Bài giảng Investment - chapter 4: Mutual Funds and Other Investment Companies

CHAPTER 4Mutual Funds and Other Investment CompaniesInvestment CompaniesThese companies perform several important functions for investors:Administration & record keepingDiversification & divisibilityProfessional managementReduced transaction costsNet Asset ValueUsed as a basis for valuation of investment company sharesSelling new sharesRedeeming existing sharesCalculation Market Value of Assets - Liabilities Shares OutstandingTypes of Investment CompaniesUnit TrustsManaged Investment CompaniesOpen-EndOpen-end: shares outstanding change when new shares are sold or old shares are redeemedPriced at Net Asset Value(NAV)Closed-Endno change in shares outstanding unless new stock is offeredPriced at Premium or discount to NAVFigure 4.1 Closed-End Mutual FundsClose-end funds in VietnamSource: D.N.Hung , 2010Types of Investment Companies ContinuedOther investment organizationsCommingled fundsREITsHedge Funds Mutual Funds—Investment PoliciesMoney Market EquitySectorBondBalancedAsset Allocation and FlexibleIndex InternationalTable 4.1 U.S. Mutual Funds by Investment ClassificationHow Funds Are SoldDirect-marketed fundsSales force distributedRevenue sharing on sales force distributedPotential conflicts of interestFinancial Supermarkets Costs of Investing in Mutual FundsFee StructureOperating expensesFront-end loadBack-end load12 b-1 chargesdistribution costs paid by the fundAlternative to a loadFees and Mutual Fund ReturnsFees and Mutual Fund Returns:An ExampleInitial NAV = $20Income distributions of $.15Capital gain distributions of $.05Ending NAV = $20.10:Table 4.2 Impacts of Costs on Investment PerformanceTrading Scandal with Mutual FundsLate trading – allowing some investors to purchase or sell later than other investorsMarket timing – allowing investors to buy or sell on stale net asset valuesInternationalNet effect is to transfer value from other shareholders to privileged tradersReduction in the rate of return of the mutual fundPotential ReformsStrict 4:00 PM cutoff with late orders executed the following trading dayFair value pricing with net asset values being adjusted for trading in open marketsImposition of redemption feesTaxation on Mutual Fund IncomePass-through status under the U.S. tax codeTaxes are paid only by the investorHigh turnover leads to tax inefficiencyExchange Traded FundsETF allow investors to trade index portfolios like shares of stockExamples - SPDRs and WEBSPotential advantagesLower taxes Trade continuously Lower costsPotential disadvantagesPrices can depart by small amounts from NAVTable 4.3 EFT Sponsors and ProductsMutual Fund Investment Performance: A First LookEvidence shows that average mutual fund performance is generally less than broad market performanceEvidence that performance is consistent from one period to the next is suggestive but inconclusiveFigure 4.2 Diversified Equity Funds versus Wilshire 5000 IndexTable 4.4 Consistency of Investment ResultsInformation on Mutual FundsWiesenberger’s Investment CompaniesMorningstar (www.morningstar.com)Yahoo (biz.yahoo.com/funds)Investment Company Institute (www.ici.org)Directory of Mutual Funds