Investment companies

• Definition of investment co.:
• financial intermediary
• earn fees to pool + invest investors' funds
• giving the investor rights to a proportional share of the pooled fund performance
• Categories:
• Unmanaged co (<=> unit investment trust)
• hold a fixed portfolio of investments for the life of the co.
• ready to redeem the investor's shares at mar. value (similar to open-end fund)
• Managed co:
• Open-end funds operated by investment co. (MUTUAL FUNDs) offer redemption feature
• Close-end funds => close-end investment co. issues shares which are then traded in secondary stock mar.
• Valuing investment co. shares: NAV
• NAV = total assets - liabilities
• Share value:
• of un-managed & open-end investment co.: = NAV ('cos the co. ready to buys back the share at NAV)
• of close-end investment co.: determined in secondary mar => could be at a premium or discount to NAV
• Fund mgnt fee:
• Categories by no. of times charges:
• One-time charges
• Annual charges: operating expense
• mgnt fees => port. mgnt incentive fee
• administrative expenses
• continuing distribution fees: fees paid back to the party hat arranged the initial sale of the shares
• Categories by types of co.
• Unmanaged co: fee for the effort of setting up the fund.
• Managed co.:
• front-end load: sale commission charged at purchase
• back-end load: charge to exit
• Investment strategies: primarily invest in equity, characterized as
• style: focus on the underlying characteristics common to certain investment
• growth strategy may focus on high PE
• value strategy may focus on low PE
• sector: focus on a particular industry
• index: an index fund tracks an index
• global: includes sec. from around the world and might keep port. weights similar to world mar. capitalization weights.
• international fund: does NOT include securities from the home country
• global fund: includes...
• stable value: 
• invest in sec. such as 
• short-term fixed income instruments
• guaranteed investment contracts which are guaranteed by the issuing insurance co. 
• pay principal and a set rate of interest
• ETF (Exchange Trade Funds)
• index-based investment product: allow investors to buy/sell exposure to an index through a single financial instrument
• trade on stock mar like shares of any individual co. but ETF's shares are shares of a portfolio, not of an individual co.
• "in-kind" creation & redemption process used by open-end & UIT (to be continued...)
• Pros & cons of ETFs: in short, ETF is appropriate for specific investors whose strategy is short-term investing, frequent trading, small capital
• Pros
• ETFs dont cover all the market: only some segments (except US: various ETFs cover all the market).
• 
  
• Cons
• 
  
• Types of ETFs: ETFs can be grouped by investment category, based on their investment target
• Broad domestic market index: launch on the major local stock index
• Style: value vs growth or large - mid - small cap
• Sector or industry: ETFs track a sector index or invest in baskets of stocks from specific industry sectors.
• Eg.: REITs
• Foreign country or region (multiple countries)
• Fixed income
• Commodity
• Actively managed funds
• Risks
• market risk
• asset class/sector risk
• trading risk
• tracking error risk
• derivatives risk
• currency & country risk
• Application
• implementing asset allocation
• diversifying sector/industry exposure
• gaining exposure to international mar
• equitizing cash
• managing CF
• completing overall invest. strategy
• bridging transitions in fund mgnt
• managing port. risk
• applying relative value, long/short strategies
•