Equities, property and alternative investments Flashcards
Equities:
Factors affecting share price
External economic and political factors
Investor sentiment
Profit expectations
Dividend Expectations
Takeover activity
Quality and track record of management
Equities:
Costs of buying & Selling
Commission
Stamp Duty Reserve Tax
which you know already
Panel on Takeovers and Mergers
£1 fkat rate applied to all trades of £10,000 or more for PTM which is a regulatory body
Preference Shares
No voting rights unless dividends in arrears. Dividend priority over other shareholders.
- Cumulative
default option. if insufficient profits in one year to pay the dividend the shortfall is carried forward. All arrears be paid before ordinary shares get any.
- Non Cumulative
- Participating
Fixed rate dividend and holder participates in company profits via additional dividend
- Redeemable
Redeemable at a pre-determined date or on option of company. a temporary source of finance for company with dividends paid for a short time before repayment.
- Convertible
Holder has right for these to be converted to ordinary shares at preset dates and terms. share price will track the ordinary share price if likely that conversion option will be taken.
Ordinary Shares
Have voting rights. 1 vote per share.
Last to be paid on liquidation - higher risk.
Entitled to profits remaining after tax and preference share dividends.
A SHARES = profits/dividend but non voting. so raise capital without losing control of company. more expensive as shareholder can’t influence company and so takes on more risk.
B SHARES = redeemable issued as part return of capital to shareholders
DEFERRED = issued to company founders and pay dividend after a certain period of years or once all other dividends are paid. May have greater voting rights or get a larger proportion of profits after deferred period.
Equity risks
Equity Capital Risk
Share dividend volatility
Currency Risk
Liquidity Risk
Counterparty Risk
If using a fund manager of insurance company remember FSCS protects max £50,000 for investments and 90% of a claim for insurance companies
Regulatory Risk
Equity diversification
Diversifying from individual shares
Diversifying across sectors
reduces systemic risk
Diversifying across international markets
globalisation has reduced the benefits of this
Private Equity
Private Equity Fund
Used by institutional investors. invests for usually 3 to 7 years and are structured as limited partnerships with a 10 year lifespan.
requires the investments to be sold or converted to quoted shares before closing the fund.
Listed private equity investment company
i) Invest directly in unlisted companies and/or
ii) invest in fund of funds
Closed-ended, traded on LSE and ISA friendly
Investment Ratios-
Earnings per Share
Profit for ordinary shareholders/
<span><span>Number of ordinary shares issued</span></span>
<span><span>Profit = after tax, minority interests and preference dividends.</span></span>
<span><span>Any profits retained by the company for future delopment etc is excluded</span></span>
Investment ratios:
Dividend Yield
(Net dividend per share/current share price) * 100
Allows comparison with the return from bond or deposit.
Note: If share price slumps, the yield could look good
Investment Ratios
Dividend Cover
Individual basis
Earnings per share/Dividend per share
Total Profit Basis
<span>Profit attributable to ordinary shareholders</span>
<span>Dividends paid to ordinary shareholders</span>
measures how many times the dividend could be paid out of current earnings. Indicates the risk and margin of safety in the company
Investment Ratio
Price Earnings
Market Price of Share/Earnings per Share
Shows the market’s optimism/pessimism for future growth in earnings.
Use only to compare in the same sector and business type.
If P/E ratio is high, shares will cost more but should be worth it from higher future earnings.
Investment Ratios
Net Asset Value
Net Assets attributed to ordinary shareholders* /
No. of ordinary shares
* Total capital less prior claims, such as secured and unsecured loans and preference shares
used as the value of the business for accounting purposes though not realistic! Useful if a takeover bid is made or company may go into liquidation.
Indices
FTSE
General points
Market Capitalisation is stock market valuation of a company calculated by multiplying the numbe rof shares by their market price.
this means that the movement of a large company has a greater impact on the index than a smaller one.
Weightings are adjusted to reflect the free float of shares:-
free float = the proportion of shares available for trading and if you have less than 75% of shares available for trading then your weighting is decreased.
Indices
FTSE All Share Index
- Consists of 625 companies & 99% of market capitalisation
- Aggregate of FTSE 100, FTSE 250 & FTSE Small Cap Indices
- Real time and reviewed every December
- divided into market sectors
- designed to behave like a portfolio and is often used as basis for index tracking funds
- slow moving
Indicies
FTSE 100
- 100 larget companies. reviewed quarterly
- changes can be due to ne wlistings, mergers & acquisitions or an increase or decrease in market capitalisation
- going in or out of FTSE 100 affects companies becuase index tracking funds use the FTSE100 to rebalance their portfolio
- Real time
- Represents 88% o fUK market capitalisation
