Mutual Funds and Hedge Funds Industry Research Fund Industry

What Mutual Fund is? A mutual fund is a company that combines, or pools, investors' money and purchases stocks or bonds. A mutual fund is a company that combines, or pools, investors' money and purchases stocks or bonds. provide advantages for investors that include diversification, expert stock and bond selection, low costs, and convenience. provide advantages for investors that include diversification, expert stock and bond selection, low costs, and convenience.

The Mechanics Investors become part-owners of the fund itself, and thereby the assets of the fund. Investors become part-owners of the fund itself, and thereby the assets of the fund. The fund invests its assets by buying stocks, bonds, or a combination of such securities. The fund invests its assets by buying stocks, bonds, or a combination of such securities. These stocks or bonds are often referred to as holdings, and all of a fund's holdings taken together are its portfolio. These stocks or bonds are often referred to as holdings, and all of a fund's holdings taken together are its portfolio.

The Benefits The advantages of mutual funds are diversification, professional management and convenience. The advantages of mutual funds are diversification, professional management and convenience. funds offer lower costs by virtue of their size; they may receive breaks on trading costs, and they certainly spread many internal costs over a large shareholder base, allowing for economies of scale funds offer lower costs by virtue of their size; they may receive breaks on trading costs, and they certainly spread many internal costs over a large shareholder base, allowing for economies of scale

The Benefit (continue) They don't demand large up- front investments. They don't demand large up- front investments. They're easy to buy and sell. They're easy to buy and sell. They're professionally managed. They're professionally managed.

Types of Mutual Funds Stock Funds Stock Funds Bond/Income Funds Bond/Income Funds Global/International Funds Global/International Funds Money Market Funds Money Market Funds Index Funds Index Funds

Stock Funds Stock funds are a diversified portfolio. Stock funds are a diversified portfolio. The investment objective of this class of funds is long-term capital growth with some income. The investment objective of this class of funds is long-term capital growth with some income. There are many different types of equity funds There are many different types of equity funds

Bond/Income Funds The purpose of Bond/Income Funds is to provide current income on a steady basis. The purpose of Bond/Income Funds is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. These terms denote funds that invest primarily in government and corporate debt.

Global/International Funds An international fund (or foreign fund) invests only outside home country. An international fund (or foreign fund) invests only outside home country. Global funds invest anywhere around the world, including home country. Global funds invest anywhere around the world, including home country. It tend be more volatile and have unique country or political risks It tend be more volatile and have unique country or political risks

Money Market Funds The money market consists of short-term debt instruments, mostly T-bills. The money market consists of short-term debt instruments, mostly T-bills. This is a safe place to keep money. A typical return is twice the amount would earn in a regular savings account This is a safe place to keep money. A typical return is twice the amount would earn in a regular savings account a little less than the average certificate of deposit (CD). a little less than the average certificate of deposit (CD).

Index Funds Index Funds This type of mutual fund replicates the performance of a broad market index such as the S&P 500 or DJIA. This type of mutual fund replicates the performance of a broad market index such as the S&P 500 or DJIA. An index fund merely replicates the market return and benefits investors in the form of low fees. An index fund merely replicates the market return and benefits investors in the form of low fees.

Example of Mutual Funds Fidelity Blue Chip Value Fund Fidelity Blue Chip Value Fund Invest in securities of well- known, established companies. Invest in securities of well- known, established companies. The Fund will seek out companies that are undervalued relative to other companies in the large-capitalization category within the U.S. market. The Fund will seek out companies that are undervalued relative to other companies in the large-capitalization category within the U.S. market.

Example of Mutual Funds (continue) Schroder MidCap Value Fund Schroder MidCap Value Fund The Fund normally invests at least 65% of its assets in equity securities of mid-cap companies. The Fund normally invests at least 65% of its assets in equity securities of mid-cap companies. Invests in a variety of equity securities, including common and preferred stocks, and warrants. Invests in a variety of equity securities, including common and preferred stocks, and warrants.

What Hedge Fund is? A hedge fund is a fund that can take both long and short positions, buy and sell undervalued securities. A hedge fund is a fund that can take both long and short positions, buy and sell undervalued securities. trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk.

The Mechanics A Hedge Fund is a pool of capital for leveraging an investment portfolio that uses a private partnership as its structural format. A Hedge Fund is a pool of capital for leveraging an investment portfolio that uses a private partnership as its structural format. This structural format is made up of a General Partner (investment manager), and Limited Partners (investors). This structural format is made up of a General Partner (investment manager), and Limited Partners (investors).

The Mechanics (Continue) The investment manager receives a fee for managing the fund, but only if it is productive. The investment manager receives a fee for managing the fund, but only if it is productive. The investment Manager may use any investment strategy or style he chooses, no matter how risky or "volatile", to manage the fund's assets for greater return. The investment Manager may use any investment strategy or style he chooses, no matter how risky or "volatile", to manage the fund's assets for greater return.

The Benefits Many hedge fund strategies have the ability to generate positive returns in both rising and falling equity and bond markets. Many hedge fund strategies have the ability to generate positive returns in both rising and falling equity and bond markets. Hedge funds have higher returns and lower overall risk. Hedge funds have higher returns and lower overall risk. Flexible in their investment options because it can use financial instruments beyond the reach of mutual funds Flexible in their investment options because it can use financial instruments beyond the reach of mutual funds

The End