An Introduction to Fund Management

Preface xi About the author xiii 1 INTRODUCTION 1 Economic background 3 'Money makes the world go round' 4 'Money doesn't grow on trees' 5 Risks and rewards 6 Considerations 9 Markets 10 Investment instruments 11 'Neither a borrower nor a lender be' 12 2 ROLE OF FUNDS 13 Definitions 14 Investment businesses 15 Types of fund 16 Open-ended and closed-ended funds 23 Uses of funds 24 Associated packaging 25 Features and characteristics 25 Purpose, providers and players 25 Costs, benefits and comparisons 27 How to invest 31 Sales, marketing and disclosure 31 Categories, sectors and statistics 32 Investor protection 33 'Be it enacted by the Queen's most Excellent Majesty . . .' 33 Regulation in practice 42 Establishing a fund 47 Who wants one and why? 47 Options and approaches 48 Documents and authorisations 50 Launching the fund 51 3 PORTFOLIO MANAGEMENT 53 Strategies, styles, objectives and policies 54 Meeting investors' requirements 56 Risks to be managed 57 Hedging 59 'Please don't ask for credit . . .' 62 'You can't do that!' 63 Asset allocation versus stock selection 65 Choosing the investments 66 'First, pick your markets' 66 Portfolio weightings and profiles 68 Income and growth 69 Liquidity 70 Evaluating alternatives 71 Data, ratios and measurements 75 Dealing with events 78 News and announcements 79 New issues and underwriting 81 Rights, splits and scrip 83 Breaches of regulations 85 4 PORTFOLIO ADMINISTRATION 87 'Day by day in every way . . .' 88 Buying and selling 88 Delivery and settlement 89 Registration 89 Custody 91 Use of nominees 91 Stock exchange reporting 93 Records and regulations 93 Portfolio accounting and controls 94 Profits, income and taxation 96 Valuation and pricing 98 5 INVESTOR ADMINISTRATION 103 Agents, agreements and delegation 104 Investor transactions 105 Registration 108 Communicating with investors 109 6 PERFORMANCE MEASUREMENT 115 Sector comparisons - 'my fund is better than your fund' 116 Yields and returns 119 Time- and money-weighted returns 123 Indices and benchmarking 127 Volatility and risk adjustments 130 7 INVESTMENT MATHEMATICS 133 The arithmetic of indices 134 Standard deviation 137 Capital Asset Pricing Model 139 Glossary 147 List of abbreviations 155 Index 157