ADMS 1010 Lecture Notes - Mutual Fund, Nightly Business Report, Mutual Fund Fees And Expenses

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brownwoodchuck850

12 Jun 2014

School

York University

Department

Administrative Studies

Course

ADMS 1010

Professor

All

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Document Summary

Daily trading activity conducted by the fund"s management team on the investors behalf as they seek to grow the market value of the fund. > actively managed mutual funds have a portfolio manager: why is a good manager crucial, it"s the fund manager"s ability to select winning stocks that impact the profitability of the mutual fund. The goal is to beat the average return of the market. Fund managers follow a defined strategy such as selecting companies that are growing rapidly because of proprietary products or services. New selections are added for an amount no more than 1% of the portfolio"s value. The long term gives you a better perspective of how the fund is doing, regardless of years where there might be spike performers. You should also track the tenure of the fund manager. If the same fund manager has been on a fund for 3-5 years then assess the fund"s performance for that period of time.

Related Questions

Question 11

Advantages of mutual funds include

	A.	professional management.
	B.	all of these.
	C.	liquidity.
	D.	diversification.

Question 12

Which of the following types of investment companies operates much like an index fund?

	A.	exchange-traded fund
	B.	unit investment trust
	C.	closed-end fund
	D.	REIT

Question 13

A common stock fund that invests in only one industry is called a(n) ____ fund.

	A.	maximum capital gains
	B.	growth and income
	C.	index
	D.	sector

Question 14

Mutual funds that charge a load do so to compensate

	A.	fund managers.
	B.	brokers.
	C.	shareholders.
	D.	the SEC.

Question 15

Your first task in selecting a mutual fund is to

	A.	review your investment policy.
	B.	locate sources of comparative performance data.
	C.	eliminate funds inappropriate for your investment goals.
	D.	screen and compare funds that meet your investment criteria.

Question 16

Taxes on annual earnings from mutual funds can be avoided

	A.	while those amounts are kept in an IRS-qualified retirement account.
	B.	as long as the mutual shares are not sold.
	C.	while those amounts are kept in an IRS-qualified retirement account and if those earnings are interest from municipal bonds.
	D.	if those earnings are interest from municipal bonds.

Question 17

Mutual funds permit automatic income reinvestment of

	A.	ordinary income dividend distribution.
	B.	none of these.
	C.	both ordinary income dividend distributions and capital gains distributions.
	D.	capital gains distribution.

Question 18

The type of mutual fund that is not actively managed is called a(n) ____ fund.

	A.	emerging market
	B.	money market
	C.	index
	D.	sector

Question 19

A mutual fund that does not assess a sales charge at the time of the investment purchase is called a ____ fund.

	A.	back-end load
	B.	front-end load
	C.	low-load
	D.	no-load

Question 20

Open-end mutual funds

	A.	make up about 75 percent of all mutual funds.
	B.	are sold only through brokers.
	C.	are sold at their current net asset value.
	D.	are sold to other investors on a secondary market.

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Life Situation Financial Date

Pam 43 Monthly income $4,900

Josh 45 Assets $262,700

Children ages 16, 14, and 11 Living expenses $4,450

Liabilities $84,600

Emergency fund $5,000

In recent years, the Brocks have made extensive use of mutual funds in their investment portfolio. However, they are concerned that their selection of the funds may not be coordinated. With over 9,200 different mutual funds, available this financial marketplace is confusing. The Brocks start the evaluation process by connecting various types of mutual funds to their investment goals. Next, they assess the past performance and management of the funds. Finally, they talk with various financial advisers and other investors to gather additional information.

1. How might Pam and Josh use mutual funds for various investments goals.

2. What types of mutual funds might be considered by the Brocks for their investment portfolio?

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6. The Santa Fe Mutual Automobile Insurance Company has the following financial statements. 2016 2015

Net Premiums Written 48,612 47,398

-------------------------------------------------------------------------------

Income Statement ($ mils.)

Premiums Earned 37,094 36,297

Loss Expenses 25,379 23,771

Operating Expenses 15,921 15,484

Total Policy Expenses 41,300 39,255

Net Underwriting Gain/Loss (4,206) (2,958)

Net Investment Income 5,340 3,512

Operating Income before taxes 1134 554

Dividends to Policyholders 0 0

Income Tax Recovered (Plus) 1,003 492

Net Income $2,137 $1,046

Ave Investment Yield 6.29% 3.83%

Balance Sheet (mils.) 2016 2015

Assets

Cash & ST Investments 1,345 1,397

Bonds 41,766 43,834

Common & Preferred Stock 43,120 47,863

Equity in Insurance Subsidiaries 34,842 31,529

Other Assets 17,422 14,175

Total Assets $138,495 $138,798

Liabilities

Claims & Claim Expenses 28,566 28,534

Unearned Premiums 11,518 11,101

Other Liabilities 15,780 19,568

Total Liabilities 55,864 59,203

Equity Accounts 82,631 79,595

Total Liabs. & Equity 138,495 138,798

6a. Calculate and evaluate the Net Underwriting Margin (NUM); Loss Ratio

Expense Ratio; Combined Ratio; and Overall Profitability Ratio for each year

using the information in the income statement above. Also calculate the firmâs OPM, OROA, ROA, ROE, and equity multiplier (EM).

Recall NUM = (Premiums Earned â Total Policy Expenses) / Total Assets

NUM 2016 __________ NUM 2015 ______________

Recall: expense ratio = (operating expenses/net premiums written) and loss ratio = (loss expenses/premium earned), and combined ratio = (loss ratio + expense ratio), and overall profitability ratio = {[100% - Combined Ratio%] + (Investment Yield% } for the firm each year) Also calculate asset turnover (revenues/total assets), net profit margin [net income/revenues], OROA (operating income/total assets), return on assets (net income/total assets) and return on equity (net income/equity accounts) & equity multiplier (total assets / equity).

2016 2015

Expense ratio

Loss ratio

Combined ratio

Average Investment Yield

Overall Profitability

Dupont Analysis:

Asset Turnover

Net Profit Margin

OROA

ROA

ROE

Equity Multiplier (EM)

6b. Analyze the trends in all of the ratios, and the other financial information provided. What do they reveal for trends over time including trends as well on the firmâs balance sheet? What areas of strength & weakness are revealed? What advice for improvement would you give?

Part 5: Module 7: Mutual Funds & Security Firms (see Module 7 lecture notes, pp. 10 to 12)

7. a. Briefly discuss different types of mutual funds that mutual fund companies offer including: (1) index funds, (2) actively managed diversified funds; (3) mutual funds with a diversified allocation; (4) sector investing; (5) style investing including different types of style investing (value, growth, blend, aggressive growth); (6) hybrid asset allocation or balanced funds; (7) target date funds; (8) Socially Responsible Mutual funds (often called impact funds).; and (9) Multi-alternative Strategy Funds and Commodity Funds.

b. Why are index funds cheaper than actively managed funds?

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ADMS 1010 Lecture Notes - Mutual Fund, Nightly Business Report, Mutual Fund Fees And Expenses

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