The Fund Industry: How Your Money is Managed PDF
Preview The Fund Industry: How Your Money is Managed
The Fund Industry Founded in 1807, John Wiley & Sons is the oldest independent publish- ing company in the United States. With offices in North America, Europe, Australia,andAsia,Wileyisgloballycommittedtodevelopingandmarket- ingprintandelectronicproductsandservicesforourcustomers’professional andpersonalknowledgeandunderstanding. TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance and investment professionals as well as sophisticated individual investors andtheirfinancialadvisors.Booktopicsrangefromportfoliomanagement toe-commerce,riskmanagement,financialengineering,valuationandfinan- cialinstrumentanalysis,aswellasmuchmore. Foralistofavailabletitles,visitourWebsiteatwww.WileyFinance.com. The Fund Industry How Your Money Is Managed Second Edition ROBERT POZEN AND THERESA HAMACHER Foreword by Robert J. Shiller Coverimage:©iStockphoto.com/traffic_analyzer Coverdesign:Wiley Copyright©2015byRobertPozenandTheresaHamacher.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. TheFirsteditionofTheFundIndustrywaspublishedbyJohnWiley&Sons,Inc.,in2011. PublishedsimultaneouslyinCanada. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or otherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyright Act,withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthrough paymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222 RosewoodDrive,Danvers,MA01923,(978)750–8400,fax(978)646–8600,orontheWeb atwww.copyright.com.RequeststothePublisherforpermissionshouldbeaddressedtothe PermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030, (201)748–6011,fax(201)748–6008,oronlineathttp://www.wiley.com/go/permissions. 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Wileypublishesinavarietyofprintandelectronicformatsandbyprint-on-demand.Some materialincludedwithstandardprintversionsofthisbookmaynotbeincludedine-booksor inprint-on-demand.IfthisbookreferstomediasuchasaCDorDVDthatisnotincludedin theversionyoupurchased,youmaydownloadthismaterialathttp://booksupport.wiley.com. FormoreinformationaboutWileyproducts,visitwww.wiley.com. LibraryofCongressCataloging-in-PublicationData Pozen,RobertC. Thefundindustry:howyourmoneyismanaged/RobertPozenandTheresaHamacher.– 2ndEdition. pagescm.–(Wileyfinanceseries) Includesindex. ISBN978-1-118-92994-0(cloth)–ISBN978-1-118-92995-7(ePub)– ISBN978-1-118-92996-4(ePDF)1.Mutualfunds–UnitedStates.2.Mutualfunds. I.Hamacher,Theresa.II.Title. HG4930.P632015 332.63′27–dc23 2014031897 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 Contents Foreword RobertJ.Shiller xi PrefacetotheSecondEdition xiii Acknowledgments xvii SECTIONONE AnInvestor’sGuidetoMutualFunds CHAPTER1 InvestingthroughMutualFunds 3 AdvantagesandDisadvantagesofMutualFunds 4 HistoryandGrowth 8 RegulatorsandIndustryAssociations 16 ChapterSummary 22 Notes 23 CHAPTER2 HowMutualFundsWork 27 BuyingandSellingFundShares 28 ThePass-ThroughTaxStatusofMutualFunds 31 AVirtualCorporation 34 EthicalStandards 41 AlternativestoMutualFunds 46 ChapterSummary 52 Notes 53 CHAPTER3 ResearchingFunds:TheUserGuides 57 MutualFundsandDisclosure 57 TheSummaryProspectus 62 v vi CONTENTS BeyondtheSummaryProspectus 69 UsingtheUserGuides 75 ChapterSummary 76 Notes 77 CHAPTER4 ComparingMutualFunds 79 DelineatingYourOwnInvestmentObjectives 80 EvaluatingPerformance 83 TheTaxonomyofMutualFunds 88 ChapterSummary 101 Notes 102 CHAPTER5 TheCostofFundOwnership 105 TheFocusonFundExpenses 105 DistributionExpenses 109 OperatingExpenses 117 TheManagementFee 119 TheActiveversusPassiveDebate 128 ChapterSummary 133 Notes 134 SECTIONTWO MutualFundPortfolioManagement CHAPTER6 PortfolioManagementofStockFunds 139 StockResearch 140 PuttingItAllTogether:ManagingaStockFund 151 ChapterSummary 164 Notes 165 CHAPTER7 PortfolioManagementofBondFunds 169 BondFundHoldings 169 PuttingItAllTogether:ManagingaBondFund 181 ChapterSummary 187 Notes 188 CONTENTS vii APPENDIXTOCHAPTER7 FundsandDerivatives 191 UsesofDerivativesinFunds 192 RegulationofDerivativesinFunds 194 Notes 197 CHAPTER8 PortfolioManagementofMoneyMarketFunds 199 MoneyMarketFundsandtheFinancialSystem 200 Rule2a-7 202 MoneyMarketFundHoldings 210 PuttingItAllTogether:ManagingaMoneyMarketFund 214 ChapterSummary 217 Notes 218 CHAPTER9 ImplementingPortfolioDecisions:Trading 223 TheImportanceofTrading 224 TheU.S.StockMarkets 225 TheRoleoftheMutualFundTrader 236 TradinginBondFunds 243 ChapterSummary 245 Notes 246 CHAPTER10 MutualFundsasStockholders 249 MutualFundsandtheProxyVotingProcess 249 ProxyVotingbyMutualFunds 253 ActivismandMutualFunds 258 CurrentIssuesinProxyVoting 264 ProxyVotingOutsidetheUnitedStates 266 ChapterSummary 268 Notes 269 SECTIONTHREE SalesandOperations CHAPTER11 RetailDistribution 275 WhatSellsMutualFunds? 276 DistributionChannels 277 viii CONTENTS FundPlatforms 284 DistributionStrategy 290 ChapterSummary 295 Notes 296 CHAPTER12 RetirementSavingthrough401(k)Plans 301 TheBenefitsofTax-DeferredSaving 302 HistoryandGrowthof401(k)Plans 304 Contributionsto401(k)Plans 310 InvestmentOptionsin401(k)Plans 312 TargetDateFunds 316 PlanAdministration 319 ChapterSummary 320 Notes 321 CHAPTER13 OtherRetirementPlanningOptions 325 IndividualRetirementAccounts 326 VariableAnnuities 332 TheFutureofRetirementIncomeintheUnitedStates 334 ChapterSummary 339 Notes 339 CHAPTER14 FundOperations 343 TheTransferAgent 343 FundAccounting 355 InvestmentOperations 366 ChapterSummary 370 Notes 372 SECTIONFOUR BeyondTraditionalFunds CHAPTER15 Exchange-TradedFunds 377 ABriefHistory 377 AdvantagesandDisadvantages 380 LegalStructure 381
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