Part Five
Portfolio Management
Part Five Includes
Chapter 12 Mutual Funds: Professionally Managed Portfolios
Chapter 13 Managing Your Own Portfolio
Chapter 12
Mutual Funds: Professionally Managed Portfolios
◼ Outline
Learning Goals
I. The Mutual Fund Concept
A. An Overview of Mutual Funds
1. Pooled Diversification
2. Attractions and Drawbacks of Mutual Fund Ownership
3. How Mutual Funds Are Organized and Run
B. Open- or Closed-End Funds
1. Open-End Investment Companies
2. Closed-End Investment Companies
C. Exchange-Traded Funds
D. Some Important Considerations
1. Load and No-Load Funds
2. Other Fees and Costs
3. Keeping Track of Fund Fees and Loads
E. Other Types of Investment Companies
1. Real Estate Investment Trusts
2. Hedge Funds
Concepts in Review
II. Types of Funds and Services
A. Types of Mutual Funds
1. Growth Funds
2. Aggressive Growth Funds
3. Value Funds
4. Equity-Income Funds
5. Balanced Funds
6. Growth-and-Income Funds
7. Bond Funds
8. Money Market Funds
9. Index Funds
10. Sector Funds
230 Gitman/Joehnk/Smart • Fundamentals of Investing, Eleventh Edition
Key Terms
Discussion Questions
Problems
Case Problems
12.2 Calvin Jacobs Seeks the Good Life
Chapter 12 Mutual Funds: Professionally Managed Portfolios 231
◼ Key Concepts
1. The basic characteristics of mutual funds and how diversification and professional management are
the cornerstones of the industry
2. The advantages and disadvantages of owning mutual funds
3. The kinds of funds available and the variety of investment objectives these funds seek to fulfill;
recent additions to the assortment covered include hedge funds and exchange-traded funds
4. The array of special services offered by mutual funds and how these services can fit into an
investment program
5. Investor uses of mutual funds and ways of assessing and selecting funds that are compatible with the
investment needs of the individual
7. Sources of return in mutual funds and ways to calculate rate of return
◼ Overview
232 Gitman/Joehnk/Smart • Fundamentals of Investing, Eleventh Edition
This chapter focuses on mutual funds.
1. The chapter begins with an overview of the major features and characteristics of mutual funds. At the
outset, the difference between buying into a mutual fund and investing directly in securities should be
2. Closed-end (CEFs) and open-end mutual funds (OEFs) are introduced. Other types of pooled
3. In the next section, mutual funds are classified according to investment objectives. Growth funds,
aggressive growth value funds, equity-income funds, balanced funds, growth and income funds,
4. Given their popularity and hybrid nature, exchange-traded funds should be covered. Discussion of
Chapter 12 Mutual Funds: Professionally Managed Portfolios 235
(b) Equity-income funds emphasize current income by investing primarily in high-yielding common
stocks. In addition to high-grade common stocks, these funds also invest in convertible securities,
preferred stocks, and even bonds. They like securities that provide high current yields, but also
(e) Sector funds are mutual funds that concentrate their holdings in one or more industries that make
up a target sector. For instance, a health care sector fund may hold drug companies, medical
8. Asset allocation funds spread investors’ money across different types of markets. Most other mutual
9. Even though growth, income, and capital preservation are primary mutual fund objectives, each fund
10. Fund families are simply investment management companies that offer a number of different kinds of
mutual funds to the investing public. The two largest fund families—Fidelity and Vanguard—each
have over a trillion dollars in assets. Fidelity has over 300 different funds in its family. The big fund
