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Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship

Book Description

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

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Dedication
  4. Introduction
  5. PART I - Mutual Funds: Nature, Regulation, and Costs
    1. CHAPTER 1 - The Nature of Mutual Funds
      1. ATTRIBUTES OF THE OPEN-END MUTUAL FUND
      2. MUTUAL FUNDS AND THE COMPETITIVE ENVIRONMENT
      3. REFERENCES
      4. ABOUT THE AUTHOR
    2. CHAPTER 2 - Mutual Fund Regulation and Issues
      1. HISTORICAL PERSPECTIVE
      2. REGULATION OF OPEN-END FUNDS
      3. RECENT REGULATORY ISSUES IN OPEN-END FUNDS
      4. CURRENT REGULATORY ISSUES IN FUNDS
      5. REFERENCES
      6. ABOUT THE AUTHOR
    3. CHAPTER 3 - The Economics of Mutual Funds
      1. SIZE AND STRUCTURE OF THE MUTUAL FUND INDUSTRY
      2. MUTUAL FUND CREATION AND MORTALITY
      3. REGULATION
      4. SCALE ECONOMIES: EXPENSES AND FEES
      5. SCALE DISECONOMIES: FUND RETURNS
      6. BENEFITS OF MUTUAL FUND INVESTING TO FUND SHAREHOLDERS
      7. DRAWBACKS OF MUTUAL FUND INVESTING
      8. FINANCIAL BARRIERS TO MUTUAL FUND INVESTING AND REDEMPTION
      9. MUTUAL FUND GOVERNANCE AND AGENCY PROBLEMS
      10. FUND MANAGER TOURNAMENT BEHAVIOR
      11. FUND FAMILY MARKETING AND CROSS-SUBSIDIZATION
      12. CONCLUSIONS
      13. REFERENCES
      14. ABOUT THE AUTHOR
    4. CHAPTER 4 - Mutual Fund Fees and Expenses
      1. LOADS
      2. EXPENSES
      3. MANAGEMENT FEES
      4. RULE 12B-1 FEES
      5. “OTHER” EXPENSES WITHIN THE EXPENSE RATIO
      6. LOAD VERSUS EXPENSE RELATION
      7. DISTRIBUTION CHANNEL
      8. ETFs AND CLOSED-END MUTUAL FUNDS
      9. TAXES
      10. FEES AND EXPENSES INTERNATIONALLY
      11. CHARGES NOT INCLUDED IN THE EXPENSE RATIO
      12. PARTITIONING ACTIVELY MANAGED MUTUAL FUND FEES BASED ON ALPHA AND BETA SEPARATION
      13. CONCLUSIONS
      14. REFERENCES
      15. ABOUT THE AUTHOR
  6. PART II - The Realities and Analogies of Investing
    1. CHAPTER 5 - How Financial Markets Work
      1. HOW MARKETS SET PRICES
      2. GREAT COMPANIES DO NOT MAKE HIGH-RETURN INVESTMENTS
      3. FOR EVERY BUYER THERE MUST BE A SELLER
      4. REFERENCES
      5. ABOUT THE AUTHOR
    2. CHAPTER 6 - Active versus Passive Investing
      1. WHOSE INTERESTS DO THEY HAVE AT HEART?
      2. WHEN EVEN THE BEST ARE NOT LIKELY TO WIN THE GAME
      3. INVESTMENT GRAFFITI
      4. OUTFOXING THE BOX
      5. APPENDIX: INVESTMENT VEHICLE RECOMMENDATIONS
      6. REFERENCES
      7. ABOUT THE AUTHOR
  7. PART III - Fund Types and Comparative Performance, Efficient Markets, Asset Allocation, and Morningstar Analysis
    1. CHAPTER 7 - Efficient Markets and Mutual Fund Investing: The Advantages of Index Funds
      1. JUSTIFICATION FOR USING INDEX FUNDS
      2. EVIDENCE FROM U.S. INDEX FUNDS
      3. EVIDENCE IN FAVOR OF PASSIVE MANAGEMENT IN WORLD FINANCIAL MARKETS
      4. ACTIVE VERSUS PASSIVE MANAGEMENT IN THE BOND MARKET
      5. COSTS ARE IMPORTANT DETERMINANTS OF NET RETURNS
      6. MUTUAL FUNDS VERSUS ETFs
      7. STOCK MARKET RETURNS VERSUS INVESTOR RETURNS
      8. STYLE OR FACTOR TILTS IN MUTUAL FUNDS
      9. CONCLUSIONS
      10. REFERENCES
      11. ABOUT THE AUTHOR
    2. CHAPTER 8 - Asset Allocation: Design and Care of Portfolios
      1. POLICY ALLOCATION
      2. REBALANCING
      3. STRATEGIC ASSET ALLOCATION
      4. REFERENCES
      5. ABOUT THE AUTHOR
    3. CHAPTER 9 - The Morningstar Approach to Mutual Fund Analysis—Part I
      1. CYCLE OF FEAR AND GREED
      2. RISK MANAGEMENT
      3. APPROACHES TO PORTFOLIO CONSTRUCTION
      4. TOOLS FOR ANALYZING FUNDS
      5. MUTUAL FUND ANALYSIS TOOLS
      6. RETURNS-BASED ANALYSIS
      7. SAMPLE FUND COMPARISON—HISTORICAL PERFORMANCE
      8. RISK AND RISK-ADJUSTED PERFORMANCE MEASURES
      9. MODERN PORTFOLIO THEORY STATISTICS
      10. SAMPLE FUND COMPARISON—RISK AND RISK-ADJUSTED PERFORMANCE MEASURES
      11. MORNINGSTAR RATING™ FOR FUNDS
      12. CONCLUSIONS
      13. ABOUT THE AUTHORS
    4. CHAPTER 10 - The Morningstar Approach to Mutual Fund Analysis—Part II
      1. HOLDINGS-BASED ANALYSIS
      2. INCOME, COSTS, AND TAXES
      3. QUALITATIVE ANALYSIS
      4. CONCLUSIONS
      5. ABOUT THE AUTHORS
    5. CHAPTER 11 - Building a Portfolio of Mutual Funds: A Morningstar Approach
      1. APPROACHES TO PORTFOLIO CONSTRUCTION
      2. FUND SELECTION
      3. PORTFOLIO 1: A LESS DIVERSIFIED APPROACH
      4. PORTFOLIO 2: A WELL-BALANCED APPROACH
      5. ANALYSIS OF THE PORTFOLIOS
      6. ONGOING MAINTENANCE
      7. CONCLUSIONS
      8. ABOUT THE AUTHORS
    6. CHAPTER 12 - Performance of Actively Managed versus Index Funds: The Vanguard Case
      1. INTRODUCTION
      2. METHODOLOGY
      3. IN DEFENSE OF GEOMETRIC ALPHA
      4. TRACKING INDEXES FOR THE OLD FUNDS
      5. PROWESS OF STYLE JUMPING AND EQUITY CHOICE FOR THE OLD FUNDS
      6. PRESCIENT STYLE JUMPING?
      7. ALPHA FELL
      8. HOW HAVE THE YOUNG FUNDS PERFORMED?
      9. DID R2 PREDICT PERFORMANCE (INCLUDING YOUNG FUNDS)?
      10. IS THE PAST PROLOGUE? DID PAST PERFORMANCE PREDICT FUTURE PERFORMANCE?
      11. DID A COMBINATION OF R AND PAST ALPHA PREDICT PERFORMANCE?
      12. DID MORNINGSTAR STARS PREDICT?
      13. DID DAN WIENER’S RATINGS PREDICT?
      14. BEST PREDICTION EQUATION
      15. IS WIENER RIGHT THAT VANGUARD’S MANAGED FUNDS ARE BETTER THAN ITS INDEX FUNDS?
      16. CONCLUSIONS
      17. REFERENCES
      18. ABOUT THE AUTHOR
    7. CHAPTER 13 - Classic and Enhanced Index Funds: Performance and Issues
      1. VANGUARD
      2. DIMENSIONAL FUND ADVISORS
      3. WISDOMTREE’S APPROACH TO FUNDAMENTAL INDEXATION
      4. SOME EVALUATIONS OF FUNDAMENTAL INDEXATION
      5. STYLE ANALYSIS TO COMPARE VANGUARD AND DFA
      6. WISDOMTREE VERSUS VANGUARD: WHICH IS BETTER?
      7. CONCLUSIONS
      8. REFERENCES
      9. ABOUT THE AUTHOR
    8. CHAPTER 14 - Mutual Funds versus Exchange-Traded Funds
      1. A BRIEF HISTORY OF ETFs
      2. HOW OPEN-END PORTFOLIO ETFs WORK
      3. IMPROVING ETFs
      4. ETF AND MUTUAL FUND COMPARATIVE ECONOMICS
      5. CONCLUSIONS
      6. REFERENCES
      7. ABOUT THE AUTHOR
  8. PART IV - Mutual Funds at the Crossroads
    1. CHAPTER 15 - The Challenge to Mutual Fund Stewardship
      1. CHALLENGE TO STEWARDSHIP
      2. INDUSTRY STRUCTURE AND SCANDALS
      3. MISALIGNED INTERESTS
      4. MARKET RETURNS VERSUS FUND AND INVESTOR RETURNS
      5. FUND STEWARDSHIP
      6. REFERENCES
      7. ABOUT THE AUTHOR
    2. CHAPTER 16 - Identifying Mutual Fund Stewardship
      1. FIVE DIMENSIONS OF ANALYSIS
      2. COMPLEMENTS TO BOGLE’S APPROACH
      3. STEWARDSHIP FUND (OR NOT)
      4. CONCLUSIONS
      5. REFERENCES
      6. ABOUT THE AUTHOR
    3. CHAPTER 17 - Normative Transparency of Mutual Fund Disclosure
      1. DISCLOSURE AS AN EFFECTIVE REGULATORY TOOL
      2. NORMATIVE TRANSPARENCY OF DISCLOSURE
      3. DISCLOSURE TEMPLATE
      4. NORMATIVE TRANSPARENCY AND THE EXPENSE RATIO
      5. CURRENT SEC EXPENSE RATIO
      6. THE NEW TOTAL EXPENSE RATIO
      7. 12b-1 FEES AND MULTIPLE SHARE CLASSES
      8. TRANSACTION COST ISSUES
      9. CONCLUSIONS: NORMATIVE DISCLOSURE, THE TOTAL EXPENSE RATIO, AND REGULATORY CHANGE
      10. REFERENCES
      11. ABOUT THE AUTHOR
    4. CHAPTER 18 - A Design for the Mutual Funds of the Future
      1. THE VANGUARD VISION
      2. A DESIGN FOR THE FUTURE
      3. CONCLUSIONS
      4. REFERENCES
      5. ABOUT THE AUTHOR
  9. Index