The Fund Industry: How Your Money is Managed

Praise for The Fund Industry, Second Edition

"This book provides an excellent overview of all aspects of the fund industry from portfolio management to marketing to regulation. It will be an invaluable tool for those working in the industry and a genuinely helpful guide for fund investors."
Mary Schapiro, Former Chairperson of the Securities and Exchange Commission

"This book is a must read for the millions of U.S. investors who own mutual funds. It clearly explains how your funds are managed and how your retirement accounts are administered."
Jack Brennan, Former CEO of Vanguard

"We′re using this book as a textbook for seasoned managers who want to develop a broader view of our industry, to great reviews from all! I wish that I had this book when I joined the fund industry. It clearly articulates how the various parties in the industry connect."
Etta Valdes, Vice President, American Funds Training and Development

"This book will greatly enhance your understanding of the fund industry. It describes how money is managed, how portfolios are constructed, and how valuations are established; provides tools to help you research and compare funds, looking at their performance, risk, and expenses; and discusses the growing importance of funds around the globe. It′s rare to find so much useful information in a single book."
Mohamed El–Erian, Former Co–CEO of PIMCO

"Everything you need to know about mutual funds, explained in clear and simple language a great jargon buster."
John Kay, Financial Times columnist and visiting professor, London School of Economics

Foreword

Preface to the Second Edition

Acknowledgments

SECTION One An Investor s Guide to Mutual Funds

Chapter 1: Investing through Mutual Funds

Advantages and Disadvantages of Mutual Funds

History and Growth

Regulators and Industry Associations

Chapter Summary

Chapter 2: How Mutual Funds Work

Buying and Selling Fund Shares

The Pass–Through Tax Status of Mutual Funds

A Virtual Corporation

Ethical Standards

Alternatives to Mutual Funds

Chapter Summary

Chapter 3: Researching Funds: The User Guides

Mutual Funds and Disclosure

The Summary Prospectus

Beyond the Summary Prospectus

Using the User Guides

Chapter Summary

Chapter 4: Comparing Mutual Funds

Delineating Your Own Investment Objectives

Evaluating Performance

The Taxonomy of Mutual Funds

Chapter Summary

Chapter 5: The Cost of Fund Ownership

The Focus on Fund Expenses

Distribution Expenses

Operating Expenses

The Management Fee

The Active vs. Passive Debate

Chapter Summary

SECTION Two Mutual Fund Portfolio Management

Chapter 6: Portfolio Management of Stock Funds

Stock Research

Putting It All Together: Managing a Stock Fund

Chapter Summary

Chapter 7: Portfolio Management of Bond Funds

Bond Fund Holdings

Putting It All Together: Managing a Bond Fund

Chapter Summary

Appendix to Chapter 7: Funds and Derivatives

Uses of Derivatives in Funds

Regulation of Derivatives in Funds

Chapter 8: Portfolio Management of Money Market Funds

Money Market Funds and the Financial System

Rule 2a–7

Money Market Fund Holdings

Putting It All Together: Managing a Money Market Fund

Chapter Summary

Chapter 9: Implementing Portfolio Decisions: Trading

The Importance of Trading

The U.S. Stock Markets

The Role of the Mutual Fund Trader

Trading in Bond Funds

Chapter Summary

Chapter 10: Mutual Funds as Stockholders

Mutual Funds and the Proxy Voting Process

Proxy Voting by Mutual Funds

Activism and Mutual Funds

Current Issues in Proxy Voting

Proxy Voting Outside the United States

Chapter Summary

SECTION Three Sales and Operations

Chapter 11: Retail Distribution

What Sells Mutual Funds?

Distribution Channels

Fund Platforms

Distribution Strategy

Chapter Summary

Chapter 12: Retirement Saving Through 401(k) Plans

The Benefits of Tax–Deferred Saving

History and Growth of 401(k) Plans

Contributions to 401(k) Plans

Investment Options in 401(k) Plans

Target Date Funds

Plan Administration

Chapter Summary

Chapter 13: Other Retirement Planning Options

Individual Retirement Accounts (IRAs)

Variable Annuities

The Future of Retirement Income in the United States

Chapter Summary

Chapter 14: Fund Operations

The Transfer Agent

Fund Accounting

Investment Operations

Chapter Summary

SECTION Four Beyond Traditional Funds

Chapter 15: Exchange–Traded Funds (ETFs)

A Brief History

Advantages and Disadvantages

Legal Structure

Operations

Portfolio Holdings

The Future of ETFs

Chapter Summary

Chapter 16: Hedge Funds

Traditional Hedge Funds

Traditional Hedge Fund Investors

The New Hedge Funds: Liquid Alternatives

Chapter Summary

SECTION Five The Internationalization of Mutual Funds

Chapter 17: Cross–Border Investing

The Growth in Cross–Border Investing

Advantages and Risks of Investing Overseas

Operational Challenges of Investing Overseas

Putting It All Together: Managing a Global or International Fund

Chapter Summary

Chapter 18: Cross–Border Asset Gathering

The Global Market for Investment Funds

Models for a Global Fund Business

The UCITS Model

Chapter Summary

Appendix to Chapter 18: Gathering Fund Assets Through Retirement Plans

Chile s Retirement System

Singapore s Retirement System

About the Companion Website

About the Authors

Index

ROBERT POZEN is Senior Lecturer at Harvard Business School and a Senior Fellow at the Brookings Institution. During his distinguished career, he has been active in business, government, and academia. From 1997 to 2001, he was President of Fidelity Management & Research Co. From 2004 to 2011, he was executive Chairman of MFS Investment Management, which now manages over $400 billion in assets.

THERESA HAMACHER, CFA, is president of NICSA, a trade association serving the global investment management community. She is the former CIO for Pioneer Investment Management USA in Boston, Massachusetts. Previously, she was the CIO for Prudential Mutual Funds in Newark, New Jersey.