Professional Documents
Culture Documents
• Exchange-Traded Funds
• Exchange-traded fund (ETF): a type of open-end
fund that trades as a listed security on one of the stock
exchanges.
– combines some of the operating characteristics of an
open-end fund with some of the trading characteristics of
a closed-end fund.
– Created when a portfolio of securities is purchased and
placed in a trust, and then shares are issued that
represent claims against the trust.
– Investors can buy or sell their shares at any time during
trading hours.
– Low management expenses due to limited trading by
investment advisor.
– Low turnover helps avoid taxes until ETF is sold.
• Measuring Performance
– Sources of Return
• Dividend income: derived from the dividend and
interest income earned on the security holdings of the
mutual fund.
• Capital gains distributions: payments derived from
the capital gains actually earned by the fund; apply only
to realized capital gains.
• Unrealized capital gain (paper profits): Change in
the price (or NAV) of fund; Capital gain that has not
been realized since fund’s holding have not been sold.
– For Closed-End companies, changes in the price discounts
or premiums are important as well.
• Measuring Performance
– Measures of Return
• Returns include distributions of dividends, distributions
of capital gains, or NAV appreciation
• Return for specific holding period
• Best for one year returns since does not use present
value
• Measuring Performance
– The Matter of Risk
• Market risk
– Because mutual funds are so well diversified, they tend to
perform very much like the market, or segment of the
market that the fund targets.
– Be aware of the effect the general market has on the
investment performance of a mutual fund.
• Management practices
– Conservatively managed funds tend to have less risk of
loss of capital and more stability in the net asset value
than aggressively managed funds.