ch4

7/21/2019 Ch4

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CH4.

INVESTMENTCOMPANIES

Part 1 of FINA 460

Securities (Ch.1 & 2)

Markets (Ch.3)

I!est"et

Co"#aies (Ch.4)

Mutual Funds, Closed-endFunds, ETFs, Hedge Funds,NAVs, Fees

7/21/2019 Ch4


Ch4.1-2. Types of InvestmentCompanies

3-2

Why do many people invest in funds, not directly in securities?

Administration and Record Keeping

Keeps track of all of your distributions both capital gains and dividends.

Will allow you to easily reinvest any distributionsEasy diversification

Difficult for small investors to do when buying securities on there own. Allows small investor to hold a fraction of a share in a company.

Professional management

und managers generally have plenty of e!perience trading securities.Economies of scale allow for reduced transaction costs.

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O!ani"ationa# $oms

%nit Investment T&sts '%ITs() unmanaged, fxed portolio Managed Investment Companies

Open-end und (Mutual Fund)shares are bought rom the und and redeemed by the und

Closed-end und

shares are bought and sold among investors in themaretpla!e ("#$%#& or an ex!hange) and the und itsel isnot involved'

E*+han!e Ta,e, $&n,s 'ET$s( ea# Estate Investment T&sts 'EITs(

Similar to closed-end fund. Invest in real estate and real estate loans.

Higl! leveraged. He,!e $&n,s Similar to mutual funds, "ut not registered and not subject to SEC

regulations. Available to institutional and high net worth investors

Can #ursue investment strategies tat are not allo$ed for mutual funds.4-3

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Ch4.-/. M&t&a# $&n,s

3-4

ead p'-*+Che! a Fund

ebsite

Do you know what these terms mean?%ro$t funds vs. Income funds&alanced funds vs. Asset allocation

funds

https://investor.vanguard.com/mutual-funds/




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Net Asset Va#&e 'NAV(

%se, as a 0asis fo va#&ation ofinvestment +ompany shaes Se##in! ne shaes

e,eemin! e*istin! shaes

Ca#+&#ation

4-5

goutstandinsharesund

s"iabilitieund Assetsundof #alue$arket%A#

−

=

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Open-en, vs. C#ose,-En,

Most f&n,s ae open-end )A"out '() of investment com#an!

assets are eld in mutual funds.

A,vanta!es of the open-en,f&n,s *i+uidit! for te investor

Funds a"ilit! to gro$isa,vanta!es of the open-en,

f&n,s

Te need to ee# a cas reserve 4-6

7/21/2019 Ch4


Open-En, an, C#ose,-En, $&n,s)3ey ieen+es

Shaes O&tstan,in! C#ose,-en,) no +han!e &n#ess ne sto+5

is oee, Open-en,) +han!es hen ne shaes ae

so#, o o#, shaes ae e,eeme,

Pi+in! Open-en,) $&n, shae pi+e 6 Net Asset

Va#&e 'NAV(

C#ose,-en,) $&n, shae pi+e may ta,e

at a pemi&m o ,is+o&nt to NAV4-7

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NAV +a#+&#ation

A7C $&n, '8Mi##ions e*+ept NAV(

Ma5et Va#&e Se+&ities

9 Cash : e+eiva0#es- C&ent ;ia0i#ities

NAV Tota#

< $&n, ShaesNAV

8//=.==

>/.=='2=.==(

8?=/.==

2=.==

Most Mutual

Funds have little

or no Long Term

Debt

4-8

P1-

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Ho $&n,s Ae So#,

ie+t#y ma5ete, ou /nd tem Ma! avoid front end load

Front end load0 u# front cost 1fee2 to #urcase mutualfund sares

Sa#es fo+e ,isti0&te, 3ecommended "! a "roer or #lanner 4suall! $ill ave a front end load Ma! "e revenue saring on sales force distri"uted 5otential con6ict of interest

4-9

7/21/2019 Ch4


Ta"le 7.8 4.S. Mutual Funds "! InvestmentClassi/cation

Assets '80i##ion(

Pe+ent of Tota#Assets N&m0e of $&n,s

E+uit! Funds

Ca#ital a##reciation focus 9,'89 97.9) :,(:;

<orld=international 8,>>( 8:.?) '>?

Total return 8,'@( 8>.9) ;>9

Total e+uit! funds >,@99 @7.9) 7,;>;

&ond Funds

Cor#orate :(8 9.@) 9':

Hig !ield 8@; 8.:) 9(>

<orld ?7 (.;) 899

%overnment 9(: 8.;) :(8

Strategic income @>( 7.;) :;(

Single-state munici#al 8@> 8.:) 7@8

National munici#al 98? 8.?) 997

Total "ond funds 8,>;' 87.() 8,'>;

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$&n,s

$ee St&+t&e

Front-end load

&ac-end load0 redem#tion fee

B#erating e#enseso Administrative e#enses and advisor!

fees for te managers 89 "-8 carges

o

Mareting costs #aid "! investorso Alternative to a load, "ut assessed

annuall!o Maimum is 8) of assets

All costs and charges must be revealed in the' 4-11

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Ta*ation of M&t&a# $&n,

In+omeThe f&n, itse#f is not ta*e, as #on! as $&n, meets +etain ,ivesi@+ation

e&iements

$&n, ,isti0&tes vit&a##y a## in+omeeane, '#ess fees an, e*penses( tof&n, shaeho#,es

The investo is ta*e, on +apita# !ainan, ,ivi,en, ,isti0&tions at theinvestoBs appopiate ta* ate.

isti0&tion e&iements imp#y that4-12

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So&+es of Infomation on M&t&a#$&n,s

iesen0e!eBs Investment Companies

Monin!sta '.monin!sta.+om(

$&n, pospe+t&s 'a m&st ea,(

Dahoo a## Steet o&na#

Investment Company Instit&te '.i+i.o!(

4-13

http://www.morningstar.com/

http://www.ici.org/

http://www.ici.org/

http://www.morningstar.com/

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Ch4.?. E*+han!e Ta,e, $&n,s 'ET$s(

ETFs allo$ investors to trade inde #ortfolioslie sares of stoc

Eam#les0 SPsF iamon,sF C&0esF E7S

Advantageso Trade continuousl! trougout te da!o Can "e sold sort or #urcased on margino *arge investors can ecange teir ETF

sares for sares in te underl!ing #ortfolioo *o$er costs 1No mareting lo$er fund

e#enses2

4-14

<SD0 Carl Icans Conference S#eec on &ond ETFs

1(;=8>=8@2

http://www.wsj.com/articles/carl-icahn-fuels-criticism-of-bond-etfs-1437092991?mod=djem_jiewr_FN_domainid&cb=logged0.7673417003825307




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ETF S#onsors and 5roducts

4-15

7/21/2019 Ch4


Figure 7.9 Assets in ETFs

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Figure 7.: Investment Com#an! Assets underManagement, 9(8( 1 &illion2

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1G

3evie$ 5ro"lems for C.7

& Solve te follo$ing End-of-te-ca#ter5ractice 5ro"lems 8, 9, :, ?, 8(, 88, 8:, 87, 8>, 8;, 8', and 99

Com#are !our ans$ers $it te solution#osted on &lac"oard

& For more #ractice, use te additional

#ractice #ro"lems #osted on&lac"oard

ch4

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