Copyright © 2003 South-Western/Thomson Learning All rights reserved. Chapter 8 Investment Companies.

Slides:



Advertisements
Similar presentations
Chapter 8 Investment Co. indirect investment types fees objectives regulation ETFs indirect investment types fees objectives regulation ETFs.
Advertisements

Chapter 14 Investing in Mutual Funds Copyright © 2012 Pearson Canada Inc. edited by Laura Lamb, TRU14-1.
Copyright © 2003 South-Western/Thomson Learning All rights reserved. Chapter 6 Investment Companies.
1 Chapter 15 – Mutual Funds Pool money from investors with similar objectives and purchase a diversified portfolio run by a professional manager –Shares.
CHAPTER TWENTY-ONE INVESTMENT COMPANIES. n INVESTMENT COMPANIES DEFINITION: a type of financial intermediary who obtain funds from investing to use in.
13 Investing in Mutual Funds Mutual Fund = an investment vehicle offered by investment companies to those who wish to: –Pool money –Buy stocks, bonds,
1 Mutual Funds Diversified portfolio of stocks, bonds or other securities run by a professional manager –$ 7.9 trillion in assets; 8,300 different funds.
McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Mutual Funds and Other Investment Companies CHAPTER 4.
1 Chapter 15 – Mutual Funds Pool money from investors with similar objectives and purchase a diversified portfolio run by a professional manager –Shares.
Vicentiu Covrig 1 Mutual funds Mutual funds (see Ch. 16 Hirschey and Nofsinger)
McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Mutual Funds and Other Investment Companies CHAPTER 4.
Mutual Funds and Other Investment Companies Chapter 4.
1 Mutual Funds Diversified portfolio of stocks, bonds or other securities run by a professional manager –$ 7.5 trillion in assets; 8,100+ different funds.
McGraw-Hill /Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Seventeen Mutual Funds.
Mutual Funds: An Easy Way to Diversify
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 2004 McGraw-Hill Ryerson Ltd. Kapoor Dlabay Hughes Ahmad Prepared by Cyndi Hornby, Fanshawe College Chapter 13 Investing in Mutual Funds 13-1.
Chapter 15 Investing Through Mutual Funds. Copyright © Houghton Mifflin Company. All rights reserved.15 | 2 Learning Objectives 1.Describe the features,
1 Investment Companies Chapter 3 Jones, Investments: Analysis and Management.
MUTUAL FUNDS GROUP MEMBERS: Ashley Smith, Anissa Patterson, Alyssia Fernandez, Dacota Holder, Dakota Webb, Jonathan Brooks, and Thomas Melton.
CHAPTER 4 FUNDAMENTALS OF INVESTMENT MANAGEMENT CHAPTER 4 FUNDAMENTALS OF INVESTMENT MANAGEMENT Zoubida SAMLAL - MBA, CFA Member, PHD candidate for HBS.
Vicentiu Covrig 1 Mutual funds Mutual funds. Vicentiu Covrig 2 Diversification Professional management Low capital requirement Reduced transaction costs.
Investments Vicentiu Covrig 1 Mutual Funds ( chapter 4)
© 2013 Pearson Education, Inc. All rights reserved.15-1 Chapter 15 Mutual Funds: An Easy Way to Diversify.
13-1. McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 13 Investing in Mutual Funds.
Copyright ©2004 Pearson Education, Inc. All rights reserved. Chapter 17 Investing in Mutual Funds.
What is a Mutual Fund? More Americans invest in stocks and bonds through mutual funds than in any other way. Mutual funds are an investment alternative.
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.
PROFESSIONAL ASSET MANAGEMENT 1. Basic Categories Private Management: Clients each have a separate account {popular with institutions} Investor 1 Investor.
PFIN 13 Investing in Mutual Funds, ETFs and Real Estate 4
Copyright  2002 by Harcourt, Inc. All rights reserved. CHAPTER 13: INVESTING IN MUTUAL FUNDS Clip Art  2001 Microsoft Corporation. All rights reserved.
Chapter 14 Investing in Mutual Funds Copyright © 2012 Pearson Canada Inc
Indirect Investing.
1 Chapter 3 Appendix Mutual Fund Evaluation Term Project Portfolio Construction, Management, & Protection, 4e, Robert A. Strong Copyright ©2006 by South-Western,
Learning Objective # 1 Describe the characteristics of mutual funds. LO#1.
PROFESSIONAL ASSET MANAGEMENT 1. Basic Categories Private Management: Clients each have a separate account {popular with institutions} Investor 1 Investor.
Chapter 17 Investing in Mutual Funds. Copyright ©2014 Pearson Education, Inc. All rights reserved.17-2 Chapter Objectives Identify the types of stock.
Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Chapter 24 Portfolio Planning and Management.
Chapter 20 Mutual Funds and Asset Allocation Lawrence J. Gitman Jeff Madura Introduction to Finance.
Vicentiu Covrig 1 Indirect Investing Indirect Investing (see Ch. 3 Jones)
1 Chapter 4 Appendix Mutual Fund Evaluation Term Project.
Chapter 12 Supplement C: Mutual Funds Chapter 12 Supplement C Mutual Funds.
©2007, The McGraw-Hill Companies, All Rights Reserved 17-1 McGraw-Hill/Irwin Chapter Seventeen Mutual Funds.
Mutual Funds. Objectives WHAT IS A MUTUAL FUND? HOW DO MUTUAL FUNDS OPERATE? HOW MUCH DOES MUTUAL FUND INVESTING COST? HOW SHOULD MUTUAL FUND PERFORMANCE.
Indirect Investing Chapter 3
Mutual Funds and Hedge Funds Chapter 4 Risk Management and Financial Institutions 2e, Chapter 4, Copyright © John C. Hull
Chapter 17 Investing in Mutual Funds. Chapter Objectives Identify the types of stock funds Present the types of bond funds Explain how to choose among.
Chapter 13 Investing in Mutual Funds Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
Mutual Funds (page 76 through 85) ACE 444. Mutual Funds (Net Asset Value) Mutual fund has 10 million shares $215 million of market valuation value (end.
Indirect Investment. Introduction In Direct Investment, investors have control over the buying and selling of securities. In Indirect Investment, investors.
PROFESSIONAL ASSET MANAGEMENT. Basic Categories Private Management: Clients each have a separate account {popular with institutions} Investor 1 Investor.
Chapter 13 Investing in Mutual Funds Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
Mutual Funds and Other Investment Companies Chapter 4 Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
Chapter 4 Mutual Funds and Other Investment Companies.
McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Mutual Funds and Other Investment Companies CHAPTER 4.
Investment Companies  Net Asset Value (NAV)  (Total portfolio value - liabilities) / # of shares  Management is usually contracted to an outside firm.
Chapter 15. Learning Objectives (part 1 of 3) Distinguish between the different types of investment companies. Explain the different types of fees and.
PROFESSIONAL ASSET MANAGEMENT 1. Basic Categories Private Management: Clients each have a separate account {popular with institutions} Investor 1 Investor.
Mutual Funds and Other Investment Companies
CHAPTER 9 Investment Management: Concepts and Strategies Chapter 9: Investment Concepts 1.
Contemporary Investments: Chapter 4 Chapter 4 MUTUAL FUNDS What is a mutual fund and how do mutual funds operate? How much does mutual fund investing cost?
INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 4 Mutual Funds and.
3-1 Chapter 3 Charles P. Jones, Investments: Analysis and Management, Tenth Edition, John Wiley & Sons Prepared by G.D. Koppenhaver, Iowa State University.
Copyright ©2004 Pearson Education, Inc. All rights reserved. Chapter 17 Investing in Mutual Funds.
Chapter 11 Investment Companies. Closed-end Open-end (commonly called a mutual fund)
Mutual Funds and Other Investment Companies
Cleary / Jones Investments: Analysis and Management
Chapter 3 Jones, Investments: Analysis and Management
Mutual Funds and Other Investment Companies
Indirect Investing Chapter 3
Presentation transcript:

Copyright © 2003 South-Western/Thomson Learning All rights reserved. Chapter 8 Investment Companies

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Investment Companies Two Types Closed-end Open-end (commonly called a mutual fund)

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Important General Information Net asset value (NAV) - the value of a share Taxation - pass through vehicles Professional management Portfolio diversification Growth in mutual funds

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Closed-end Investment Companies Have a fixed capital structure Shares are bought and sold in the secondary markets Shares may sell for a premium or discount from NAV Tendency for shares to sell at a discount from NAV

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Sources of Return to the Investor Income distributed in the form of dividends Capital gains distributions Appreciation in the NAV Change in the discount/premium

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Open-end Investment Companies - Mutual Funds Have a variable capital structure Shares are bought and sold from the mutual fund Shares cannot sell for a discount from NAV

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Load Fee Charged to investor when the shares are purchased Compensates the sales person (i.e., is analogous to brokerage commissions for buying securities)

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Load Fee Varies with dollar amount purchased Load expenses mean investors pay a premium over the fund's NAV

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. No-load Mutual Fund Mutual fund without a sales charge

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Other Fees and Expenses Early withdrawal fees (or exit fees) Management fees Operating expenses 12b-1 fees

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Mutual Fund Portfolios May be classified by –type of investment –investment style

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Types of Investments Growth funds Balanced funds Income funds Growth and income funds Specialized funds

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Specialized Funds Sector funds Bond funds Index funds Tax-exempt bond funds Single country or regional funds Exchange - traded - funds

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Investment Styles Large cap Mid-size cap Small cap Growth Value

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Capitalization Total market value of a company’s stock

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Growth A strategy designed to identify companies that offer exceptional opportunity for capital appreciation

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Value A strategy designed to identify companies whose stock price appears to be below some estimate of the firm's intrinsic value Stocks that are undervalued

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Advantages Offered by Funds Diversification Professional management Custodial and other services

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Returns Advantages do not necessarily include superior returns Tendency to underperform the market Returns in an efficient market context

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Factors that Affect Returns Expenses Fees –load fees and exit fees –12b-1 fees Movements in the market

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Before and After - Tax Returns Fund returns are before tax Shareholders pay applicable taxes Shareholders realize after-tax returns

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Performance Evaluation CAPM as a theoretical basis for comparison Market benchmark used in the CAPM is often the S&P 500 stock index

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Performance Evaluation

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Performance Evaluation Figure indicates the return that should be earned for each level of risk

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Composite Performance Measures: The Jensen Index a = r p - [r f + (r m - r f ) beta] The alpha measures whether the actual return exceeds the return that should have been earned based on the CAPM

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Composite Performance Measures: The Treynor Index r p - r f beta Standardizes the return in excess of the risk-free return by the portfolio's beta

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Composite Performance Measures: The Treynor Index Uses the portfolio's volatility as the measure of risk Assumes that the portfolio is well diversified, so the beta (which measures systematic risk only) is the appropriate measure of risk

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Composite Performance Measures: The Sharpe Index r p - r f standard deviation Standardizes the return in excess of the risk-free return by the portfolio's standard deviation Uses the portfolio's variability as the measure of risk

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Composite Performance Measures: The Sharpe Index Does not assume that the portfolio is well diversified Standard deviation (which measures total risk) is the appropriate measure of risk

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Comparing Realized Returns to Market Returns

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Comparing Realized Returns to Market Returns If the realized return lies above the security market line, performance exceeded the market return on a risk- adjusted basis If the realized return lies below the security market line, performance was inferior to the market return on a risk- adjusted basis

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Comparing Realized Returns to Market Returns Absolute returns do not necessarily indicate inferior or superior returns (Compare points X and Y)

Copyright © 2003 South-Western/Thomson Learning. All rights reserved. The Benchmark Problem The comparisons use an aggregate measure of the market The composition of many portfolios are not comparable to the market Examples would be specialized funds or global funds