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

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

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