18_AltInvestments - - - - - Investment Companies: Unmanaged...

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- Investment Companies: Unmanaged investment companies hold a fixed portfolio of investments for the life of the company and usually stand ready to redeem the investor’s shares at market value. Managed investment companies are classified according to whether or not they stand ready to redeem investor shares. Open end investment companies (mutual funds) offer this redemption feature, but closed- end funds do not. Closed-end investment companies issue shares that are then traded in the secondary markets. o Value Investment Company Shares: The basis for valuing investment company shares is net asset value (NAV). NAV is the per-share value of the investment company’s assets minus its liabilities. Share value equals NAV for unmanaged and open-ended investment companies because they stand ready to redeem their shares at NAV. The price of closed-end investment companies is determined in the secondary markets in which they trade, and thus can be at a premium or discount to NAV. o Fund Management Fee: By setting an initial selling price above the NAV, the unmanaged companies charge a fee for the effort of setting up the fund. For managed funds, loads are simply sales commissions charged at purchase (front-end) as a percentage of investment. A redemption fee (back-end) is a charge to exit the fund. Annual charges are composed of operating expenses including management fee etc. The ratio of operating expenses to average assets is often referred to as the expense ratio. - Investment Strategies: A growth strategy may focus on high PE ratio while a value strategy may focus on low PE ratio. - Exchange Traded Funds: ETFs are funds that trade on a stock market like shares of any individual companies. ETFs have adopted three different legal structures: o Managed Investment Company: Sector SPDRs. iShares and WEBS use
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This note was uploaded on 02/25/2012 for the course HIST 3316 taught by Professor Bourgeios during the Fall '11 term at Texas State.

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18_AltInvestments - - - - - Investment Companies: Unmanaged...

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