Mutual Funds E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Robert W. Kolb Series
• Sprache: Englisch

Seitenzahl: 710

Veröffentlichungsjahr: 2009

Beschreibung

An authoritative, must-read guide to making more informed decisions about mutual funds Providing a balance of theory and application, this authoritative book will enable you to evaluate the various performance and risk attributes of mutual funds. It covers a broad range of topics, including understanding the advantages and disadvantages of mutual funds, evaluating stock/bond allocations within fund portfolios, assessing fund diversification risk, measuring fund returns and risk, and making fund buy/sell decisions. While informative chapters combine clear summaries of existing research with practical guidelines for mutual fund analysis, step-by-step decision checklists guide you through the selection of various mutual funds. * Puts the risks and rewards of mutual fund investing in perspective * Skillfully examines how to select and evaluate the best mutual funds * Outlines mutual fund service advantages and disadvantages * Discusses the long- and short-term effectiveness of mutual funds Covering major theoretical and management issues in mutual fund analysis and portfolio management, this book is an authoritative guide.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Introduction

PART I - Mutual Funds: Nature, Regulation, and Costs

CHAPTER 1 - The Nature of Mutual Funds

ATTRIBUTES OF THE OPEN-END MUTUAL FUND

MUTUAL FUNDS AND THE COMPETITIVE ENVIRONMENT

REFERENCES

ABOUT THE AUTHOR

CHAPTER 2 - Mutual Fund Regulation and Issues

HISTORICAL PERSPECTIVE

REGULATION OF OPEN-END FUNDS

RECENT REGULATORY ISSUES IN OPEN-END FUNDS

CURRENT REGULATORY ISSUES IN FUNDS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 3 - The Economics of Mutual Funds

SIZE AND STRUCTURE OF THE MUTUAL FUND INDUSTRY

MUTUAL FUND CREATION AND MORTALITY

REGULATION

SCALE ECONOMIES: EXPENSES AND FEES

SCALE DISECONOMIES: FUND RETURNS

BENEFITS OF MUTUAL FUND INVESTING TO FUND SHAREHOLDERS

DRAWBACKS OF MUTUAL FUND INVESTING

FINANCIAL BARRIERS TO MUTUAL FUND INVESTING AND REDEMPTION

MUTUAL FUND GOVERNANCE AND AGENCY PROBLEMS

FUND MANAGER TOURNAMENT BEHAVIOR

FUND FAMILY MARKETING AND CROSS-SUBSIDIZATION

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 4 - Mutual Fund Fees and Expenses

LOADS

EXPENSES

MANAGEMENT FEES

RULE 12B-1 FEES

“OTHER” EXPENSES WITHIN THE EXPENSE RATIO

LOAD VERSUS EXPENSE RELATION

DISTRIBUTION CHANNEL

ETFs AND CLOSED-END MUTUAL FUNDS

TAXES

FEES AND EXPENSES INTERNATIONALLY

CHARGES NOT INCLUDED IN THE EXPENSE RATIO

PARTITIONING ACTIVELY MANAGED MUTUAL FUND FEES BASED ON ALPHA AND BETA SEPARATION

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

PART II - The Realities and Analogies of Investing

CHAPTER 5 - How Financial Markets Work

HOW MARKETS SET PRICES

GREAT COMPANIES DO NOT MAKE HIGH-RETURN INVESTMENTS

FOR EVERY BUYER THERE MUST BE A SELLER

REFERENCES

ABOUT THE AUTHOR

CHAPTER 6 - Active versus Passive Investing

WHOSE INTERESTS DO THEY HAVE AT HEART?

WHEN EVEN THE BEST ARE NOT LIKELY TO WIN THE GAME

INVESTMENT GRAFFITI

OUTFOXING THE BOX

APPENDIX: INVESTMENT VEHICLE RECOMMENDATIONS

REFERENCES

ABOUT THE AUTHOR

PART III - Fund Types and Comparative Performance, Efficient Markets, Asset ...

CHAPTER 7 - Efficient Markets and Mutual Fund Investing The Advantages of Index Funds

JUSTIFICATION FOR USING INDEX FUNDS

EVIDENCE FROM U.S. INDEX FUNDS

EVIDENCE IN FAVOR OF PASSIVE MANAGEMENT IN WORLD FINANCIAL MARKETS

ACTIVE VERSUS PASSIVE MANAGEMENT IN THE BOND MARKET

COSTS ARE IMPORTANT DETERMINANTS OF NET RETURNS

MUTUAL FUNDS VERSUS ETFs

STOCK MARKET RETURNS VERSUS INVESTOR RETURNS

STYLE OR FACTOR TILTS IN MUTUAL FUNDS

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 8 - Asset Allocation Design and Care of Portfolios

POLICY ALLOCATION

REBALANCING

STRATEGIC ASSET ALLOCATION

REFERENCES

ABOUT THE AUTHOR

CHAPTER 9 - The Morningstar Approach to Mutual Fund Analysis—Part I

CYCLE OF FEAR AND GREED

RISK MANAGEMENT

APPROACHES TO PORTFOLIO CONSTRUCTION

TOOLS FOR ANALYZING FUNDS

MUTUAL FUND ANALYSIS TOOLS

RETURNS-BASED ANALYSIS

SAMPLE FUND COMPARISON—HISTORICAL PERFORMANCE

RISK AND RISK-ADJUSTED PERFORMANCE MEASURES

MODERN PORTFOLIO THEORY STATISTICS

SAMPLE FUND COMPARISON—RISK AND RISK-ADJUSTED PERFORMANCE MEASURES

MORNINGSTAR RATING™ FOR FUNDS

CONCLUSIONS

ABOUT THE AUTHORS

CHAPTER 10 - The Morningstar Approach to Mutual Fund Analysis—Part II

HOLDINGS-BASED ANALYSIS

INCOME, COSTS, AND TAXES

QUALITATIVE ANALYSIS

CONCLUSIONS

ABOUT THE AUTHORS

CHAPTER 11 - Building a Portfolio of Mutual Funds A Morningstar Approach

APPROACHES TO PORTFOLIO CONSTRUCTION

FUND SELECTION

PORTFOLIO 1: A LESS DIVERSIFIED APPROACH

PORTFOLIO 2: A WELL-BALANCED APPROACH

ANALYSIS OF THE PORTFOLIOS

ONGOING MAINTENANCE

CONCLUSIONS

ABOUT THE AUTHORS

CHAPTER 12 - Performance of Actively Managed versus Index Funds The Vanguard Case

INTRODUCTION

METHODOLOGY

IN DEFENSE OF GEOMETRIC ALPHA

TRACKING INDEXES FOR THE OLD FUNDS

PROWESS OF STYLE JUMPING AND EQUITY CHOICE FOR THE OLD FUNDS

PRESCIENT STYLE JUMPING?

ALPHA FELL

HOW HAVE THE YOUNG FUNDS PERFORMED?

DID R PREDICT PERFORMANCE (INCLUDING YOUNG FUNDS)?

IS THE PAST PROLOGUE? DID PAST PERFORMANCE PREDICT FUTURE PERFORMANCE?

DID A COMBINATION OF R AND PAST ALPHA PREDICT PERFORMANCE?

DID MORNINGSTAR STARS PREDICT?

DID DAN WIENER’S RATINGS PREDICT?

BEST PREDICTION EQUATION

IS WIENER RIGHT THAT VANGUARD’S MANAGED FUNDS ARE BETTER THAN ITS INDEX FUNDS?

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 13 - Classic and Enhanced Index Funds Performance and Issues

VANGUARD

DIMENSIONAL FUND ADVISORS

WISDOMTREE’S APPROACH TO FUNDAMENTAL INDEXATION

SOME EVALUATIONS OF FUNDAMENTAL INDEXATION

STYLE ANALYSIS TO COMPARE VANGUARD AND DFA

WISDOMTREE VERSUS VANGUARD: WHICH IS BETTER?

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 14 - Mutual Funds versus Exchange-Traded Funds

A BRIEF HISTORY OF ETFs

HOW OPEN-END PORTFOLIO ETFs WORK

IMPROVING ETFs

ETF AND MUTUAL FUND COMPARATIVE ECONOMICS

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

PART IV - Mutual Funds at the Crossroads

CHAPTER 15 - The Challenge to Mutual Fund Stewardship

CHALLENGE TO STEWARDSHIP

INDUSTRY STRUCTURE AND SCANDALS

MISALIGNED INTERESTS

MARKET RETURNS VERSUS FUND AND INVESTOR RETURNS

FUND STEWARDSHIP

REFERENCES

ABOUT THE AUTHOR

CHAPTER 16 - Identifying Mutual Fund Stewardship

FIVE DIMENSIONS OF ANALYSIS

COMPLEMENTS TO BOGLE’S APPROACH

STEWARDSHIP FUND (OR NOT)

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 17 - Normative Transparency of Mutual Fund Disclosure

DISCLOSURE AS AN EFFECTIVE REGULATORY TOOL

NORMATIVE TRANSPARENCY OF DISCLOSURE

DISCLOSURE TEMPLATE

NORMATIVE TRANSPARENCY AND THE EXPENSE RATIO

CURRENT SEC EXPENSE RATIO

THE NEW TOTAL EXPENSE RATIO

12b-1 FEES AND MULTIPLE SHARE CLASSES

TRANSACTION COST ISSUES

CONCLUSIONS: NORMATIVE DISCLOSURE, THE TOTAL EXPENSE RATIO, AND REGULATORY CHANGE

REFERENCES

ABOUT THE AUTHOR

CHAPTER 18 - A Design for the Mutual Funds of the Future

THE VANGUARD VISION

A DESIGN FOR THE FUTURE

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

Index

The Robert W. Kolb Series in Finance provides a comprehensive view of the field of finance in all of its variety and complexity. The series is projected to include approximately 65 volumes covering all major topics and specializations in finance, ranging from investments, to corporate finance, to financial institutions. Each volume in the Kolb Series in Finance consists of new articles especially written for the volume.

Each Kolb Series volume is edited by a specialist in a particular area of finance, who develops the volume outline and commissions articles by the world’s experts in that particular field of finance. Each volume includes an editor’s introduction and articles by experts that fully describe the current state of financial research and practice in a particular area of finance.

The essays in each volume are intended for practicing finance professionals, graduate students, and advanced undergraduate students. The goal of each volume is to encapsulate the current state of knowledge in a particular area of finance so that the reader can quickly achieve a mastery of that special area of finance.

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Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Haslem, John A.

Mutual funds : portfolio structures, analysis, management, and stewardship /

John Haslem.

p. cm. - (Robert W. Kolb series)

Includes index.

eISBN : 978-0-470-53091-7

1. Mutual funds. 2. Investments. 3. Portfolio management. I. Title.

HG4530.H3867 2009

332.63’27-dc22

2009013311

This book is dedicated to the experts who generously contributed their knowledge, and to Jane Haslem and our three families and seven grandchildren.

JOHN A. HASLEM

Introduction

When the financial history of the United States is written, one chapter will necessarily be dedicated to mutual funds. This industry has been and continues to be one of the extraordinary growth stories in the history of American financial markets. Today, 96 million individual investors in 55 million households own mutual funds, representing 87 percent of total fund assets. In 1984, net fund assets totaled $370 million; today they are $10.4 trillion.

Several major forces explain most of this growth, but the first and essential force has been the demonstrated effectiveness of mutual funds as vehicles for providing individual investors with retirement incomes and financial wealth. Mutual funds provide individual investors (and all other investors) with investment performance and investment alternatives, objectives, and services traditionally reserved for institutional and large individual investors. Nonetheless, mutual funds also have numerous shortcomings in their management and regulation that could be removed through stewardship of fund management, increased investor knowledge, and more investor-friendly fund regulation.

This book brings together some of the finest minds in academia, investment management, and mutual fund management to discuss the nature and pros and cons of mutual funds. The focus explores mutual funds as investment vehicles and the approaches that will further improve and lessen the often-hidden pitfalls of fund investing. The result is an improved source of learning for university students and an increased ability of informed investors to make fund decisions that will make the experience much more rewarding and even simpler.

PART I

Mutual Funds: Nature, Regulation, and Costs

CHAPTER 1

The Nature of Mutual Funds

CONRAD S. CICCOTELLO, J.D., Ph.D. Associate Professor and Director of Graduate Personal Financial Planning Programs, Georgia State University, Atlanta, Georgia

As a first-year doctoral student at the Pennsylvania State University in 1990, I wrote my investments seminar paper on the performance of a sample of open-end mutual funds. My professor indicated that the paper was methodologically sound but suggested to me that finance academics did not really care about mutual fund performance (or, for that matter, about mutual funds, in general). So he advised that I examine something else in future research. Academics often lag what is of interest in the “real world,” and I recall thinking that mutual funds were important, and likely to become more so over time. But as a doctoral student, one learns to do what one is told to do. So, I put down the mutual fund topic during the rest of my doctoral program, although my interest in funds never waned. Soon after entering the professorate in 1993, I restarted my formal research on mutual funds. That research continues to this day.

While I had suspicions in 1990 that mutual funds would become an interesting and important topic, I did not even come close to imagining then what has actually happened in the mutual fund universe over the nearly two decades since my first research effort as a doctoral student. At the time of my first study, there were a few hundred open-end mutual funds that held about $1 trillion total. Today, there are well over 10,000 funds holding about $10 trillion in wealth. A confluence of societal and corporate trends over this time, the biggest of which being the large-scale changeover from defined benefit to defined contribution retirement plans, has fueled the tremendous growth of assets held in open-end mutual funds.

There has also been explosive growth in academic research about mutual funds. Most of that research in finance examines fund performance issues, broadly addressing the question: Do mutual funds “beat the market”? More recently, there has been a growing stream of research on institutional and structural aspects of mutual fund services and providers (Sirri and Tufano, 1998). One might view this research as more oriented toward marketing, studying the intersection of the supply and demand for mutual funds as well as the growing segmentation of both sides of that fundamental equation. The broad growth in the demographics of individuals owning funds partly explains this research trend. Several decades ago, mutual fund ownership was concentrated among the affluent. Now funds are owned by a wide range of individuals across the income spectrum. Over the past two decades, open-end mutual funds have become the primary financial wealth accumulation vehicle in American society, especially for middle-market consumers and the “emerging affluent.” Understanding mutual funds has thus become critical for social well-being. Nowhere is this decision more evident than in the choice of funds for an individual’s retirement plan.

This chapter first provides an overview of the nature, structure, and services of open-end mutual funds. The goal of this chapter is to introduce the reader to the characteristics of the open-end fund as well as the competitive environment for investment products. This chapter also sets the stage for more detailed discussions of various aspects of mutual funds that are presented in subsequent chapters. This overview chapter highlights how the open-end fund is unique, and the advantages and disadvantages the product has for individual investors. The discussion focuses on the key attributes of open-end funds, with the individual investor’s perspective in mind. Upon moving to Chapter 2, the reader should have a sense for the relevant factors necessary for understanding the open-end fund product and ultimately how these factors compare to those in alternative investment vehicles.

ATTRIBUTES OF THE OPEN-END MUTUAL FUND

Board of Directors

Open-end mutual funds are pooled investment products where a large number of individual investors can each own a “slice” of the investment pie. Stepping back from that general description, it is first important to understand how mutual funds are controlled. Most mutual funds are corporations or trusts that are managed by a board of directors, which consists of both inside and outside members. Inside members are typically officers of the investment adviser that manages the funds’ assets while outsiders (independents) can come from various occupations and backgrounds (some are even college professors). The mutual fund board’s primary responsibility is to protect the interests of the fund’s shareholders, similar to the duty that a board of directors has in an operating company. One key task that the independent directors of a mutual fund board face is the negotiation of the investment advisory agreement, which takes place during the “15-c process” (named after a provision in the 1940 Investment Company Act [ICA]). Another key task of the independent directors is to approve and oversee the fund’s independent auditors.