Similar to an ETF except:

• Greater choice in number of Mutual Fund’s worldwide (Assets = $17,1 trillion Mutual fund’s vs $3,37 trillion in Exchange Traded Funds)
• Actively managed by a fund manager(s)
• Traded Over The Counter based on a calculated price (NAV).

How do they work?

• Open ended – pools investors cash. Can issue an unlimited amount of shares
• If product provider (fund house) goes under, the client receives the underlying units (similar to an ETF)
• All aspects of Mutual Funds trading is electronic, platform based – Over The Counter
• Purchases/ Sales – take place at a specific time in day (usually mid-dayà 12:00 CET)
• Due to only notional trading taking place - Fractional units are be bought/sold
• Notional value pledge may not always equal Traded Value
• Difference flows back to fund manager - will always be < 1 unit of currency
• Once orders/ pledges are placed, cannot be amended or cancelled

Advantages

• Complements your existing investments
• More variety in instruments/ sectors - “Balanced Funds and Niche fund combinations.”
• Access Mutual Fund’s without financial advisor
• No W-8BEN needed to US exposure
• Trade instruments with exposure to the US - domiciled outside
  • Potential tax purposes (Situs) – consult a tax advisor
• Well known fund houses - Vanguard and BlackRock
• The fund universe will expand as negotiations with fund houses are ongoing

Terminology

• NAV – Net Asset Value: Assets minus Liabilities. In MF’s à value/ price of a unit
• Subscription (Buy) – value denominated in instrument currency
• Redemption (Sell) – can either be by value or number of units
• Pledge (Notional order value) – in denominated currency
• All subscriptions can only take place by specifying notional value, not number of units
• Example of subscription (Buy):
  • You place trade at 14:30 and the next valuation point is 12:00 the next day.
  • The trade is executed at 12:00 the next day but the confirmation will only be received later that day /overnight.
  • The reason is the Fund Manager will need to make the relevant calculations based on value of assets and number of investors.
  • The trade is confirmed later that day and disclosed on the platform the following day.