Sector funds are mutual funds which specialize in investing in a few sectors within the market. This allows an investor to focus in on one or two sectors for investing.
A fund of funds is a mutual fund which invests in a group of funds instead of picking specific stocks. These funds of funds have a great appeal to investors, because it gives the perception of greater diversification.
A mutual fund distributor is an entity responsible for marketing and selling the shares of a mutual fund company. These mutual fund distributors are also known as underwriters for the fund. The distributor is responsible for the following:
The transfer agent is a company responsible for maintaining the back office operations for a mutual fund. At times a mutual fund will elect to have their custodian bank provide this service, but there are companies that specialize in the functions of the transfer agent.
The speaker discusses the basics of mutual funds. These investment vehicles are a pool of money contributed by small investors which are managed by an investment professional, or portfolio manager. They allow investors to diversify their assets based on the charter established by the fund manager. For example, an
Index funds mimic the movement of the index in which it follows. The index can follow the respective market by using two methods: (1) buying every stock in the index and weighting it appropriately, and (2) buy a select group of stocks which best represent the sector.
The first index fund was created by John Bogle of the Vanguard Group. Bogle came up with the idea that it would be better to create a fund which mirrored the larger market, because this approach overtime had shown to perform better than stock picking. Bogle's fund later became known as the Vanguard 500 Index Fund, with over 100 billion in assets.
Value funds are investment vehicles comprised of undervalued stocks which pay high dividends. Value funds are often a place investors flight to during an economic downturn. Value funds saw a large increase in investment dollars as a result of the 2008 credit crisis.
Value fund managers have the arduous task of identifying undervalued stocks in the market. This process is based on fundamental analysis techniques, where stocks with low price to earnings ratios are tagged. These stocks are then reviewed to see which ones have the greatest growth potential as well as paying high dividends.
Growth funds consist of stocks which pay little or no dividend but provide an above average annual return to investors. These stocks within the funds are considered growth stocks because the money made annually is directly reinvested into research and development for new products and services. A common feature of growth stocks is a high price to earnings ratio, as the stocks value are largely based on expected earnings.