The Fund Industry: How Your Money Is Managed

Overview

Around the world, there are tens of thousands of mutual fundswith over $20 trillion in assets. The Fund Industry: How Your MoneyIs Managed gives you an inside look at how mutual fundswork—how they invest money, distribute their shares to thepublic, and provide service to fund shareholders—and why theyhave become the investment vehicle of choice for investors aroundthe world.

Written by two fund experts—Robert Pozen, Chairman Emeritusof MFS ...

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Overview

Around the world, there are tens of thousands of mutual fundswith over $20 trillion in assets. The Fund Industry: How Your MoneyIs Managed gives you an inside look at how mutual fundswork—how they invest money, distribute their shares to thepublic, and provide service to fund shareholders—and why theyhave become the investment vehicle of choice for investors aroundthe world.

Written by two fund experts—Robert Pozen, Chairman Emeritusof MFS Investment Management®, and Theresa Hamacher, Presidentof NICSA—The Fund Industry details:

  • The history and growth of mutual funds, as well as theiradvantages and disadvantages compared to alternative investmentvehicles, such as ETFs and hedge funds
  • How to evaluate funds, categorizing them by security type andinvestment objective and researching them using the prospectus,shareholder reports, and third-party reviews
  • How fund managers pick stocks and bonds, make trading decisions,and vote proxies
  • How mutual funds are sold through brokers, banks, insuranceagents, retirement plans, and fund supermarkets
  • The roles of the independent directors, transfer agents, andfund accountants
  • The opportunities and challenges of investing and gatheringassets internationally

The Fund Industry companion website offers readers additional,exclusive information, as well as a special section for teacherscontaining review and discussion questions, case studies, andsuggested readings.

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Editorial Reviews

From the Publisher
“I think most people will find The Fund Industry oneof the most informative books they’ve read in quite a while.… It shows that mutual fund investors know mighty littleabout where they’ve put their hard-earned money.”
Brenda Jubin, Seeking Alpha, February 2011

“We can even envision this book as required reading fornew employees of investment advisory fi rms or suggested readingfor directors new to the investment company industry.”
The Investor’s Guide to Closed-End Funds,April 2011 a Jubin, Seeking Alpha, February 2011

“ … a valuable overview of the operations of themutual funds industry.”
Pensions & Investments, April 2011

“… the book is more than worthwhile … itcertainly makes the recommended reading list.”
The New York Times, April 2011

Paul B. Brown
The authors are not writing here about how to invest in various funds—the personal finance component of this 525-page book makes up only a small fraction of the work. Instead, their focus, as the subtitle makes clear, is "how your money is managed." They explain the legal requirements governing funds; what fund managers actually do day to day, and the roles played by transfer agents and the like…It may not answer all of your questions about how to find the best mutual funds, but it certainly makes the recommended reading list.
—The New York Times
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Product Details

  • ISBN-13: 9780470634257
  • Publisher: Wiley
  • Publication date: 2/8/2011
  • Series: Wiley Finance Series, #596
  • Edition number: 1
  • Pages: 544
  • Sales rank: 1,275,324
  • Product dimensions: 6.20 (w) x 8.90 (h) x 1.60 (d)

Meet the Author

ROBERT POZEN is Chairman Emeritus of MFS InvestmentManagement®, as well as a Senior Lecturer at the HarvardBusiness School and a Senior Fellow at the Brookings Institute. Hewas previously vice chairman of Fidelity Investments; chairman ofthe SEC Advisory Committee on improving financial reporting; and amember of the Presidential Commission to Strengthen SocialSecurity. A prolific author of editorials in leading newspapers, in2009 he published the book Too Big to Save?: How to Fix the U.S.Financial System. Pozen graduated summa cum laude from HarvardCollege and earned a doctor of laws from the Yale Law School wherehe was an editor of the Yale Law Journal.

THERESA HAMACHER, CFA, is President of NICSA, theNational Investment Company Service Association, and the formerchief investment officer for Pioneer Investment Management USA,where she supervised a team of over fifty investment professionalsmanaging more than $15 billion in global equity and fixed incomeassets for mutual fund and institutional clients. Previously, shewas the chief investment officer for Prudential Mutual Funds. In1984, she ran the Prudential-Bache (Tax-Managed) Utility Fund, thetop-performing mutual fund in the United States. She is coauthor ofThe Pocket Idiot's Guide to Investing in Stocks. Hamacher is asumma cum laude graduate of Yale College and a Chartered FinancialAnalyst.

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Table of Contents

Foreword by Don Phillips ix

Preface xiii

Acknowledgments xvii

SECTION ONE An Investor's Guide to Mutual Funds1

CHAPTER 1 Investing through Mutual Funds 3

Advantages and Disadvantages of Mutual Funds 5

History and Growth 9

Regulators and Industry Associations 18

Chapter Summary 23

CHAPTER 2 How Mutual Funds Work 25

Buying and Selling Fund Shares 26

The Pass-Through Tax Status of Mutual Funds 29

A Virtual Corporation 31

Ethical Standards 39

Alternatives to Mutual Funds 43

Chapter Summary 49

CHAPTER 3 Researching Funds: The User Guides 51

Mutual Funds and Disclosure 51

The Summary Prospectus 56

Beyond the Summary Prospectus 63

Using the User Guides 69

Chapter Summary 71

CHAPTER 4 Comparing Mutual Funds 73

Delineating Your Own Investment Objectives 74

Evaluating Performance 77

The Taxonomy of Mutual Funds 83

Chapter Summary 99

SECTION TWO Mutual Fund Portfolio Management101

CHAPTER 5 Portfolio Management of Stock Funds 103

Stock Research 104

Putting It All Together: Managing a Stock Fund 117

Chapter Summary 130

CHAPTER 6 Portfolio Management of Bond Funds 133

Bond Fund Holdings 133

Putting It All Together: Managing a Bond Fund 145

Chapter Summary 153

APPENDIX TO CHAPTER 6 Bond Basics 155

Defining Characteristics of Bonds 156

Key Analytical Measures 160

Risks of Bond Investments 164

CHAPTER 7 Portfolio Management of Money Market Funds169

How—Exactly—the $1.00 NAV Works 170

Money Market Fund Holdings 175

Putting It All Together: Managing a Money Market Fund 181

Money Market Funds and the Financial System 184

Chapter Summary 187

CHAPTER 8 Implementing Portfolio Decisions: Buying andSelling Investments 189

The Importance of Trading 190

The Evolution of the U.S. Stock Markets 191

The Role of the Mutual Fund Trader 201

Trading in Bond Funds 210

Chapter Summary 212

CHAPTER 9 Mutual Funds as Institutional Investors 215

Mutual Funds as Stockholders and the Proxy Voting Process216

Proxy Voting by Mutual Funds 220

Activism and Mutual Funds 224

Mutual Funds and Social Change 232

Proxy Voting Outside the United States 234

Chapter Summary 236

SECTION THREE Selling Investment Funds 239

CHAPTER 10 Retail Sales 241

What Sells Mutual Funds? 241

The Intermediary Channel 243

The Direct Channel: No-Load Firms and Fund Supermarkets 260

Cross-Channel Trends 264

Chapter Summary 271

CHAPTER 11 Retirement Plans and Mutual Funds 273

The Tax Benefits of Qualified Retirement Plans 274

401(k) Plans 278

Individual Retirement Accounts 293

The Future of Retirement Planning in the United States 298

Chapter Summary 302

CHAPTER 12 The Competition from Exchange-Traded Funds andHedge Funds 305

Exchange-Traded Funds 305

Hedge Funds 319

Chapter Summary 333

SECTION FOUR Operations and Finance 335

CHAPTER 13 Customer Service 337

The Role of the Transfer Agent 337

Technology and Shareholder Servicing 349

Transfer Agents as an Industry 354

Chapter Summary 361

CHAPTER 14 Portfolio Recordkeeping and Valuation 363

A Day in the Life of the Fund Accountant 364

Valuation of Portfolio Holdings 370

Keeping Track of Portfolio Securities: The Custodian 376

A Critical Link: Investment Operations 379

Behind the Scenes: The Independent Auditor 384

Chapter Summary 388

CHAPTER 15 The Financial Dynamics of the Fund ManagementIndustry 391

Expenses for Fund Investors 392

Management Fee Revenue: The Debate 398

Mergers and Acquisitions Involving Fund Sponsors 408

Chapter Summary 416

SECTION FIVE The Internationalization of Mutual Funds419

CHAPTER 16 Cross-Border Investing 421

The Growth in Cross-Border Investing 421

Advantages and Risks of Investing Overseas 426

Operational Challenges of Investing Overseas 431

Putting It All Together: Managing a Global or

International Fund 435

Chapter Summary 442

CHAPTER 17 Cross-Border Asset Gathering 443

The Global Market for Investment Funds 444

Models for a Global Fund Business 450

The UCITS Model 456

European Pension Pooling 463

Chapter Summary 469

CHAPTER 18 The Market for Investment Funds: Beyond the UnitedStates and Europe 471

Asia 472

The Americas ex U.S. 487

Chapter Summary 495

Notes 497

About the Authors 515

Index 517

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