An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be bought or sold at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be more or less than its net asset value. Closed-end funds are not considered to be ETFs, even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively managed ETFs.
collective investment schemeinvestment fundsinvestment vehicle
A closed-end fund issues a limited number of shares (or units) in an initial public offering (or IPO) or through private placement. If shares are issued through an IPO, they are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. If demand for the shares is high, they may trade at a premium to net asset value. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the vehicle if demand is high although this may affect the share price.
There are a number of collective investment schemes — Unit Trust, Open-ended investment company, Mutual fund, Unit investment trust, Closed-end fund — with similar objectives and/or names, sometimes confused with each other. Variations include open-ended and closed-ended, business trust or management company/corporate structure, Actively managed or un-managed. In the UK there are generally two types of open-ended, actively managed investment companies: In Western Europe there are In the United States Unit trusts are open-ended; the fund is equitably divided into units which vary in price in direct proportion to the variation in value of the fund's net asset value.
Not all fund have initial charges; if there are no such charges levied, the fund is "no-load" (US). These charges may represent profit for the fund manager or go back into the fund. Most open-end funds are actively managed, meaning that a portfolio manager picks the securities to buy, although index funds are now growing in popularity. Index funds are open-end funds that attempt to replicate an index, such as the S&P 500, and therefore do not allow the manager to actively choose securities to buy. The price per share, or NAV (net asset value), is calculated by dividing the fund's assets minus liabilities by the number of shares outstanding.
UITsunit trustsunit-investment trusts
In U.S. financial law, a unit investment trust (UIT) is an exchange-traded mutual fund offering a fixed (unmanaged) portfolio of securities having a definite life. Unlike open-end and closed-end investment companies, a UIT has no board of directors. A UIT is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and is classified as an investment company. UITs are assembled by a sponsor and sold through brokerage firms to investors. A UIT portfolio may contain one of several different types of securities. The two main types are stock (equity) trusts and bond (fixed-income) trusts.
List of finance topicsList of valuation topicsFinance
See also: #General concepts under Portfolio theory below. Active management. Efficient market hypothesis. Portfolio. Modern portfolio theory. Capital asset pricing model. Arbitrage pricing theory. Passive management. Index fund. Activist shareholder. Mutual fund. Open-end fund. Closed-end fund. List of mutual-fund families. Financial engineering. Long-Term Capital Management. Hedge fund. Hedge. 529 plan (college savings). Asset allocation. Asset location. Budget. Coverdell Education Savings Account (Coverdell ESAs, formerly known as Education IRAs). Credit and debt. Credit card. Debt consolidation. Mortgage loan. Continuous-repayment mortgage. Debit card. Direct deposit.
A good illustration of the risk of DLC arbitrage is the position in Royal Dutch Shell—which had a DLC structure until 2005—by the hedge fund Long-Term Capital Management (LTCM, see also the discussion below). Lowenstein (2000) describes that LTCM established an arbitrage position in Royal Dutch Shell in the summer of 1997, when Royal Dutch traded at an 8 to 10 percent premium. In total, $2.3 billion was invested, half of which was long in Shell and the other half was short in Royal Dutch (Lowenstein, p. 99). In the autumn of 1998, large defaults on Russian debt created significant losses for the hedge fund and LTCM had to unwind several positions.
Hedge fund. List of countries by gross fixed investment as percentage of GDP. List of economics topics. Market sentiment. Mortgage investment corporation. Rate of return. Socially responsible investing. Specialized investment fund. Technical analysis. Time value of money. Mutual Fund.
Securities and Exchange CommissionSECUnited States Securities and Exchange Commission
The Office of Compliance, Inspections and Examinations, which inspects broker-dealers, stock exchanges, credit rating agencies, registered investment companies, including both closed-end and open-end (mutual funds) investment companies, money funds. and Registered Investment Advisors.
credit marketcredit marketsdebt market
Investment companies allow individual investors the ability to participate in the bond markets through bond funds, closed-end funds and unit-investment trusts. In 2006 total bond fund net inflows increased 97% from $30.8 billion in 2005 to $60.8 billion in 2006. Exchange-traded funds (ETFs) are another alternative to trading or investing directly in a bond issue. These securities allow individual investors the ability to overcome large initial and incremental trading sizes. A number of bond indices exist for the purposes of managing portfolios and measuring performance, similar to the S&P 500 or Russell Indexes for stocks.
portfolio managementasset managementinvestment manager
Conventional assets under management of the global fund management industry increased by 10% in 2010, to $79.3 trillion. Pension assets accounted for $29.9 trillion of the total, with $24.7 trillion invested in mutual funds and $24.6 trillion in insurance funds. Together with alternative assets (sovereign wealth funds, hedge funds, private equity funds and exchange traded funds) and funds of wealthy individuals, assets of the global fund management industry totalled around $117 trillion. Growth in 2010 followed a 14% increase in the previous year and was due both to the recovery in equity markets during the year and an inflow of new funds.
assetstotal assetstangible asset
See also adjusting entries. 1) Investments in securities such as bonds, common stock, or long-term notes. 2) Investments in fixed assets not used in operations (e.g., land held for sale). 3) Investments in special funds (e.g. sinking funds or pension funds). Liability (financial accounting). Trading account assets.
equity marketstock marketsstock
The major part of this adjustment is that financial portfolios have gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found in other developed countries.
The issuance of such bonds can obviate, in the short term, direct taxation of citizens to finance development—though by securing such bonds with the full faith and credit of the government instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature. At the stock exchange, share prices rise and fall depending, largely, on economic forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. A recession, depression, or financial crisis could eventually lead to a stock market crash.
NYSENew YorkThe New York Stock Exchange
The earliest securities traded were mostly governmental securities such as War Bonds from the Revolutionary War and First Bank of the United States stock, although Bank of New York stock was a non-governmental security traded in the early days. The Bank of North America, along with the First Bank of the United States and the Bank of New York, were the first shares traded on the New York Stock Exchange. In 1817, the stockbrokers of New York, operating under the Buttonwood Agreement, instituted new reforms and reorganized.
CDOcollateralized debt obligationsCDOs
Investors also benefit from the diversification of the CDO portfolio, the expertise of the asset manager, and the credit support built into the transaction. Investors include banks and insurance companies as well as investment funds. Junior tranche investors achieve a leveraged, non-recourse investment in the underlying diversified collateral portfolio. Mezzanine notes and equity notes offer yields that are not available in most other fixed income securities. Investors include hedge funds, banks, and wealthy individuals. The underwriter of a CDO is typically an investment bank, and acts as the structurer and arranger.
private-equityequityPrivate equity investor
Hedge funds usually focus on short or medium term liquid securities which are more quickly convertible to cash, and they do not have direct control over the business or asset in which they are investing. Both private equity firms and hedge funds often specialize in specific types of investments and transactions. Private equity specialization is usually in specific industry sector asset management while hedge fund specialization is in industry sector risk capital management.
REITREITsreal estate investment trusts
Closed-end fund. EPRA index. Income trust. Investment trust. Mutual fund. Real estate investing. Real estate mortgage investment conduit (REMIC). Royalty trust. Stock market. Taxable REIT subsidiaries. List of U.S. REITs. NAREIT - National Association of Real Estate Investment Trusts. EPRA - European Public Real Estate Association.
investment firminvestment companiesinvestment
A major type of company not covered under the Investment Company Act is private investment companies, which are simply private companies that make investments in stocks or bonds, but are limited to under 250 investors and are not regulated by the SEC. These funds are often composed of very wealthy investors. Open-End Management Investment Companies (mutual funds). Face amount certificates companies: very rare. Management companies. Closed-End Management Investment Companies (closed-end funds). UITs (unit investment trusts): only issue redeemable units. Holding company. Investment trust. Private equity firm.
S&P 500S&P 500 ComponentS&P500
The easiest way to invest in the S&P 500 is to buy an index fund, either a mutual fund or an exchange-traded fund that replicates, before fees and expenses, the performance of the index by holding the same stocks as the index, in the same proportions. Exchange-traded funds (ETFs) that replicate the performance of the index are issued by The Vanguard Group (nyse arca: VOO), iShares (nyse arca: IVV), and State Street Corporation (nyse arca: SPY). These can be purchased via any stockbroker, sometimes commission-free. In addition, mutual funds that track the index are offered by several issuers including Fidelity Investments, T. Rowe Price, and Charles Schwab Corporation.
returnreturnsreturn on investment
Solving for T gives Mutual funds include capital gains as well as dividends in their return calculations. Since the market price of a mutual fund share is based on net asset value, a capital gain distribution is offset by an equal decrease in mutual fund share value/price.
Investment Company Act1940 Act1940 Act fund
Often referenced as the Investment Company Act, the 1940 Act or simply the '40 Act, it is the primary source of regulation for mutual funds and closed-end funds, an investment industry now in the many trillions of dollars. In addition, the '40 Act impacts the operations of hedge funds, private equity funds and even holding companies. Following the founding of the mutual fund in 1924, investors welcomed the innovation with open arms and invested in this new investment vehicle heavily. Five and a half years later, the Wall Street Crash of 1929 occurred in the stock market, followed shortly thereafter by the United States entry into the Great Depression.
fund administratorFund Administratorshedge fund administration
." * Fundamentals of Fund Administration: A Guide Calculation of the net asset value ("NAV"), including the calculation of the fund's income and expense accruals and the pricing of securities at current market value, is a core administrator task, because it is the price at which investors buy and sell shares in the fund. This involves trade capture; security valuation (for highly illiquid securities, considerations include whether counterparty valuations are available and/or appropriate and whether the securities can be valued by independent vendors); reconciliations; expense calculation; and NAV calculation and reporting.
general fundfundGeneral Funds
The label fund accounting has also been applied to investment accounting, portfolio accounting or securities accounting – all synonyms describing the process of accounting for a portfolio of investments such as securities, commodities and/or real estate held in an investment fund such as a mutual fund or hedge fund. Investment accounting, however, is a different system, unrelated to government and nonprofit fund accounting. Nonprofit organizations and government agencies have special requirements to show, in financial statements and reports, how money is spent, rather than how much profit was earned.
portfolio managementportfolio managersPortfolio Management Services (PMS)
In the case of mutual and exchange-traded funds (ETFs), there are two forms of portfolio management: passive and active. Passive management simply tracks a market index, commonly referred to as indexing or index investing. Active management involves a single manager, co-managers, or a team of managers who attempt to beat the market return by actively managing a fund's portfolio through investment decisions based on research and decisions on individual holdings. Closed-end funds are generally actively managed.