Chapter 4 "Mutual funds and other investment companies" presents the following content: services of investment companies, net asset value, types of investment organizations, investment policies, costs of investing in mutual funds, exchange traded funds, a first look at fund performance,. | Chapter 4 Mutual Funds and Other Investment Companies Administration & record keeping Diversification & divisibility Professional management Reduced transaction costs Services of Investment Companies Used as a basis for valuation of investment company shares. Selling new shares Redeeming existing shares Calculation Market Value of Assets - Liabilities Shares Outstanding Net Asset Value Unit Trusts Managed Investment Companies Open-End Closed-End Other investment organizations Commingled funds REITs Hedge funds Types of Investment Organizations Shares Outstanding Closed-end: no change unless new stock is offered. Open-end: changes when new shares are sold or old shares are redeemed. Pricing Open-end: Net Asset Value(NAV) Closed-end: Premium or discount to NAV Open-End and Closed- End Funds: Key Differences Money Market Fixed Income Equity Balance & Income Asset Allocation Indexed Specialized Sector Investment Policies Fee Structure Front-end load Back-end load Operating expenses 12 b-1 charges distribution costs paid by the fund Alternative to a load Fees and performance Costs of Investing in Mutual Funds Exchange Traded Funds Allow investors to trade funds based on indexes like stock. Examples SPDRS WEBS HOLDERS Allow sector specialization A First Look at Fund Performance Benchmark: Wilshire 5000 Results Most funds underperform Not fair comparison because of costs Adjusted Benchmark: Wilshire 5000 with passive management costs considered. The majority of funds still under-perform. Consistency of Fund Performance Do some mutual funds consistently outperform? Evidence suggests that some funds show consistent stronger performance. Depends on measurement interval Depends on time period Evidence shows consistent poor performance. Wiesenberger’s Investment Companies Morningstar Investment Company Institute Popular press Investment services Sources of Information on Mutual Funds | Chapter 4 Mutual Funds and Other Investment Companies Administration & record keeping Diversification & divisibility Professional management Reduced transaction costs Services of Investment Companies Used as a basis for valuation of investment company shares. Selling new shares Redeeming existing shares Calculation Market Value of Assets - Liabilities Shares Outstanding Net Asset Value Unit Trusts Managed Investment Companies Open-End Closed-End Other investment organizations Commingled funds REITs Hedge funds Types of Investment Organizations Shares Outstanding Closed-end: no change unless new stock is offered. Open-end: changes when new shares are sold or old shares are redeemed. Pricing Open-end: Net Asset Value(NAV) Closed-end: Premium or discount to NAV Open-End and Closed- End Funds: Key Differences Money Market Fixed Income Equity Balance & Income Asset Allocation Indexed Specialized Sector Investment Policies Fee Structure Front-end load Back-end load Operating expenses 12 b-1
