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    Professional Asset Management: Questions To Be Answered

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    Muhammad Rizwan Asim
    The document discusses the structure and evolution of the asset management industry. It explains that asset management firms can be organized by contracting directly with clients for separate accounts or by commingling client funds into investment companies. It defines investment companies and describes the differences between closed-end and open-end funds. The document also outlines various costs associated with mutual funds like loads, fees, and expenses, as well as different fund types based on objectives. It evaluates the performance of investment companies and discusses how they can help fulfill the role of a personal portfolio manager.

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    Professional Asset Management: Questions To Be Answered

    Uploaded by

    Muhammad Rizwan Asim
    28 views12 pages
    The document discusses the structure and evolution of the asset management industry. It explains that asset management firms can be organized by contracting directly with clients for separate accounts or by commingling client funds into investment companies. It defines investment companies and describes the differences between closed-end and open-end funds. The document also outlines various costs associated with mutual funds like loads, fees, and expenses, as well as different fund types based on objectives. It evaluates the performance of investment companies and discusses how they can help fulfill the role of a personal portfolio manager.

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    Investment

    Original Title

    RB.Chap24+F15

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    The document discusses the structure and evolution of the asset management industry. It explains that asset management firms can be organized by contracting directly with clients for separate accounts or by commingling client funds into investment companies. It defines investment companies and describes the differences between closed-end and open-end funds. The document also outlines various costs associated with mutual funds like loads, fees, and expenses, as well as different fund types based on objectives. It evaluates the performance of investment companies and discusses how they can help fulfill the role of a personal portfolio manager.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    28 views12 pages

    Professional Asset Management: Questions To Be Answered

    Uploaded by

    Muhammad Rizwan Asim
    The document discusses the structure and evolution of the asset management industry. It explains that asset management firms can be organized by contracting directly with clients for separate accounts or by commingling client funds into investment companies. It defines investment companies and describes the differences between closed-end and open-end funds. The document also outlines various costs associated with mutual funds like loads, fees, and expenses, as well as different fund types based on objectives. It evaluates the performance of investment companies and discusses how they can help fulfill the role of a personal portfolio manager.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 12

    Chapter 24

    Professional Asset Management


    Questions to be answered:
    What are the different ways that professional asset management firms
    can be organized?
    How has the structure of the asset management industry changed over
    time?
    How are managers at investment advisory firms compensated?
    Who manages the investment company portfolio and how are its
    managers compensated?
    How do you compute the net asset value (NAV) for an investment
    company?
    What is the difference between closed-end and open-end investment
    companies?
    What is the difference between the NAV and market price for a closedend fund?
    1

    Investments

    Professional Asset Management


    What are load fees, 12b-1 fees, and management fees and how do
    they influence investment company performance?
    What are the two major means of fund distribution and what has
    been the trend for each approach?
    Given the breakdown of all funds by investment objectives, which
    groups have experienced relative growth or decline?
    Given a desire to have a personal portfolio manager perform
    certain functions for you, how do investment companies help
    fulfill this need?
    What are the ethical dilemmas involved in the professional asset
    management industry?
    What has been the risk-adjusted performance of mutual funds
    relative to alternative market indexes?
    2
    Investments

    The Asset Management Industry:


    Structure and Evolution

    Contract directly with a management and


    advisory firm

    relationship with client


    assets under management (AUM)
    separate accounts
    customized

    Commingling of investment capital of


    several clients in an investment company
    3
    Investments

    What is an Investment Company?


    An investment company invests a pool of funds
    belonging to many individuals in a portfolio of
    individual investments such as stocks and bonds
    The total market value of all investments divided
    by the number of fund shares outstanding is the
    net asset value (NAV)
    Portfolio management is handled by an
    investment management company
    4
    Investments

    Closed-End Versus Open-End


    Investment Companies
    Closed-end investment company
    Stock trades on secondary market
    Net asset value (NAV) is determined twice daily, but
    market price determined by supply and demand
    Discounts from NAV can be opportunities

    Closed-end fund index


    Open-end investment companies
    Mutual funds
    Sell and repurchase shares at NAV
    5
    Investments

    Mutual Fund Costs


    Load versus no-load open-end funds
    Load funds charge sales commission up to 8.5% of
    NAV, but usually not a redemption fee
    No-load imposes no initial sales charge, so it sells
    shares at NAV, but may charge a small redemption
    fee of 1/2%
    Low-load imposes a front-end sales charge in the
    3% range
    6
    Investments

    Mutual Fund Costs


    Contingent deferred sales loads, or redemption
    charges, or rear-end loads, decline over time
    Annual 12b-1 fee
    Details about funds charges are found in the
    funds prospectus
    Fund management fees
    Portfolio turnover
    Expense ratios
    7
    Investments

    Types of Investment Companies


    Based on Portfolio Objectives

    Common stock funds


    Balanced funds
    Taxable bond funds
    Municipal bond funds
    Money market funds
    8
    Investments

    Sources of Information
    About Mutual Funds

    The Wall Street Journal


    Barrons - weekly and quarterly
    Investment Companies
    Mutual Funds Update
    Mutual Funds Report
    Closed-end Weekly Review
    FundEdge
    Management Results
    Forbes
    Business Week - Mutual Fund Scoreboard
    Morningstar Mutual Funds
    Value Line
    9
    Investments

    Performance of Investment Companies


    Below average returns for actively managed
    equity and bond funds
    Do a funds objectives matter?
    Positive relationship between stated objectives
    and risk measures

    Do managers generally outperform the


    market?
    Results are more consistent in shorter time
    periods
    10
    Investments

    Your Portfolio Manager


    1. Determine your risk-return preferences and develop a
    portfolio that is consistent with them
    2. Diversify your portfolio to eliminate unsystematic risk
    3. Maintain your portfolio diversification and your desired risk
    class while allowing flexibility so you could shift between
    alternative investment instruments as desired
    4. Attempt to achieve a risk-adjusted performance that is
    superior to aggregate market performance
    5. Administer the account, keep records of costs, provide
    timely information for tax purposes, and reinvest dividends
    if desired
    11
    Investments

    The Internet
    Investments Online
    www.investools.com
    www.wiesenberger.com
    www.brill.com
    www.mfea.com
    www.investorguide.com/Funds.htm
    www.stocksmart.com/tr/tmf.html
    www.morningstar.com
    www.mfmag.com
    www.ici.com
    Investments

    12

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