Lecture Presentation Software to accompany
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    Lecture Presentation Software to accompany Lecture Presentation Software to accompany Presentation Transcript

    • Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. Brown Chapter 25
    • The Asset Management Industry: Structure and Evolution
      • Contract directly with a management and advisory firm
        • relationship with client
        • assets under management (AUM)
        • separate accounts
        • customized
      • Commingling of investment capital of several clients in an investment company
    • What is an Investment Company?
      • An investment company invests a pool of funds belonging to many individuals in a portfolio of individual investments such as stocks and bonds
      • The total market value of all investments divided by the number of fund shares outstanding is the net asset value (NAV)
      • Portfolio management is handled by an investment management company
    • Closed-End Versus Open-End Investment Companies
      • Closed-end investment company
        • Stock trades on secondary market
        • Net asset value (NAV) is determined twice daily, but market price determined by supply and demand
        • Discounts from NAV can be opportunities
      • Closed-end fund index
      • Open-end investment companies
        • Mutual funds
        • Sell and repurchase shares at NAV
    • Mutual Fund Costs
      • Load versus no-load open-end funds
        • Load funds charge sales commission up to 8.5% of NAV, but usually not a redemption fee
        • No-load imposes no initial sales charge, so it sells shares at NAV, but may charge a small redemption fee of 1/2%
        • Low-load imposes a front-end sales charge in the 3% range
    • Mutual Fund Costs
      • Contingent deferred sales loads, or redemption charges, or “rear-end loads”, decline over time
      • Annual 12b-1 fee
      • Details about funds charges are found in the fund’s prospectus
      • Fund management fees
      • Portfolio turnover
      • Expense ratios
    • Types of Investment Companies Based on Portfolio Objectives
      • Common stock funds
      • Balanced funds
      • Taxable bond funds
      • Municipal bond funds
      • Money market funds
    • Global Investment Companies
      • Foreign funds
        • International funds
        • Global funds
      • Fund categories
        • Regions
        • Countries
    • Sources of Information About Mutual Funds
      • The Wall Street Journal
      • Barron’s - weekly and quarterly
      • Investment Companies
      • Mutual Funds Update
      • Mutual Funds Report
      • Closed-end Weekly Review
      • FundEdge
      • Management Results
      • Forbes
      • Business Week - “Mutual Fund Scoreboard”
      • Morningstar Mutual Funds
      • Value Line
    • Ethics and Regulation in the Professional Asset Management Industry
      • Agency - looking out for the interest of another
      • Asset management industry is based on handling someone else’s money
      • The asset management industry is heavily regulated to ensure a minimum level of acceptable practice
      • Investment Company Act of 1940
      • Securities Act of 1933
      • Securities Act of 1934
      • Investment Advisors Act of 1940
      • ERISA (1974) - Prudent man statute
    • Ethics and Regulation in the Professional Asset Management Industry
      • Association for Investment Management and Research (AIMR) has a Code of Ethics and Standards of Professional Conduct
      • Chartered Financial Analysts (CFAs) are expected to uphold the ethical standards of AIMR
      • Compensation dilemma - incentives and risk
      • Soft dollars
    • Performance of Investment Companies
      • Below average returns for actively managed equity and bond funds
      • Do a fund’s objectives matter?
        • Positive relationship between stated objectives and risk measures
      • Do managers generally outperform the market?
        • Results are more consistent in shorter time periods
    • Your Portfolio Manager
      • 1. Determine your risk-return preferences and develop a portfolio that is consistent with them
      • 2. Diversify your portfolio to eliminate unsystematic risk
      • 3. Maintain your portfolio diversification and your desired risk class while allowing flexibility so you could shift between alternative investment instruments as desired
      • 4. Attempt to achieve a risk-adjusted performance that is superior to aggregate market performance
      • 5. Administer the account, keep records of costs, provide timely information for tax purposes, and reinvest dividends if desired