4-1 mutual funds 1980, 5 million americans owned mutual funds. today over 100 million americans in...
TRANSCRIPT
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4-1
Mutual Funds
• 1980, 5 million Americans owned mutual funds.
• Today over 100 million Americans in 55 million households owned mutual funds.
• In November 2013, mutual fund assets totaled $10.8 trillion.
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4-2
What is a mutual fund?
• Mutual funds combine or pool the resources (money) of a large group of investors.
• Buy and sell decisions are made by fund manager(s), who is paid for the service provided.
• Investors purchase shares of the fund to invest in it
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4-3
Investment Companies and Fund Types
• An Open-end fund is an investment company that stands ready to buy and sell shares in itself to investors, at any time.
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4-4
Investment Companies and Fund Types
• Net asset value (NAV) is the value of the assets held by a mutual fund, divided by the number of shares. In other words it’s the price per share.
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4-5
Mutual Fund OperationsOrganization and Creation
• Most mutual funds are created by investment advisory firms (like Vanguard or Fidelity Investments), or brokerage firms with investment advisory operations (Waddell and Reed).
• Investment advisory firms earn fees for managing mutual funds.
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4-6
Mutual Fund Costs and FeesTypes of Expenses and Fees
• Sales charges or “loads” – loads are charged on purchases 4%-7%. These
are basically commissions paid to the broker or advisor who sold you the funds
– If you pick your own funds “No Load” funds are better.
• Management fees: – Usually range from 0.25% to 1.00% of the funds
total assets each year.
– Lower is better.
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4-7
Example: Fee Table
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4-8
Mutual Fund Costs and FeesWhy Pay Loads and Fees?
•You may want professional advice. Many advisors earn their living by selling load funds and making a commission.
•Or, you may want a specialized type of fund.– Perhaps one that specialized in Italian
companies– Loads and fees for specialized funds tend to be
higher, because there is little competition among them.
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4-9
Stock Funds, I.
• Some stock funds emphasize capital appreciation (growth)– Capital appreciation– Growth
• Some emphasize income payouts (dividends)– Growth and Income– Equity income
• Some stock funds focus on companies in a particular size range.– Small company– Mid-cap
• Some stock fund invest internationally.– Global– International– Region– Country– Emerging markets
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4-10
Stock Funds, II.
• Sector funds specialize in specific sectors of the economy, such as:– Biotechnology
– Internet
– Energy
• Other fund types include:– Index funds-don’t pick winners and losers, simply buys the
index. These funds have much lower expenses• S & P 500• Wilshire 2000• Nasdaq 400
– Social conscience, or “green,” funds
– Tax-managed funds
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4-11
Bond Funds
Bonds invest in debt:governmentcorporate
safety versus return
You can still lose money on bond fund investments!
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4-12
Stock and Bond Funds
• Funds that do not invest exclusively in either stocks or bonds are often called “blended” or “hybrid” funds.
• Examples include:– Balanced funds– Asset allocation funds– Target Retirement Year funds (e.g. 2030, 2050)
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4-13
Mutual Fund Objectives: Recent Developments, I.
• A mutual fund “style” box is a way of visually representing a fund’s investment focus by placing the fund into one of nine boxes:
GrowthBlendValue
Large
Medium
Small
Siz
e
Style
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4-14
Mutual Fund Performance
• Mutual fund performance is very closely tracked by a number of organizations.
• Financial publications of all types provide mutual fund data.
• www.morningstar.com has a “Fund Selector” that provides performance information
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4-15
Mutual Fund Performance
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4-16
Mutual Fund Performance
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4-17
Mutual Fund Performance
• While looking at historical returns, the level of risk of the various fund categories should also be considered.
e.g. Gold, Latin American, Russia
• Whether historical performance is useful in predicting future performance is a subject of ongoing debate.
• No strong correlation between fees and performance
• Exchange Traded Funds (ETFs) are funds that are traded on the stock exchange rather than purchased through a broker or directly from the fund company.