How to Create and Manage a Mutual Fund or Exchange-Traded Fund: A Professional's Guide

370 Pages·2008·1.76 MB·English

by  Melinda Gerber

How to Create
and Manage
a Mutual Fund or
Exchange-Traded
Fund
A Professional’s Guide
MELINDA GERBER
John Wiley & Sons, Inc.
How to Create
and Manage
a Mutual Fund or
Exchange-Traded
Fund
A Professional’s Guide
MELINDA GERBER
John Wiley & Sons, Inc.
Copyright ⃝c 2008 by Melinda Gerber. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Gerber, Melinda.
How to create and manage a mutual fund or exchange-traded fund : a
professional’s guide / Melinda Gerber.
p. cm. — (Wiley finance series)
Includes bibliographical references and index.
ISBN-13: 978-0-470-12055-2 (cloth)
1. Mutual funds—United States—Management. 2. Exchange traded
funds—United States—Management. 3. Portfolio management—United States.
I. Title.
HG4930.G465 2008
′
332.63 27068—dc22
2007050862
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
To my parents, Michael Edward and Debra Deitch, who
always expected me to do my best and to learn something
while doing it.
To my husband, Nicholas Gerber, whose support (and
contacts) made the process of creating this book a whole lot
easier.
To the master of truthiness, illuminator of the enlightened
path, and cultural icon, Dr. Stephen T. Colbert, DFA, whose
standard for excellence inspires a nation.
Contents
Preface vii
Acknowledgments xi
About the Author xv
PART ONE
Create and Manage a Mutual Fund
CHAPTER 1
Why the World Needs Another Mutual Fund 3
CHAPTER 2
Money, Product Differentiation, and Distribution 13
CHAPTER 3
Price and Customer Service 48
CHAPTER 4
Spreading the Word with Promotion and Publicity 89
CHAPTER 5
Building Your Mutual Fund Team 117
CHAPTER 6
The Steps to Start a Mutual Fund 156
PART TWO
Create and Manage an Exchange-Traded Fund
CHAPTER 7
ETFs: The Mutual Fund’s Next Evolution 221
v
vi CONTENTS
CHAPTER 8
Building Your Exchange-Traded Fund Team 236
CHAPTER 9
The Steps to Start an Exchange-Traded Fund 251
APPENDIX A
What to Expect in Your First Year 310
APPENDIX B
Selling Your Business 315
APPENDIX C
Useful Web Sites, Phone Numbers, and Additional Readings 322
APPENDIX D
List of Service Provider Questions 330
Afterword 340
Notes 341
Index 343
Preface
utual Funds are a gigantic business. At the end of 2006, there were
M 8,726 open-end funds with $10.4 trillion in assets under management.
These assets represent 96 million individual investors1 who purchase mutual
funds through their IRAs, company’s 401(k), investment intermediaries, and
directly from the fund company.
While mutual funds are the dominant investment vehicle, exchange-
traded funds (ETFs) are the new and rapidly growing kid on the block. As
of the end of 2006, there were 343 ETFs (over 400 new funds were expected
out for 2007) with $406.81 billion in assets under management. About 20
years ago, money markets were this size ($428 billion in 1989) and that’s
now a $2.4 trillion business. But growth in this industry has happened faster
(37.3 percent each year for the past five years versus money market’s 13.2
percent for the comparable years 1984–1989).
Managing either is a great business. There are no accounts receivable,
write-offs, bad debt, inventory, or heavy lifting. Your fee is built into your
fund’s NAV, so you do not have to bill anyone to get paid. Also, through
asset appreciation, revenues may increase even without any new sales. But
how to get either one started has been knowledge that only a few in the
industry possessed—until now.
How to Create and Manage a Mutual Fund or Exchange-Traded
Fund harnesses the knowledge of 100-plus industry professionals in an
easy-to-follow step-by-step reference guide format. This book combines
What to Expect when starting with the How to Start.
I imagine the most popular chapters will be Chapters 6 and 9. These
two chapters walk the reader through the 29 steps to start a mutual fund
and the 36 steps for an ETF. Each step consists of four parts:
1. You Will Need lists items required for the step.
2. Time to Complete states the days, weeks, months, or in some cases,
years, generally needed to complete the step.
3. Purpose describes why the step is a necessary part of starting a fund.
4. Process depicts the actions you must take to complete the step.
Costs are covered in detail for mutual funds and spoken of globally for
ETFs.
vii