Term
| Benefits of investment companies |
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Definition
- diversification
- allows a smaller scale of investment
- professional management
- economies of scale
- wide variety of asset classes |
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Term
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Definition
- buy a basket of securities
- degree of diversification varies by focus of investment company |
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Term
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Definition
- lower transactions costs
- access to better trading platforms, information, etc. |
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Term
| types of investment companies |
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Definition
- unit investment trusts
- managed investment companies
- commingled funds
- real estate investment trusts (REITs)
- hedge funds
- Exchange traded funds (ETFs) |
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Term
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Definition
- passive management (buy and hold)
- shares sold back to trustees at net asset value (NAV)
- outmoded structure w/ few assets under management |
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Term
| managed investment companies |
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Definition
- active or passive management
- open-end (aka Mutual Funds)
- closed-end |
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Term
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Definition
- buy and sell shares from fund manager at NAV (active management)
- a fund that issues or redeems its shares at net asset value |
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Term
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Definition
- management company solicits funds and creates portfolio (active management)
- after issue, buy and sell shares from other investors (secondary market)
- majority of shares trade at a discount to NAV
- popular with illiquid securities and markets (e.g. emerging market equities)
- shares may not be redeemed, but instead are traded at prices that can differ from net asset value |
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Term
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Definition
- similar to open-end funds
- often institutional investors |
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Term
| real-estate investment trusts (REITs) |
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Definition
- similar to closed-end funds
- invest in real estate (equity trust) & real estate loans (mortgage trust)
- often highly leveraged |
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Term
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Definition
- structured as private partnerships
- not subject to SEC regulation
- open to qualified investors only (minimum wealth/income)
- typically high costs (2/20 or more)
- typically long lock up periods (measured in years)
- typically minimal information provided
- typically very highly leveraged
- typically very actively managed
- pursue a wide-range of investment strategies
- a private investment pool, open to wealthy or institutional investors, that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds |
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Term
| exchage traded funds (ETFs) |
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Definition
- offshoots of mutual funds
- typically focused on indexes
- allow trading during the day at market prices
- avoid some tax issues associated with mutual funds, but create some others
- very low fees |
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Term
| types of (open-ended) mutual funds |
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Definition
- money market funds
- index funds
- stock (equity) funds |
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Term
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Definition
| - invest in money market securities |
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Term
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Definition
- replicate the performance of a specific index
- low cost |
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Term
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Definition
- large, mid, small cap
- value vs. growth |
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Term
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Definition
- bond funds
- international funds
- balanced funds
- lifecycle funds |
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Term
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Definition
- vary by maturity
- vary by default (credit) risk
- vary by security type - treasuries, corporates, munis |
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Term
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Definition
| - growth vs. income needs (and risk taking) based on retirement target |
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Term
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Definition
- net asset value (NAV)
- holding period return (HPR) |
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Term
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Definition
- operating expenses (administrative expenses, advisory fees, paid out of assets -> lower NAV, reported separately)
- 12b-1 charges (pay for advertising and distribution, treated like operating expenses)
- load fees |
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Term
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Definition
- front-end load is a commission or sales charge (often earned by selling agent)
- back-end load is a redemption or exit fee (often decrease for each year the investment is held, used to discourage short-term investment)
- fees and share classes (different share classes have different fee strucutres, trade off between fixed - load - and variable - operating/12b-1 - |
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Term
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Definition
- investor inherits tax status of assets when buying into fund
- pays taxes on all taxable events occurring during ownership (income received, short-term capital gains, long-term capital gains)
- may have tax liability and lose money on investment
- note: investor may not care if mutual fund is held in 401k or other tax exempt account |
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Term
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Definition
- volume of buying and selling
- generated by new investment and redemptions
- generated by active management
- potential benefits - manager is selling losers and buying winners
- potential problems - transactions costs (lower return), short-term capital gains (higher tax rate) |
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Term
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Definition
- soft dollars
- late trading
- performance (on average &, net of fees, actively managed funds appear to underperform) |
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Term
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Definition
- earned by management company for directing trades/brokerage and used to purchase various products and services
- don't show up as expenses
- understate expenses
- the value of research services brokerage houses provide "free of charge" in exchange for the investment manager's business |
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Term
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Definition
- at stale prices
- benefits late trade
- harms other investors (dilutive) |
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Term
| investment companies (definition) |
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Definition
| - financial intermediaries that invest the funds of individual investors in securities or other assets |
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Term
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Definition
| assets minus liabilities expressed on a per-share basis |
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Term
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Definition
| money pooled from many investors that is invested in a portfolio fixed for the life of the fund |
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Term
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Definition
| annual fees charged by a mutual fund to pay for marketing and distribution costs |
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