Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship (Robert W. Kolb Series)

381 Pages·2009·4.57 MB·English

by  John A. Haslem

P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
MUTUAL
FUNDS
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
The Robert W. Kolb Series in Finance provides a comprehensive view of the field
of finance in all of its variety and complexity. The series is projected to include
approximately65volumescoveringallmajortopicsandspecializationsinfinance,
ranging from investments, to corporate finance, to financial institutions. Each
volume in the Kolb Series in Finance consists of new articles especially written
forthevolume.
EachKolbSeriesvolumeiseditedbyaspecialistinaparticularareaoffinance,who
develops the volume outline and commissions articles by the world’s experts in
thatparticularfieldoffinance.Eachvolumeincludesaneditor’sintroductionand
articles by experts that fully describe the current state of financial research and
practiceinaparticularareaoffinance.
Theessaysineachvolumeareintendedforpracticingfinanceprofessionals,grad-
uatestudents,andadvancedundergraduatestudents.Thegoalofeachvolumeis
toencapsulatethecurrentstateofknowledgeinaparticularareaoffinancesothat
thereadercanquicklyachieveamasteryofthatspecialareaoffinance.
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
MUTUAL
FUNDS
Portfolio Structures, Analysis,
Management, and Stewardship
John A. Haslem, Ph.D.
TheRobertW.KolbSeriesinFinance
JohnWiley&Sons,Inc.
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
Copyright(cid:1)c 2010byJohnWiley&Sons,Inc.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,or
transmittedinanyformorbyanymeans,electronic,mechanical,photocopying,
recording,scanning,orotherwise,exceptaspermittedunderSection107or108ofthe
1976UnitedStatesCopyrightAct,withouteitherthepriorwrittenpermissionofthe
Publisher,orauthorizationthroughpaymentoftheappropriateper-copyfeetothe
CopyrightClearanceCenter,Inc.,222RosewoodDrive,Danvers,MA01923,
[phone],fax[phone],oronthewebatwww.copyright.com.Requeststothe
PublisherforpermissionshouldbeaddressedtothePermissionsDepartment,John
Wiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030,[phone],
fax[phone],oronlineathttp://www.wiley.com/go/permissions.
LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveused
theirbesteffortsinpreparingthisbook,theymakenorepresentationsorwarrantieswith
respecttotheaccuracyorcompletenessofthecontentsofthisbookandspecifically
disclaimanyimpliedwarrantiesofmerchantabilityorfitnessforaparticularpurpose.No
warrantymaybecreatedorextendedbysalesrepresentativesorwrittensalesmaterials.
Theadviceandstrategiescontainedhereinmaynotbesuitableforyoursituation.You
shouldconsultwithaprofessionalwhereappropriate.Neitherthepublishernorauthor
shallbeliableforanylossofprofitoranyothercommercialdamages,includingbutnot
limitedtospecial,incidental,consequential,orotherdamages.
Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,
pleasecontactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,
outsidetheUnitedStatesat(317)572-3993orfax(317)572-4002.
Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthat
appearsinprintmaynotbeavailableinelectronicbooks.Formoreinformationabout
Wileyproducts,visitourwebsiteatwww.wiley.com.
LibraryofCongressCataloging-in-PublicationData:
Haslem,JohnA.
Mutualfunds:portfoliostructures,analysis,management,andstewardship/
JohnHaslem.
p.cm.–(RobertW.Kolbseries)
Includesindex.
ISBN978-0-470-49909-2(cloth)
1.Mutualfunds. 2.Investments. 3.Portfoliomanagement. I.Title.
HG4530.H38672009
332.63’27–dc22
2009013311
ISBN-13978-0-470-49909-2
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
Thisbookisdedicatedtotheexpertswhogenerouslycontributedtheirknowledge,
andtoJaneHaslemandourthreefamiliesandsevengrandchildren.
JOHNA.HASLEM
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
Contents
Introduction xvii
PART I Mutual Funds: Nature, Regulation,
and Costs 1
1 TheNatureofMutualFunds 3
ConradS.Ciccotello
AttributesoftheOpen-EndMutualFund 4
BoardofDirectors 4
Liquidity 5
All-EquityCapitalStructure 7
PortfolioDiversification 8
ProfessionalManagement 8
InvestorServices 9
MutualFundsandtheCompetitiveEnvironment 12
Employer-SponsoredRetirementPlans 12
After-TaxAccounts 13
References 14
AbouttheAuthor 15
2 MutualFundRegulationandIssues 17
ConradS.Ciccotello
HistoricalPerspective 18
RegulationofOpen-EndFunds 19
RecentRegulatoryIssuesinOpen-EndFunds 21
NAVPricingandTradingPolicies 22
FundPricingandthe(Late)TradingScandal 23
CurrentRegulatoryIssuesinFunds 24
BoardGovernance 24
Fees 26
PerformanceReporting 28
References 30
AbouttheAuthor 31
vii
P1:OTA/XYZ P2:ABC
fm JWBT141-Haslem September1,2009 9:17 PrinterName:Hamilton
viii Contents
3 TheEconomicsofMutualFunds 33
DavidM.Smith
SizeandStructureoftheMutualFundIndustry 33
MutualFundCreationandMortality 35
Regulation 36
ScaleEconomies:ExpensesandFees 36
ScaleDiseconomies:FundReturns 38
BenefitsofMutualFundInvestingtoFund
Shareholders 38
Diversification 38
ProfessionalPortfolioManagement 39
ReadyAccesstoAssetClassesandMarketSectors 39
DrawbacksofMutualFundInvesting 40
PersistentHighFeesinSomeFamilies 40
UnderperformanceRelativetoIndexFunds 40
TaxInefficiency 40
InadequateDisclosure 41
FinancialBarrierstoMutualFundInvestingand
Redemption 41
MutualFundGovernanceandAgencyProblems 43
FundManagerTournamentBehavior 45
FundFamilyMarketingandCross-Subsidization 45
Conclusions 46
References 47
AbouttheAuthor 49
4 MutualFundFeesandExpenses 51
DavidM.Smith
Loads 51
Expenses 54
ManagementFees 57
Rule12b-1Fees 58
“Other”ExpenseswithintheExpenseRatio 61
LoadversusExpenseRelation 61
DistributionChannel 62
ETFsandClosed-EndMutualFunds 62
Taxes 65
FeesandExpensesInternationally 65
ChargesNotIncludedintheExpenseRatio 66
PartitioningActivelyManagedMutualFundFeesBased
onAlphaandBetaSeparation 67
Conclusions 70
References 71
AbouttheAuthor 73