Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship
John A. Haslem
University of Maryland - Robert H. Smith School of Business
July 28, 2015
John A. Haslem, ed. Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship, 358 pp. Hoboken,NJ: John Wiley & Sons, 2010
This marvelous compendium of mutual fund informations an answer to the prayers of investors who want to dig beneath the superficial to reach the fundamental. Dr. Haslem's book is more than an textbook. It is perhaps the first substantial attempt to evaluate mutual funds from an academic and historic perspective. I commend it highly to the serious investor.” John C. Bogle, founder and former CEO, The Vanguard Group.
This book is the culmination of some ten years’ teaching analysis of mutual funds to undergraduates and MBAs. And what great student teams they were. At the time the course was created, it was the first security analysis course dedicated to mutual funds. These several hundred students have provided research reports that improved our knowledge and approaches to this topic. For example, students taught me identification of investor risk preferences does not have to be an ordeal, but can be very simple. Or, as “Pop” Hansen used to say in his HBS Control classes: “Use your squash” and “Keep it simple.” We do that here while providing a comprehensive treatment of mutual funds.
The book is the result of this learning about mutual funds and its accompanying investing. Discussions of mutual fund analysis are followed by checklists to ease the analysis and selection of specific mutual funds and fund portfolios. The book is thus designed for serious investors who focus on the textual material to learn about the analysis of mutual funds, but also for those who want to improve their decisions by focusing more so on the checklists.
As a brief introduction, the chapters are generally self-contained, which facilitates reader attention to particular fund topics. Let's look at the chapters. Chapter 1 tells us what mutual funds are and how they fit into the investment company and regulatory schemes. Chapters 2 and 3 tell us about the advantages generally ascribed to mutual funds, and how to evaluate them of particular funds and investors. The concept of diversification risk and how its elements my constrain attainable diversification is also introduced.
Chapters 4 and five do the opposite of chapters 2 and 3. They tell us about the general disadvantages of mutual funds and how to evaluate them for particular funds and investors.
Chapter 6 tells us about the value and performance of long-term equity investing and the shortcomings of market timing. It also describes contributions of modern and behavioral finance to fund analysis. And the chapter provides the process for determining the basic stock/bond allocation of investor fund portfolios, as a guide to further portfolio allocations.
Chapter 7 tells us how to evaluate and assess fund diversification risk and how the elements may be measured and assessed overall. It also discusses equity style allocation, style allocation, style analysis, Morningstar on investment style and measures, mutual fund risk, and value versus growth investment style.
Chapter 8 tell us how to measure fund returns, risks, and risk/return performance measures and how to assess them overall. The chapter also tells us how to bring together the buy/sell criteria and how to make fund buy/sell decisions.
Chapters 9 and 10 tell us how to assess and determine mutual fund portfolio allocations beyond stock/bond allocations. These additional allocations include international and domestic value/growth and cap. size investment styles, along with international and domestic bond allocations. The process and criteria for assessing and selecting specific index fund portfolios are provided (chapter 9), as well as those for selecting actively managed funds to supplement core holdings of index funds (chapter 10).
Portfolio allocation and mutual fund selection decisions are made in the context of research findings concerning the determinants of improved fund portfolio strategies and performance. Professor Russ Wermers culminates these findings with an authoritative essay on factors that differentiate fund performance. This is done to answer the question: Should investors use index or actively managed funds?
Chapter 11 reviews current problems with mutual funds and how these will increasingly affect the future of the funds industry. The focus of the chapter is the major threat to the industry--exchange traded funds. As funds become less personalized and trade more as index fund commodities, the threat of exchange-traded funds will become even greater.
Finally, chapter 12 provides an optional treatment with checklists of how to time implementation of fund buy/sell decisions or just to get the context of the market.
A comment is needed concerning the book's organization, content, and chapter sequence. This book has two concurrent purposes. The first is to inform readers concerning the nature of mutual funds. The second is to do this while providing a step-by-step approach to the analysis and selection of equity mutual funds. The decision checklists and required information begin in chapter 2, and by the time the checklist results are completed and summarized in chapter 8 the information in the previous chapters is assumed. The first eight chapters thus carry the burden of providing adequate background for the analysis of a sample fund. The last four chapters include checklists for selection among index funds and actively managed funds, determining advantages/disadvantages of exchange-traded funds, and analysis of the economic and market outlooks. Thus, there is a method behind these in-depth chapters.
Number of Pages in PDF File: 362
Keywords: mutual funds, future design,normative transparency, stewardship, funds/ETFs, classic/enhanced index funds, actively managed/index funds, M-Star analysis, asset allocation, index funds, active/passive, financial markets, fees/expenses, fund economics, regulation, nature of funds
JEL Classification: G2, G23, G28
Date posted: December 14, 2009 ; Last revised: July 29, 2015
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
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