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Portfol. Mgmt

chap 4

load a sales charge which is paid to the seller. Load funds are sold by securities brokers and directly by mutual fund groups.
Open end funds mutual funds that do not trade on organzied exchanges. Instead, investors simply buy shares from and liquidate through the investment company at Net Asset Value (NAV).
Closed end funds Shares may not be redeemed but instead are traded at prices that can differ from net asset value. Traded on organzied exchenges
Comingled funds partnerships of investors that pool their funds. Mgmt firm that organizes fund manages it for a fee. The deal with units instead of shares bought and sold at NAV
REITS Real estate Investment trusts. similar to close end fund. Invest in real estate or loans secured by real estate, highly leveraged with 70% debt ratio
what are the 2 kinds of REITS Equity trusts and mortgage trusts
equity trusts invest in real estate directly
mortgage trusts invest in mortgage and construction loans.
how do taxes work with REITS REITS are exempt form taxes as long as @ least 95% of their taxable income is distributed to shareholders. For shareholders though the dividends is taxable.
hedge fund a private investment pool open towealthy or institutional investors, that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.
what can hedge funds do because of their lack of regulation? invest in heavey use of derivitives, short sales and leverage.
funds of funds one of the fastest growing hedge funds. these are funds that invest in several other hedge funds. the idea is to spread the risk across several different funds.
investment co in the US? mutual funds they account for ~ 90% of investment company assets
complex of mutual funds a group or a family of mutual funds managed by a management company
what are some of the most well known management companies? Fidelity, Vanguard, Putnam, Dreyhfus
money market funds include commercial paper, repurchase agreements, or cd's, average maturity is just > than one mo. NAV is set at $1 per share.
equity funds invest in stock. may hold 5% in money market for liquidity,
income funds (equity fund) tend to hold shares of firms with high dividend yields that provide high current income.
growth funds (equity fund) willing to forgo current income, focusing instead on prospects for capital gains. typically riskier and respond far more dramatically to changes in economic conditions than do income funds.
specialized sector funds (equity fund) concentrate on a particular industry for ex. fidelity markets dozens of select funds each of which invests in a specific industry such as biotechnology, utilit, prec. metals, or telecommunications
bond funds fixed income sector. some specialization for ex. some forcus on corp bonds, t-bonds, mortgage backed bonds, some munis will even specialize by state or even city
global funds invest in securities worldwide incl U.S.
international funds concentrate on a particular part of the world.
emerging market funds invest in co. of developing nations.
balanced funds hold both equities and fixed income securites in relatively stable proportions.
life cycle funds balanced funds in which the asset mix can range from aggressive (mostly younger investors), to conservative (older investors)
targeted-maturity funds gradually bewcome more consewrvative as the investor gets older
asset allocation and flexible funds similar to balanced funds with both stocks and bonds, but asset allocation funds may vary in propoetion allocated to ea. market in accord c the Port Mgr forcast, based on market timing.
Index funds tries to match the performance of a broad market index such as the S&P 500. it buys shares in ea. s&p 500 co. in propertion to the market value of the co.'s outstanding equity. (passive investment strategy)
vangaurd 500 index fund that replicates the S&P 500.
how are mutual funds sold? about half through a sales force, brokers and financial advisors recv' a commission for selling shares to investors.
revenue sharing practice in which fund companies pay the brokerage firm for preferential treatment when making investment recommendations.
financial supermarkets they can sell shares in funds of many complexes. This approach was made popular by the oneSource program of Charles Schwab
what things should you consider when investing in a mututal fund? stated investment policy, past performance, management fees and other expenses. you can find the different funds in Morningstars mutual fund sourcebook in libraries.
what are the 4 general classes of mutual fund fees? operating expenses, front-end load, back-end load, and 12b-1 charges
operating expenses for mutual funds the costs incurred by the mutual fund in operating the portfolio including admin. expenses and advisory fees paid to the investment manager. shareholders pay thru reduced value in portfolio
front-end load mutual fund fees a commission or sales charge paid when you purchase the shares. these charges are used to paybrokers and may not exceed 8.5%.
no load funds funds that have no front end sales charges.
back-end load this is a redemption or "exit" fee incurred when you sell your shares. usually start at 5-6% and reduce them by one percentage point for every year the fund are left invested. also known as congtingent deferred sales charges.
12b-1 charges named after the SEC rule that permits use of funds assets to pay distrib costs like advertising, commissions. These fees are deducted from the assets from investors fund.
how much are the 12b-1 fees limited to? 1% of a funds average net assets per year.
Investment Company financial intermediaries that invest the funds of indiv investors in securities, bond or cash markets, pooling of assets, give small investors abilit to team up and get large scale benefits
NAV net asset value = Assets-liabilities/shares outstanding
name 2 types of investment companies 1. Unit investment comp. = portfolios are essentially fixed and unmanaged. 2. managed invest co. = securities in these portfolios are continually bought and sold.
name 2 types of managed invest comp. 1. Closed end = do not redeem or issue shares. If investors wish to cash out, must sell to other investors. 2. open end = commonly called mutal funds a fund that issues or redeems it shares @ NAV
load sales charge which is paid to the seller. Front end and Back end loads
front end load when buying shares fee is charged
back end load when selling shares fee is charged
comingled funds partnerships of investors that pool their funds. Mgmt firm that organizes fund manages it for a fee. They deal in units not shares and they are bought and sold @ NAV
Real Estate Investment trusts (REITS) similar to close end fund, invest in real estate or loans secured by real estate, highly leveraged with 70 % debt ratio
name 2 kinds of Reits Equity trusts and mortgages trusts
Equity trust type of REIT that invest in real estate directly
Mortgage Trusts type of REIT that invest in mortgage and construction loans.
t or f Reits are exempt from taxes as long as @ least 95% of their taxable income is distributed to share holders. true
SOFT DOLLARS a portfolio mgr earns soft-dollare credits with a brokerage frim by directing the fund's trades to that broker. based on those credits the broker will pay for some of the mutual funds expenses, such as databases, computer hardware, or stock quote systems
how ofter do mutual funds calculate their value they calculate NAV at theend of each trading day
what time daily does the market close? 4 PM eastern time or 3PM central time
late trading the practice of aeccpting buy or sell orders after the market closes and NAV is determined.
marketiming exploits stale prices. this can and does happen when markets have closed like in Japan and NAV has been set. Then an investor gets a time in the US that things are good for Japan co and buys at old NAV prices. Then they can sell the nxt day for a prof
does late trading and market time both violate security laws? In the beginning no, only late trading does, market timing does not violate any laws. Now there is a 4 pm hard cut off order must be at the mutual fund office not at brokers by 4.
what laws were enacted to deter bad mutual fund trading practices 4 pm hard cut off, fair value pricing, redemption fees
fair value pricing when computing fund N AV, prices of securities in closed markets are adjusted to reflect the likely impact of big price changes in open markets.
redemption fees a fee of 2% or more to be charged on mutual funds shares sold withing five days of purchase. These fees would be paid not to the management company but directly into the fund to compensate other investors for potential losses due to the rapid trading
pass through status taxes are paid only by the investor in the mutual fund, not the fund itself. this is true if the fund is sufficiently diversified and that virtually all income is distributed to shareholders.
How do tax pass throughs affect the investor if you mng your own portfolio, you decide wehn to realize cap gains and losses. When you have a mutual fund the timing of sale of securities form the portfolio is out of your control, if in an IRA this is irrelevant.
turnover the ratio of trading activity of a portfolio to the assets of the portfolio. It measure the fraction of the port that is replaced each year.
Exchange-traded funds offshoots of mutual funds introduced in 1993. they allow investors to trade index portfolios just as they do shares of stock.
spider SPDR EFT index fund resembling the S&P 500 index. can trade all day just like any other stock.
diamonds eft fund based on DJIA
Qubes (cubes) EFT fund based on Nasdaq 100 index
WeBS world equity benchmark shares, which are shares in portfolios of foreign stock market
what are the 3 general classes of ETS's US market, narrow industry or "sector" portfolios, and international indexes
can ETSs be sold short or traded on margin? Can mutual funds? ETS's yes, mutual funds-no.
tax advantages of ETF when small investors wish to redeem their position in an ETF them sell their shares to other traders with no need for the fund to sell any of the underlying portfolio.
t or f ETF stays close to NAV true
why are management fees cheaper for a ETF than a mutual fund? b/c investors go straight to the broker to buy the ETF rather than buying directly from the fund, so the fund saves the cost of marketing to small investors.
what are some disadvantages to ETSs they are purchased from brokers for a fee, and they also incur a bid-ask spread when purchasing
Wilshire 5000 the perfomance of this index is the most inclusive index of the performance of US equities. It corresponds to a simple pasive investment strategy.
t or f casual comparisons of the performance of the Wilshire 5000 index versus that of professionally managed mutual fund portfolios show disappointing results for most fund managers true
where do you find information on a mutual fund in the prospectus
Where do you find a fee table for a mutual fund in the prospectus
SAI statement of additional information: includes a list of securities in the portfolio at the end of the fiscal year
audited financial statements a list of the directors and officers of the fund as well as their personal investments in the fund and data on brokerage commissions paid by the fund.
Where else can you find information about a mutual fund other than the prospectus statement of additional information of SAI and audited financial statements
what are 2 prominent sources to help you search for the proper mutual fund? Wiesenberger's Investment Companies & Morningstar's Mutual Fund Sourcebook.
tax-cost ratio an estimate of the impact of taxes on the investor's after-tax return.
growth stocks have high ratios, suggesting that investors in these firms must believe that the firm will experience rapid growth to justify the prices at which the stocks sell.
Created by: delorya



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