Manajemen Investasi

INVESTMENTS:Analysis and ManagementThird Canadian Edition

W. Sean ClearyCharles P. Jones

Prepared by Khalil TorabzadehUniversity of Lethbridge

Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3

Chapter 3Investments Funds


Distinguish between direct and indirect investing.Define open-end and closed-end investment funds.State the major types of mutual funds and give their features.Define exchange-traded funds (ETFs).

Learning ObjectivesCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Explain the transactions behind indirect investments.Understand how the performance of investment funds is measured.Discuss the opportunities for investing indirectly internationally.Learning ObjectivesCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Alternative to direct investment in or ownership of securitiesRefers to buying and selling the shares of intermediaries that hold a portfolio of securitiesShares are ownership interest in the underlying portfolioShareholders are entitled to portfolio incomeShareholders also pay expensesIndirect InvestingCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Figure 3-1Total Net Assets-Canadian Mutual Funds ($billions) 1989 to 2007



Financial company or trust fund that sells shares to the public and uses the proceeds to invest in marketable securitiesActs as conduit for distribution of dividends, interest, and realized gainsOffers the benefits of diversificationOffers professional managementInvestment FundCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Unit Investment Trusts

Closed End Investment Funds

Open End Investment Funds (Mutual Funds)Fund TypesCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Unit Investment TrustUnit Investment Trust: an unmanaged, fixed-income security portfolio put together by a sponsor and handled by an independent trusteePassive investments designed to be bought and held with capital preservation as a major objectiveCurrently represent a very small part of total investment company assets



Closed End Investment FundsClosed-end investment fund: No additional shares sold after initial public offeringShare prices determined and traded in a secondary marketPrice may not equal Net Asset Value of the sharesNet Asset Value (NAV): Total market value of the security portfolio divided by total shares



Open-end investment fund: Shares (units) continue to be sold to the public at NAV after initial sale that capitalizes the companyShares may be sold back (redeemed) to the company at NAV Capitalization constantly changesPopularly called mutual fundsOpen End Investment FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Money Market FundsObjectives of income and liquidityInvestments include short-term money market instrumentsAttractive to investors seeking low risk and high liquidity(a) Mortgage FundsInvestment terms may be 5 yearsRiskier than money market (more interest rate risk), but less risky than bond funds (shorter maturities)(b) Bond FundsObjectives of income and safetySubject to capital gains/losses due to interest rate riskTypes of Mutual FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


(a) Balanced FundsObjectives of safety, income and capital appreciationMin./max. rules apply for percentage invested in each asset class.(b) Asset Allocation FundsSimilar objectives as balanced funds, but typically not restricted by asset class percentage rulesEquity/Common Stock FundsObjective of capital gainsBulk of assets are in equity, but other assets held for liquidity, income and diversification purposesMay vary greatly in degree of risk and growth objectivesTypes of Mutual Funds (contd)Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Growth FundsTend to invest in small-cap stocks, i.e. small companies with growth potentialRiskier than equity funds (small firms pay no dividends)Specialty FundsObjective of superior capital gains (through minimal diversification)Tend to focus on one industry, market, or segmentInternational/Global Funds, for example, invest in foreign securities (and carry the risk of foreign exchange exposure)Types of Mutual Funds (contd)Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


(a) Real Estate FundsInvest in income-generating properties for long-term growth and capital gainsPortfolio valuation is based on infrequent external appraisalLess liquid than other funds investors may need to give advance notice when selling(b) Ethical FundsRelatively new type of fundInvestments are guided by moral criteria (e.g., not investing in tobacco-related firms)Types of Mutual Funds (contd)Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Index FundsObjective is to mirror the performance of a market index (e.g., S&P/TSX 60)Generally lower management fees than other funds.Dividend FundsObjective of tax reduction through favourable treatment of dividendInappropriate for RRSPs or RRIFsPrice changes are driven by interest rates and market trendsTypes of Mutual Funds (contd)Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Each type of fund has different risk-return characteristics. In general, they can be ranked from lowest risk/return to highest risk/return as follows:Money marketMortgageBondBalancedDividendEquityReal estateSpecialtyTypes of Mutual Funds (contd)Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Money market mutual funds invest in a portfolio of money market securitiesTreasury billsCommercial paperShort-term government bondsLow riskNot insured by the federal government Mutual Fund CategoriesCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Equity, bond, and income funds invest in portfolios of securities consistent with the objectives of the particular fundObjectives set by the funds boardDisclosure of objectives to investors through a prospectusMutual Fund CategoriesCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Most mutual fund assets are in equity funds rather than bond or income fundsMost equity funds are either:Value funds, which invest in undervalued stocks as determined by fundamental financial analysisGrowth funds, which invest in stocks of firms expected to show future rapid earnings growthEquity FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Figure 3-3 Mutual Funds Assets(October 2007)Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Closed-End FundsNAV > market price, selling at a discountNAV < market price, selling at a premiumIf the value of the portfolio remains unchanged, an investor can gain or lose if the discount narrows or widens over timeTrade at premiums and discounts across time, and variance is greatEquity FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Units of these trusts hold shares of firms in market indices in proportion to their weights in the indexDifferences from traditional mutual funds:Traded throughout the day on exchangesLower management fees (e.g., 0.08% to 0.25% versus 2.5% average for active equity funds versus 0.75% average for Index funds)Lower portfolio turnover reduces capital gains income and taxes payablePermit short-sellingMay be purchased on margin

Exchange-Traded Funds (ETFs)Cleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


I-60sRepresent units in the S&P/TSX 60 IndexTrade on the TSX (ticker: XIU).; units are valued at 1/10th the value of the S&P/TSX 60 Index; for example, if index is valued at 450, each unit is valued at $45Dividends are paid every quarter; MER is 0.17%DJ40sRepresent units in the Dow Jones Canada Index Participation Fund, which hold stocks that mimic those of the Dow 40 Index; MER is 0.08% Canadian-Based ETFsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


TD S&P/TSX Index FundThe S&P/TSX Composite Index is the underlying index; MER is 0.25% There are now a growing number of small-cap, mid-cap, industry-based, style-based, and bond ETFs availableThere are now a growing number of small-cap, mid-cap, industry-based, style-based, and bond ETFs availableCanadian-Based ETFsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


ETFsTrade all day on exchanges, can be bought on margin, and can be shortedCurrently passive in natureCan be traded at discount or premiums.Offer an important advantage over funds with regard to flexibility on taxesMutual FundsBought and sold at the end of the trading day when the NAV is calculatedMost are actively managedTrade at NAVMutual fund mangers may have to sell shares to pay those who want to leave the fund, thereby generating capital gains Differences between ETFs and Mutual FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Segregated fundsProvide death benefitsMust guarantee a minimum percentage (75% is required, 100% is usually offered) of investors payments will be returned at fund maturity (or at death of owner)Structured to prevent fund assets from being seized by creditors if investor declares bankruptcyUpon owners death, assets may be transferred to beneficiaries without being subject to probate feesOther FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Labour Sponsored Venture Capital Corporations (LSVCCs)No 10% maximum ownership restrictionRestrictions on transferability and redemptionValuation may not be based exclusively on market pricesTax advantages federal & provincial tax credits offered

Other FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Reported on a regular basis (usually daily) in the popular pressMeasured over a given time period as a percentage of initial investmentTotal returns include reinvested dividends and capital gainsAverage annual return reflects the mean compound growth rate of investment over a given time periodMutual Funds PerformanceCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Investors relate the performance to some benchmark to judge relative performanceAn important issue is expenses: funds with low MERs provide better returns in the long runMutual fund ratings: best known rating system is provided by MorningstarMutual Funds PerformanceCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Some mutual funds specialize in international securitiesCanadian investors can participate in emerging market economiesInternational diversificationInternational funds or global funds emphasize international stocksSingle-country funds concentrate assetsActively or passively managedInternational FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


Mutual fund supermarketsVarious mutual fund families can be purchased through a single sourceBrokerage account may provide accessSupermarket managers earn feeOn-line investment servicesInternet used to provide mutual fund information and to make transactionsHedge FundsUnregulated companies that seek to exploit various market opportunities.New Directions in FundsCleary Jones/Investments: Analysis and Management, 3rd Canadian Edition, Chapter 3


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