisors as manager of the TraHK. Unit trust In addition to the UK, trusts are found in Fiji , Ireland , the Isle of Man , Guernsey , Jersey , New Zealand, Australia, Kenya, Uganda, Tanzania, Namibia, South Africa, Singapore, Malaysia and Zimbabwe . The first unit trust
392-500: The UK there are generally two types of open-ended, actively managed investment companies: In Western Europe there are In the United States Unit trusts are open-ended; the fund is equitably divided into units which vary in price in direct proportion to the variation in value of the fund's net asset value . Each time money is invested, new units are created to match the prevailing unit buying price; each time units are redeemed
420-518: The UK, units can be bought direct from the fund manager, held through a nominee account or through an individual savings account (ISA). It is also possible to invest via fund platforms. From 1 January 1987 to 5 April 1999 it was also possible to invest via a personal equity plan (PEP) however these were discontinued and all PEP accounts automatically became stocks and shares ISAs on 6 April 2008. Bid%E2%80%93offer spread The bid–ask spread (also bid–offer or bid/ask and buy/sell in
448-409: The assets sold match the prevailing unit selling price. In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets. Unit trust trades do not have any commission. The fund manager makes a profit in the difference between the purchase price of the unit or offer price and the sale value of units or the bid price. This difference is known as
476-407: The bid–offer spread is referred to as the "bid–ask spread". To cover the cost of running the investment portfolio the manager will collect an annual management charge or AMC. Typically this is 1 to 2 percent of the market value of the fund. In addition to the annual management charge, costs incurred in managing and dealing the underlying assets will often be borne by the trust. If this is the case,
504-402: The case of a market maker ) is the difference between the prices quoted (either by a single market maker or in a limit order book ) for an immediate sale ( ask ) and an immediate purchase ( bid ) for stocks , futures contracts , options , or currency pairs in some auction scenario. The size of the bid–ask spread in a security is one measure of the liquidity of the market and of the size of
532-518: The difference between these two sets of prices are known as the box profits. In the UK many unit trust managers have converted to open-ended investment companies (OEICs) in recent years. OEICs normally have a single price for purchase and sale, although recent regulatory change now permits dual pricing too, in line with unit trusts. The motivation for conversion is often cited as a simplification and precursor to offering funds Europe-wide under EU rules. More cynical observers may have noted that there
560-468: The highest bid price (the highest price at which someone will buy). This spread is often expressed as a percent of the midpoint, that is, the average between the lowest ask and highest bid: Quoted Spread = ask − bid midpoint × 100 {\displaystyle {\text{Quoted Spread}}={\frac {{\hbox{ask}}-{\hbox{bid}}}{\hbox{midpoint}}}\times 100} . Quoted spreads often over-state
588-665: The liquidity supplier earns the spread. All limit orders outstanding at a given time (i.e. limit orders that have not been executed) are together called the Limit Order Book. In some markets such as NASDAQ , dealers supply liquidity. However, on most exchanges, such as the Australian Securities Exchange , there are no designated liquidity suppliers, and liquidity is supplied by other traders. On these exchanges, and even on NASDAQ, institutions and individuals can supply liquidity by placing limit orders. The bid–ask spread
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#1732849011717616-463: The next valuation point where the Fund is priced on a "Forward Basis", or at the actual valuation point where the fund is priced on an Historic basis. Forward pricing is the most common. The underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has
644-475: The provider will extract revenue equal to the AMC without incurring any expenses managing the fund. This makes the charges in such vehicles lack transparency. In a unit trust, units are managed within what is known as the "Managers Box". The Box Manager of the fund will make a decision at each valuation point whether or not to Create (add) or to Liquidate (Remove) units based on the final net sales and redemptions prior to
672-604: The spreads finally paid by traders, due to "price improvement", that is, a dealer offering a better price than the quotes, also known as "trading inside the spread". Effective spreads account for this issue by using trade prices, and are typically defined as: Effective Spread = 2 × | Trade Price − Midpoint | Midpoint × 100 {\displaystyle {\text{Effective Spread}}=2\times {\frac {|{\hbox{Trade Price}}-{\hbox{Midpoint}}|}{\hbox{Midpoint}}}\times 100} . The effective spread
700-407: The subscript k represents the kth trade. The intuition for why this spread measures the cost of immediacy is that, after each trade, the dealer adjusts quotes to reflect the information in the trade (and inventory effects). Inner price moves are moves of the bid-ask price where the spread has been deducted. If the current bid price for the EUR/USD currency pair is 1.5760 and the current offer price
728-509: Was appointed as the Trustee of TraHK. These appointments provided the Tracker Fund with a comprehensive solution to its needs, including portfolio management, custody, fund administration and compliance monitoring functions. With an issue size of HK$ 33.3 billion (approximately US$ 4.3 billion), TraHK's initial public offering (IPO) was the largest IPO ever in Asia except Japan at the time of launch. Since
756-402: Was launched in the UK in 1931 by M&G under the inspiration of Ian Fairbairn . The rationale behind the launch was to emulate the comparative robustness of US mutual funds through the 1929 Wall Street crash. The first trust called the 'First British Fixed Trust' held the shares of 24 leading companies in a fixed portfolio that was not changed for the fixed lifespan of 20 years. The trust
784-675: Was relaunched as the M&;G General Trust and later renamed as the Blue Chip Fund. By 1939 there were around 100 trusts in the UK, managing funds in the region of £80 million. There are a number of collective investment schemes — Unit Trust, Open-ended investment company , Mutual fund , Unit investment trust , Closed-end fund — with similar objectives and/or names, sometimes confused with each other. Variations include open-ended and closed-ended , business trust or management company/corporate structure, Actively managed or un-managed. In
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