USE OF TRADING TO INCREASE PROFITABILITY OF SECURITIES PORTFOLIO IN INVESTMENT FUNDS

It is determined that in investment processes, each percentage of returns is important. The hypothesis was considered that active management of the stock portfolio through intensive trading is a potential way of significantly improving the level of efficiency of investments in the stock market. The purpose of the work was to study the feasibility of using trading to increase the profitability of the securities portfolio and, in particular, for institutional investors. Trading of shares (intensive purchase and sale) is considered as a factor in increasing the profitability of investments in shares. The shortcomings of the intensification of trading are specified, which consists in an increase in taxes, brokerage commissions and lost profits due to the expectation of a better date for entering the transaction. As a research method, modeling based on the data of a three-year period of dynamics of Microsoft shares and hypothetical companies was used. The corresponding modeling made it possible to draw the following conclusions: the increase in trading intensity does not guarantee an increase in the level of investment efficiency; the increase in trading intensity leads to an increase in the tax burden and risk level, which ultimately neutralizes efforts on intensive trading. Investment funds which are actively managed and use intensive trading in activities do not have a significant advantage over funds that have passive management. The basis of the efficiency of investment funds is the minimization of overhead costs, including by minimizing taxes due to the reduction of the level of trading intensity to zero. It is important to pre-envisage promising shares for purchase, and keep them in their own portfolio for a long period of time with a minimum level of portfolio balancing intensity. Rebalancing the stock portfolio on the principle of profit fixing leads to an increase in tax payments and neutralizes capital growth opportunities due to the sale of shares with high growth potential. Keywords: trading, shares, investment fund, rebalancing of securities portfolio. JEL Сlassification G11, G14, G20 Formulas: 0; fig.: 4; tabl.: 5; bibl.: 14.

SEC targets broker-dealer implications of transaction-based deal fees

Purpose To explain a US Securities and Exchange Commission (SEC) enforcement action against a registered investment adviser to private equity funds for allegedly providing brokerage services in connection with the acquisition and disposition of the securities of portfolio companies while not being registered as a broker dealer, making undisclosed use of fund assets, and failing to adopt policies and procedures designed to prevent the alleged violations. Design/methodology/approach Describes the services provided by the investment adviser, the compensation paid, and the SEC’s other bases for enforcement, and draws conclusions for private equity fund advisers. Findings The SEC has begun pursuing transaction-based compensation paid to private equity fund advisers relating to portfolio company transactions as illegal brokerage commissions. The Commission also continues to target the adviser’s undisclosed use of client fund capital, especially in private equity funds. Originality/value Practical explanation by experienced investment management lawyer.

Institutional Investors and the Information Production Theory of Stock Splits

We make use of a large sample of transaction-level institutional trading data to test an extended version of Brennan and Hughes’ (1991) information production theory of stock splits. We compare brokerage commissions paid by institutional investors before and after a split, assess the private information held by them, and relate the informativeness of their trading to brokerage commissions paid. We show that institutions make abnormal profits net of brokerage commissions by trading in splitting stocks. We also show that the information asymmetry faced by firms goes down after stock splits. Overall, our empirical results support the information production theory.