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 this is that the fund should demonstrate a track record of success - otherwise the investor should simply purchase the Index, many of which are available as exchange-traded funds. Internally, fund benchmarks are more complex. For example, the risk level of the fund relative to the market is factored into the equation.
The next component of mutual fund performance is the ability to analyze securities. Most major fund companies employ experts who can make specific recommendations within a given sector. The success of a fund company depends in part on the strength of these analyses, as they form the basis for the investment decisions made by the fund's manager.
The investment decisions themselves are another key factor in fund performance. Part of successful fund management is knowing what to invest in, and part is knowing when to make the investment and when to divest. Fund managers with consistent track records of outperforming their respective benchmarks become stars within the industry, and savvy investors or investment advisors seek out products associated with those fund managers.
In that regard, retention of top fund management talent is another key success factor in the mutual fund industry. Investors understand that the past performance of a mutual fund is not a guarantee of future success, but they like to improve the odds by investing in funds whose managers have a consistent track record of success. It is imperative that firm's retain successful fund managers to ensure the continued marketability of that particular fund.
Another success factor in the mutual fund industry is marketing. Mutual funds are considered "public" investments in that they are available for sale to all investors. There are thousands of funds available, so competition is intense. There are multiple channels for distribution - either direct to the investor or through an investment advisor. Therefore mutual fund companies spend hundreds of millions of dollars marketing through these two channels.
Fund companies attempt to differentiate their offerings, on the basis investment philosophy, management fee structure (price) or a particularly strong track record of past performance. Some fund companies differentiate on the basis of their distribution channels. Some focus on direct sales to consumers, others deal almost exclusively through investment advisors, to whom they market extensively with dedicated sales representatives. Several fund companies are distributed exclusively through a single financial institution.
The leading mutual fund firm is Fidelity Investments with $1.57 trillion in assets under management in the U.S. And a further $280 billion under management outside the U.S. They offer a comprehensive package including advisory services, discount brokerage, estate management and life insurance.
Fidelity's success has been on the basis of its strong fund performance and its innovative marketing. Its Contrafund is the largest mutual fund in the U.S., and its Magellan fund is the second-largest (and former #1). Fidelity has actively targeted the baby boomer market, placing a strong focus on financial security and lifestyle imagery.
The second-largest fund manager in the U.S. is the Vanguard Group. They are a cost-oriented firm and a pioneer of index funds. Whereas many other funds were benchmarked against an index, Vanguard introduced the idea of buying a fund that mirrored the index itself. These funds are popular amongst conservative investors, who prefer the perceived stability of "doing what the market does" and passive investors, who do not believe it is possible to consistently beat the market on a risk-weighed basis. Founder John Bogle launched the idea when he realized that three-quarters of fund managers did not beat the S&P 500 Index.
Vanguard has a unique ownership structure that it lauds as a competitive advantage, in that it is owned by the funds themselves. This is because Vanguard is not expected to make a profit for itself, or that if it does this will be returned to the unitholders. Vanguard's fund are "no-load" and the company maintains a low cost structure, which means that they are competing on the basis of price.
The number three company is American Funds. American does not advertise to the public, but rests its success on the recommendation of investment advisors and their track record of performance.
The Hedge Fund Industry - Success Factors
The hedge fund industry is characterized...
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
Hedge funds are funds that can include short and long positions, trade options or bonds, purchase and sell undervalued securities, and use arbitrage and invest in nearly every opportunity in any market with predictable impressive gains at minimized risks. The basic and main objective of many hedge funds is to lessen volatility and risk while trying to maintain capital and provide positive returns within all market conditions. Hedge fund strategies
2.3: Theme I: This study's first theme defines hedge funds and presents a synopsis of their history. 2.4: Theme 2: Ways hedge funds compare to mutual funds are noted in this section, this study's second theme. 2.5: Theme 3: segment denotes techniques hedge funds utilise in investing. 2.6: Theme 4: A number of ways rising and falling markets impact hedge funds, this section's theme links to the thesis statement for this thesis/Capstone. 2.7: Analysis:
In the first-round survey, a majority of investors cited diversification as their main objective in allocating to hedge funds. Among the second-round interviewees who were planning to increase their target allocations by 10% or more, half named diversification as the motivating factor. Among the approximately one in ten who were planning to decrease allocations by at least 10%, concern with a lack of transparency was the most frequently cited
The investors have responsibility to invest based on the social needs. The retail investor, can for example is thus a person who buys socially responsible unit trusts or mutual funds. Actually the investment that is being touted as responsible investment is the work of socially beneficial institution like pension funds, and some charitable foundations. Normally the institutional investors do not enter the socially responsible investment scenario. Of late however
Unfortunately, determining which fund to go with for a retail investor is difficult, as there are many unscrupulous fund managers who might seek to take advantage of the fact that they are playing with other people's money and making (at least) the management fee. This can lead even scrupulous hedge fund managers to take unnecessary risks. The danger of hedge funds being mismanaged truly cannot be overstated. For example, Bernie
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