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Investor Satisfaction Case A Business Report

2177 words - 9 pages

Investor Satisfaction Case:
A Business Report


Michael Bouchey
Applied Managerial Statistics JAN11 Sec K
Professor: Randall Hill

TO: John Doe
DATE: 16 FEB, 2011

As requested, here are my findings on the investor satisfaction report as collated by our analysis department. Our investment brokerage firm is advised to follow up on the results to improve brokerage performance based on type of investment product purchased.

100 clients were randomly selected and asked a series of questions, the criteria being they must have purchased shares in any one of the funds. Investment counselors personally ask the client to rate their ...view middle of the document...

Mack, 2007).

Regardless of whether a mutual fund is passively or actively managed, most funds have only one class of stock that shares equally in all the investment income and capital gains of the fund. However, some mutual funds have several classes of stockholders. For instance, dual funds have one class of shareholders with a claim on the fund's investment income (dividends and interest payments) while another class of shareholders has a claim on the capital gains of the fund.

More recently, a new type of mutual fund has been developed whereby one class of preferred shareholders has a prior claim on the interest income of the fund up to a specified amount that varies with a specified money market interest rate, while the common shareholders of the mutual fund have a claim on all remaining investment income and capital gains (Deliva & Olson, 2008). This latter capital structure is especially useful for municipal bond funds, as it gives the preferred shareholders a fairly secure money market interest rate that exceeds high-grade municipal money market rates, while allowing the common shareholders of the fund to obtain a leveraged investment in municipal bonds by essentially "borrowing" (Blake, 2005) at a low tax-advantaged rate (because municipal securities are exempt from federal tax, they tend to have negative Oj terms with yields below the risk-free Treasury rate).


There has been a great deal of discussion about the optimal size of a mutual fund. Although larger mutual funds tend to have lower administrative expenses due to economies of scale, they also often have higher trading costs because of the need to buy so much of a security to obtain a meaningful position (Deliva & Olson, 2008). In addition, larger funds find it especially difficult to take significant positions on smaller companies without substantial trading costs. Overall, although it is nearly impossible to start a mutual with less than $1 million in assets, and administrative costs tend to be extremely high for funds with even $10 million in assets, there are many fund managers who believe that it is so counterproductive to be too large that they close their funds to new investors once they reach several billion dollars in assets (Clements, 2004).

There also exists a type of fund called a fund of funds that pools investors' money for purpose of investing into other mutual funds. Many of these types of funds are offered by the administrator of a family of mutual funds to invest only into a portfolio of mutual funds in that family. Many funds of funds generally add an extra layer of annual expense (often called a wrap fee) for the service of determining for investors the mutual funds into which they are to invest (as little as 0.08% per year for Fidelity but closer to 2% for others, which is in addition to the annual expenses charged to the funds themselves into which the money is invested). However, some fund administrators (such as Vanguard, Scudder, and T....

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