Literatuur Investment Analysis and Portfolio Management
Week 1
Hoofdstuk 4
Mutual funds = means of combining or pooling the funds of a large group of investors, buy
and sell decisions for the resulting pool are then made by a fund manager
Advantages:
o Diversification: helps reduce risk by investing in diversified portfolios
o Professional management: professional money managers make the investment
decisions for mutual funds
o Minimum initial investment: lower amount of initial investment
Drawbacks
o Risk: value of investment could fall, but also by diversifying you lower the chance of
making big returns
o Costs: mutual funds entail fees and expenses
o Taxes
Net asset value (NAV) = (total value of assets held by the fund – any liabilities)/number of
outstanding shares, describes the value per share
Types of costs and fees associated with buying/owning mutual fund shares:
Sales charges/front-end loads: paying a load/fee for purchasing a share
o Offering price = price paid for the total, includes load above NAV
o Load = extra amount paid for the purchase
o Can also be back-end loads: paying when selling or to keep funds
12b-1 fees: portion of fund’s assets to cover distribution and shareholder service costs
Management fees: typically charged as a percentage of assets held, compensation to
management for managing a fund
Trading costs: brokerage expenses
Different fund types
Open-end versus closed-end funds
Open-end: fund itself will sell new shares to anyone wishing to buy and buy back shares
from anyone wishing to sell, number of shares outstanding fluctuates over time, price is
equal to NAV
Closed-end: number of shares is fixed and never changes, buying shares needs to be
from another investor as well as selling shares, price may not be equal to NAV
, Money market mutual funds:
Specialize in money market instruments
Short-term debt obligations issued by governments and corporations
Net asset values are always $1 per share, but money market fund sets the number of
shares equal to the fund’s assets
Can be tax-exempted, making their yiels lower
Long-term funds: historically classified as stock, bond or blended funds
Stock funds: different types in different categories
Capital appreciation versus income: funds that trade off these two variables
o Capital appreciation: seek maximum capital appreciation, generally invest in
companies that have the best prospects for share price appreciation without regard
to dividends, company size etc.
o Growth: also seek capital appreciation, but tend to invest in larger, more established
companies
o Growth and income: capital appreciation is still the main goal, but at least part of the
focus is on dividend-paying companies
o Equity income: focus almost exclusively on stocks with relatively high dividend yields,
thereby maximizing current income of portfolio
Company size-based funds: focus on companies in a particular size range
o Small company: focus on stocks in small companies, as small companies don’t pay
dividends these funds necessarily emphasize capital appreciation
o Mid-cap: specialize in stocks that are too small to be in the S&P 500 index, but too
large to be considered small-cap stocks
o Large company: invest in companies with large market values
International funds
o Global: substantial international holdings but also maintain significant investment in
U.S. stocks
o International: focus on non-U.S. equities only
Sector funds: specialize in specific sectors of the economy and often focus on particular
industries or commodities
Other fund types and issues
o Index funds: hold the stocks that make up a particular index in the same relative
proportions as the index
o Social conscience funds: invest only in companies whose produces, policies, or
politics are viewed as socially desirable
o Tax-managed funds: managed with regard for tax liabilities of fund owners
Bond funds:
Distinguished based on five characteristics:
o Maturity range
o Credit quality
o Taxability
o Type of bond
o Country
Blended funds: don’t invest exclusively in either stocks or bonds
Balanced funds: maintain a relatively fixed split between stocks and bonds
Asset allocation funds: differing split between stocks and bonds
Week 1
Hoofdstuk 4
Mutual funds = means of combining or pooling the funds of a large group of investors, buy
and sell decisions for the resulting pool are then made by a fund manager
Advantages:
o Diversification: helps reduce risk by investing in diversified portfolios
o Professional management: professional money managers make the investment
decisions for mutual funds
o Minimum initial investment: lower amount of initial investment
Drawbacks
o Risk: value of investment could fall, but also by diversifying you lower the chance of
making big returns
o Costs: mutual funds entail fees and expenses
o Taxes
Net asset value (NAV) = (total value of assets held by the fund – any liabilities)/number of
outstanding shares, describes the value per share
Types of costs and fees associated with buying/owning mutual fund shares:
Sales charges/front-end loads: paying a load/fee for purchasing a share
o Offering price = price paid for the total, includes load above NAV
o Load = extra amount paid for the purchase
o Can also be back-end loads: paying when selling or to keep funds
12b-1 fees: portion of fund’s assets to cover distribution and shareholder service costs
Management fees: typically charged as a percentage of assets held, compensation to
management for managing a fund
Trading costs: brokerage expenses
Different fund types
Open-end versus closed-end funds
Open-end: fund itself will sell new shares to anyone wishing to buy and buy back shares
from anyone wishing to sell, number of shares outstanding fluctuates over time, price is
equal to NAV
Closed-end: number of shares is fixed and never changes, buying shares needs to be
from another investor as well as selling shares, price may not be equal to NAV
, Money market mutual funds:
Specialize in money market instruments
Short-term debt obligations issued by governments and corporations
Net asset values are always $1 per share, but money market fund sets the number of
shares equal to the fund’s assets
Can be tax-exempted, making their yiels lower
Long-term funds: historically classified as stock, bond or blended funds
Stock funds: different types in different categories
Capital appreciation versus income: funds that trade off these two variables
o Capital appreciation: seek maximum capital appreciation, generally invest in
companies that have the best prospects for share price appreciation without regard
to dividends, company size etc.
o Growth: also seek capital appreciation, but tend to invest in larger, more established
companies
o Growth and income: capital appreciation is still the main goal, but at least part of the
focus is on dividend-paying companies
o Equity income: focus almost exclusively on stocks with relatively high dividend yields,
thereby maximizing current income of portfolio
Company size-based funds: focus on companies in a particular size range
o Small company: focus on stocks in small companies, as small companies don’t pay
dividends these funds necessarily emphasize capital appreciation
o Mid-cap: specialize in stocks that are too small to be in the S&P 500 index, but too
large to be considered small-cap stocks
o Large company: invest in companies with large market values
International funds
o Global: substantial international holdings but also maintain significant investment in
U.S. stocks
o International: focus on non-U.S. equities only
Sector funds: specialize in specific sectors of the economy and often focus on particular
industries or commodities
Other fund types and issues
o Index funds: hold the stocks that make up a particular index in the same relative
proportions as the index
o Social conscience funds: invest only in companies whose produces, policies, or
politics are viewed as socially desirable
o Tax-managed funds: managed with regard for tax liabilities of fund owners
Bond funds:
Distinguished based on five characteristics:
o Maturity range
o Credit quality
o Taxability
o Type of bond
o Country
Blended funds: don’t invest exclusively in either stocks or bonds
Balanced funds: maintain a relatively fixed split between stocks and bonds
Asset allocation funds: differing split between stocks and bonds
