The Fund Industry: How Your Money is Managed, 2nd Edition

SECTIONFour

Beyond Traditional Funds

While traditional open-end mutual funds still dominate the market for investment funds, other types of commingled funds have been gaining favor with investors. In this section, we look at the two fastest-growing popular alternatives to mutual funds: exchange-traded funds, or ETFs, and hedge funds.

Assets in ETFs have zoomed up from literally zero in 1992 to $1.7 trillion at the end of 2013, according to the Investment Company Institute. They now account for 10 percent of the U.S. fund industry overall.

Growth in hedge funds has been similarly spectacular. Their assets have more than quadrupled over the past decade, despite the disruptions of the financial crisis. Hedge Fund Research reports that total assets were $2.6 trillion at year-end 2013.

In this section, we examine the factors behind the success of both ETFs and hedge funds. There are two chapters in this section:

Chapter 15 takes a close look at ETFs, beginning with review of their history. It then examines their unique structure and operations. A review of the different types of ETFs follows, with a focus on how the investment approaches of ETFs compare to those of traditional funds. The chapter wraps up with an overview of the outlook for sales of ETFs.

Chapter 16 focuses on hedge funds. The chapter opens by defining hedge fund and discussing recent changes in the regulation of hedge fund managers. It surveys the investment approaches used by hedge funds and then examines the advantages ...