Investment Companies and Hedge Funds
In this chapter we will focus on:
Investment Funds, Money Market Mutual Funds and
Real Estate Investment Trusts (REITs).
Investment funds gather funds from savers for investment in capital and money market
instruments or investment in specialized assets, such as real estate. Most specialize in long-term
investments. They provide
investors with risk intermediation by investing in a diversified
portfolio of assets. They also provide denomination (investment commitment levels)
intermediation, investing in large blocks of securities and typically selling shares to consumers in
Closed-end Investment Companies or Funds (CEFs)-
# of shares outstanding; A
institution that sells stock, then diversifies investors’ risk by
many investments; such funds also provide professional management for
A CEF is a publicly traded investment company that initially raises funds from
investors through an IPO (Initial Public Offering) and uses the money to invest in
securities. Their shares are traded on an exchange.
Generally don't buy back shares from shareholder.
A shareholder who wants
additional shares buys them in the secondary market.
The price of a share is
determined by supply and demand.
Advantages to the investor:
professional investment management, diversification
with small investment, variable denominations (amounts invested).
Different Types of
Diversified Domestic Funds
- Though broadly diversified with U.S. equities,
these funds may emphasize a theme, such as:
growth funds, value funds,
market timing funds, small cap funds, blue chip funds, etc.
- Focus on sectors, such as: banking and financial stocks, media
related stocks, gold stocks, environmental stocks, health stocks,
Single Country Funds
- Focus on securities of a single country, such as India,
South Korea, Japan, etc.