Types of Funds•Funds•Collect funds from individuals and invest in a widerange of securities•Several types of funds:1. Managed Investment Companiesi. Open‐end funds (Mutual funds)•Shares outstanding change when new shares aresold or old shares are redeemed•Priced at Net Asset Value(NAV) =Market Value of Assets‐LiabilitiesShares Outstanding3Types of Fundsii. Closed‐end funds•No change in shares outstanding: If investorswant to sell, they must sell to other investors•Can be priced at Premium or Discount to NAV2. Real Estate Investment Trusts (REITs)•Invest in real estate or loans secured by real estate3. Hedge Funds•Similar to mutual funds but are structured as privatepartnerships•Open only to wealthy or institutional investors4
Portfolio Evaluation•Some funds earn higher returns•Two issues:1. Need to adjust for risk•High RiskHigh Return2. High returns could be due to luck as well•Luck or skill? An octopus correctly guessed theresults of the World Cup matches5Outline of Today’s LecturePerformance Evaluation Overview•Six Performance Measures to Adjust for Risk•Application•Luck or Skill?6
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