Explain how mutual funds (delineate between closed-end and open-end mutual funds) and exchange traded funds (EFTs) work, and discuss the pros and cons of each investment vehicle. Use an internet search to determine the assets under management (AUM) of U.S. based mutual funds and U.S. ETFs.
Your initial posting, of at least 200 words,
Please write a detailed analysis
- Written paper pages
Detailed analysis as well
- Purpose: The purpose of this assignment is to utilize the material you have learned in the first two weeks to select an investment vehicle, specifically considering past performance and expenses associated with the investment.
- Requirements: Analyze a specific mutual fund and exchange traded funds (ETF). You will apply concepts from the readings and use mutual fund and ETF research tools such as Morningstar.
- Your assignment should be no more than 2 pages (double-spaced) in total, and the following should be included:
- Mutual Fund Analysis
- Choose a mutual fund in which to invest. Morningstar provides a table listing fund category performance, which is a great starting point. Select a fund category, and then select an individual mutual fund within that category. After selecting your mutual fund, do the following:
- Identify your fund and describe the fund’s investment style and asset allocation (i.e. U.S. equities, bonds, cash, etc).
- What are the assets under management (AUM) of your fund? What is the fund’s net asset value (NAV)?
- What has been the 1-yr and 10-yr (or historical) performance history of the fund?
- How has the fund’s performance compared to the S&P 500, and is the S&P 500 the appropriate benchmark for your fund?
- What are the expenses (operating expenses, loads, 12b-1 charges) associated with the fund?
- What average annual returns (prior to expenses) do you expect from this mutual fund over the next 10 years? Assume you invest $10,000, what will the value of your investment be at the end of 10 years? Now include expenses and calculate the value of your investment at the end of this 10-yr period.
- Exchange Traded Fund (ETF) Analysis
- Choose an ETF in which to invest. (If you can, choose an ETF with an investment style similar to your mutual fund in Part A.) Morningstar provides another great starting point with a screen that sorts various ETF investment styles. After selecting your ETF, respond to the following:
- Identify your ETF. Which investment style of ETF and class (i.e. broad market index, sector portfolio, etc.) did you choose?
- What is the total asset value of your ETF? What is the NAV of your ETF versus the most recent price of the ETF? If there is a difference, would you expect it to widen?
- What has been the 1-yr and 10-yr (or historical) performance history of your ETF?
- How has your ETF performed versus the S&P 500, and is the S&P 500 the appropriate benchmark for your ETF?
- What are the expenses associated with your ETF?
- What average annual returns (prior to expenses) do you expect from this ETF over the next 10 years? Assume you invest $10,000, what will the value of your investment be at the end of 10 years? Now include expenses and calculate the value of your investment at the end of this 10-yr period.
- Consider the advantages and disadvantages of both a mutual fund and ETF (in comparison to the other). After analyzing your selected mutual fund and ETF, draw a conclusion on which investment vehicle is most appealing to you. Explain your conclusion.
- Please read the rubric below before starting the assignment.