Your SlideShare is downloading. ×
0
Mutual Funds and Other Investment Companies CHAPTER 4
Investment Companies <ul><li>Investment companies offer: </li></ul><ul><ul><li>Administration & record keeping </li></ul><...
Investment Companies <ul><li>Investment companies are exempt from corporate earnings ________________. </li></ul><ul><li>I...
Investment Companies: Net Asset Value <ul><li>Net Asset Value </li></ul><ul><ul><li>Used as basis for valuation of investm...
Types of Investment Companies <ul><li>Unit Trusts </li></ul><ul><ul><li>Pools of money fixed for the life of the fund </li...
Managed Investment Companies: Open-End and Closed-End <ul><li>Open-End </li></ul><ul><ul><li>Sold at Net Asset Value (NAV)...
Types of Investment Companies <ul><li>REIT: Real Estate Investment Trust </li></ul><ul><li>Types of REITs: </li></ul><ul><...
Types of Investment Companies <ul><li>Hedge Funds: little regulation </li></ul><ul><li>Limited to qualified (high net wort...
Types of Investment Companies <ul><li>ETFs are closed-end funds  </li></ul><ul><li>Examples - SPDRs and Webs </li></ul><ul...
Types of Mutual Funds <ul><li>Money Market  </li></ul><ul><li>Equity </li></ul><ul><li>Specialized Sector </li></ul><ul><l...
Mutual Fund Fee Structure <ul><li>Loads: </li></ul><ul><ul><li>Front-end load </li></ul></ul><ul><ul><li>Back-end load </l...
Trading Scandal with Mutual Funds <ul><li>Late trading – allowing some investors to purchase or sell after the market clos...
Potential Reforms <ul><li>Strict 4:00 PM cutoff with late orders executed the following trading day </li></ul><ul><li>Fair...
Mutual Fund Performance <ul><li>Evidence shows that average mutual fund performance is generally less than broad market pe...
Figure 4.2 Diversified Equity Funds Versus Wilshire 5000 Index
Table 4.4 Consistency of  Investment Results
Sources of Information  <ul><li>Wiesenberger’s Investment Companies </li></ul><ul><li>Morningstar ( www.morningstar.com ) ...
How to Pick a Mutual Fund <ul><li>In comparing mutual funds, look for:  </li></ul><ul><li>________________________________...
Upcoming SlideShare
Loading in...5
×

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All ...

626

Published on

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
626
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
6
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Transcript of "McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All ..."

  1. 1. Mutual Funds and Other Investment Companies CHAPTER 4
  2. 2. Investment Companies <ul><li>Investment companies offer: </li></ul><ul><ul><li>Administration & record keeping </li></ul></ul><ul><ul><li>Diversification & divisibility </li></ul></ul><ul><ul><li>Professional management </li></ul></ul><ul><ul><li>Reduced transaction costs </li></ul></ul>
  3. 3. Investment Companies <ul><li>Investment companies are exempt from corporate earnings ________________. </li></ul><ul><li>Investors must pay tax on income earned from investment companies. Funds with high turnover result in high taxes (low tax efficiency). </li></ul><ul><li>Purchasing a mutual fund late in the year can result in taxes on earnings you did not receive. </li></ul>
  4. 4. Investment Companies: Net Asset Value <ul><li>Net Asset Value </li></ul><ul><ul><li>Used as basis for valuation of investment company shares </li></ul></ul><ul><ul><li>Selling new shares </li></ul></ul><ul><ul><li>Redeeming existing shares </li></ul></ul><ul><li>Calculation: </li></ul><ul><li>Market Value of Assets - Liabilities </li></ul><ul><li> Shares Outstanding </li></ul>
  5. 5. Types of Investment Companies <ul><li>Unit Trusts </li></ul><ul><ul><li>Pools of money fixed for the life of the fund </li></ul></ul><ul><ul><li>Little active management </li></ul></ul>
  6. 6. Managed Investment Companies: Open-End and Closed-End <ul><li>Open-End </li></ul><ul><ul><li>Sold at Net Asset Value (NAV) </li></ul></ul><ul><ul><li># of shares changes when new shares are sold or old shares are redeemed </li></ul></ul><ul><li>Closed-End </li></ul><ul><ul><li>Sold at premium or discount to NAV </li></ul></ul><ul><ul><li>No change in # of shares unless new stock is offered </li></ul></ul>
  7. 7. Types of Investment Companies <ul><li>REIT: Real Estate Investment Trust </li></ul><ul><li>Types of REITs: </li></ul><ul><li>Equity REIT: invests in real estate </li></ul><ul><li>Mortgage REIT: invests in mortgages </li></ul>
  8. 8. Types of Investment Companies <ul><li>Hedge Funds: little regulation </li></ul><ul><li>Limited to qualified (high net worth/high income) investors: </li></ul><ul><li>Net worth > $1 mil </li></ul><ul><li>Income > $200K </li></ul><ul><li>Annual fees are typically 2% of assets plus 20% of profit </li></ul>
  9. 9. Types of Investment Companies <ul><li>ETFs are closed-end funds </li></ul><ul><li>Examples - SPDRs and Webs </li></ul><ul><li>Potential advantages </li></ul><ul><ul><li>Trade continuously </li></ul></ul><ul><ul><li>Lower taxes </li></ul></ul><ul><ul><li>Lower fees </li></ul></ul><ul><li>Potential disadvantages </li></ul><ul><ul><li>Must pay brokerage commission </li></ul></ul><ul><ul><li>Price can differ from NAV </li></ul></ul>
  10. 10. Types of Mutual Funds <ul><li>Money Market </li></ul><ul><li>Equity </li></ul><ul><li>Specialized Sector </li></ul><ul><li>Bond </li></ul><ul><li>Balanced </li></ul><ul><li>Index </li></ul>
  11. 11. Mutual Fund Fee Structure <ul><li>Loads: </li></ul><ul><ul><li>Front-end load </li></ul></ul><ul><ul><li>Back-end load </li></ul></ul><ul><li>Management fees range from < 0.1% to > 2% of assets annually </li></ul><ul><li>12 b-1 charges </li></ul><ul><ul><li>Distribution costs paid by the fund </li></ul></ul><ul><ul><li>Alternative to a load </li></ul></ul><ul><li>Fees and performance </li></ul>
  12. 12. Trading Scandal with Mutual Funds <ul><li>Late trading – allowing some investors to purchase or sell after the market closes </li></ul><ul><li>Market timing – allowing investors to buy or sell on stale net asset values </li></ul><ul><li>Net effect is to transfer value from other shareholders to privileged traders </li></ul><ul><ul><li>Reduction in the rate of return of the mutual fund </li></ul></ul>
  13. 13. Potential Reforms <ul><li>Strict 4:00 PM cutoff with late orders executed the following trading day </li></ul><ul><li>Fair value pricing with net asset values being adjusted for trading in open markets </li></ul><ul><li>Imposition of redemption fees </li></ul>
  14. 14. Mutual Fund Performance <ul><li>Evidence shows that average mutual fund performance is generally less than broad market performance </li></ul><ul><li>Evidence suggests that over certain horizons some persistence in positive performance </li></ul><ul><ul><li>Evidence is not conclusive </li></ul></ul><ul><ul><li>Some inconsistencies </li></ul></ul>
  15. 15. Figure 4.2 Diversified Equity Funds Versus Wilshire 5000 Index
  16. 16. Table 4.4 Consistency of Investment Results
  17. 17. Sources of Information <ul><li>Wiesenberger’s Investment Companies </li></ul><ul><li>Morningstar ( www.morningstar.com ) </li></ul><ul><li>Yahoo ( finance.yahoo.com/funds ) </li></ul><ul><li>Investment Company Institute </li></ul><ul><li>Popular press </li></ul><ul><li>Investment services (Value Line) </li></ul>
  18. 18. How to Pick a Mutual Fund <ul><li>In comparing mutual funds, look for: </li></ul><ul><li>________________________________ </li></ul><ul><li>Low ________________ (including 12b-1) </li></ul><ul><li>Matches your investment _____________ & __________________ tolerance </li></ul><ul><li>Tax efficiency (unless IRA or 401k) </li></ul><ul><li>Good recent performance (several yrs) </li></ul><ul><li>Same portfolio manager </li></ul>
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×