Mutual Fund Manager
Definition of the Fund Manager Position and Major Responsibilities
Securities and Exchange Commission defines a mutual fund as a company that pools money from many investors and invests the money in stocks, bonds, short-term money market instruments, other securities or assets, or some combination of these investments (U.S. Securities and Exchange Commission, 2008). Mutual funds are in turn operated by professional money managers, the fund managers, who invest the fund's capital in accordance with the funds' stated objectives, with the intent to produce capital gains and income for fund investors. This paper examines the role of the mutual fund manager.
Also known as an investment manager, the manager of a mutual fund is responsible for making all the investment decisions on behalf of the investors. The fund manager is tasked with implementing the fund's investment strategy and managing it portfolio trading activities. For these reasons, investors look for specific attributes in fund managers, including long-term consistent fund performance by a fund manager whose tenure with the fund matches its performance time period. Because the whole point of investing in a fund is to leave the investment management function to the professionals, the quality of the fund manager is one of the key factors for investors to consider when analyzing the investment quality of any particular fund (Investopedia, 2011a).
The mutual fund manager or management team earns money from commissions paid by investors, as well as from a percentage of profits made by the fund. The mutual fund manager's salary is dependent on the size of assets under his or her management and also the performance of investments that he or she initiates (Infotec-forums, 2011).
Given the amount of number crunching and analysis that a fund manager does, he or she should also be well versed in accounting, economics, and market research. A typical background for a fund manager would be to hold an undergraduate degree in economics with an MBA in finance, Certified Financial Analyst (CFA) credentials, and an apprenticeship under expert fund managers (Infotec-forums, 2011).
Along with other managers of the team that work in equivalent or subservient capacity, an investment manager must decide where to invest money. Some of the tasks which the mutual fund manager must carry out include market research, analysis of investment options, completing transactions, regularly monitoring the performance of existing investments, changing investing strategy according to market movement, and researching industrial sectors for investment opportunities (Infotec-forums, 2011).
Current Issues Impacting This Position
There has been some debate within the mutual fund community about how much impact the fund manager has on mutual fund performance. Studies have examined the relationship between mutual fund performance and fund managers. Baks (2003) determined that although manager performance for domestic diversified equity mutual funds was somewhat persistent over the course of their careers during the years studied, 1992 to 1999, that persistence did not necessarily imply that managers were important for determining a manager-fund combination's performance. Baks concluded that managers were less important than the mutual fund itself for performance, that "as a rule of thumb, the results in this study indicate that performance is mainly driven by the fund." He concludes that while mutual fund companies will undoubtedly continue to create star-mangers and advertise their past track-record, investors should focus on fund performance (Baks, 2003).
On the other hand, Russell (2011) argues that the evidence indicates that superior past professional performance among mutual fund managers tends not to persist and is not a predictor of future performance. He posits that if superior money managers actually exist, "then there should be dozens or hundreds of them who prove their superiority year after year." As it happens, "the scientific finance literature indicates this is not the case" (Russell, 2011).
Other concerns that affect fund managers have to do with regulatory constraints. By law funds are required to be "fully invested," which typically means that a mutual fund has only 2 -- 3% of its funds in cash at any one time. Mutual funds are prohibited from going into cash by more than 10%. This requirement means that mutual funds are severely limited in protecting their shareholders during a time of crash or a bear market (Skousen, 2006).
Still another topic of interest to fund managers is mutual fund fees and expenses. As the SEC (2010) points out, fees and expenses are an important consideration in selecting a mutual fund because these charges lower the investor's returns. The SEC suggests that investors comparison shop to review mutual funds fees and expenses, even providing a link to FINRA's Mutual Fund Expense Analyzer on its website. The SEC justifies the importance it places on researching...
The first aspect of successful mutual fund performance is to define a benchmark. Most funds have specific benchmarks that they use both internally and externally. Externally, the benchmarks are often used in promotional material, relating the performance of the fund to the performance of the Dow Jones Industrial Index or some other broad-based market indicator. Funds operating in specific sectors will benchmark against a sector index. The idea behind
98% to 43.72%. The average fund in this category has a mean total return of -0.64% and a standard deviation of 12.23 USAA Precious Metals and Minerals (USAGX), 2009). Another factor that one should look at when contemplating investing in a mutual fund is how much the fund has rewarded shareholders relative to the risk they have taken. One should look at a risk-adjusted measure of performance known as the Sharpe ratio. It
b) It is required that the "summary prospectus appear at the front of a fund's prospectus." (Security Exchange Commission (b)) c) Amendments have been made so that the Internet can be used to give important 'information' inclusive of "description of the fund's investment objectives and strategies, fees, risks, and performance." (Security Exchange Commission (b)) d) The Form N-1A, for mutual funds, should have the "key information at the front of its statutory
When looking at risk, the fund does have a beta higher than that of its large cap blended peers. The beta of the fund is roughly 1.23 as compared with a beta of 1.04 for many of its peers. This can be attributed to the large concentration in financial stocks which tend to have high betas relative to the market. This is to be expected as financial shares raise disproportionately
The correlation was expected to be relatively weak because even high value funds can experience exceptional performance. The weakest correlation (0.056), which is not a significant correlation at all, is with the Morningstar rating. This is somewhat surprising, because the Morningstar rating presumably takes the fund's historical returns into consideration. However, in any given year the fund may or may not perform according to its track record. This could result
Depository Institutions & Mutual Funds WSJ Article Review In a recent article entitled Advisers Face Barrage of Mutual-Fund Pitchmen, which was published by The Wall Street Journal on March 5th, 2013, financial reporter Corrie Driebusch describes the growing diversity in mutual fund varietals being offered by wealth management firms, as well as the deluge of telephone calls being used by mutual fund wholesalers to court potential brokers. The purpose of the
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