CHAPTER 15: Selecting a Mutual Fund

Question 1

Volatility

Answer 1

Different types of funds have different volatility measures. KYC in choosing the appropriate fund for you client.

Risk-reward tradeoffs

Question 2

Volatility chart from lowest to highest

Answer 2

Money Market Mutual Fund
Mortgage Fund
Bond Fund
Balanced Fund
Divided Fund
Equity Fund
Real Estate Fund
Specialty Fund

Question 3

4 Source Of Volatility

Answer 3

1) Supply and Demand
2) Investor Expectation
3) New information (Economy, Change in Government, new regulations)

Question 4

Unique and Market Risk

Answer 4

Unique Risk
- one sercurity / company
(Diversification can almost eliminate the risk)

Market Risk
- Affects the entire market
- Changing Interest rates
(Cannot be eliminated)

Question 5

Ways to Reduce Risks

Answer 5

Unique Risk
- Diversification

Default Risk
- Avoid corporate bonds

Exchange Rate Risk
- Hedging

Interest Rate Risk
- Avoid Fixed-Income securities

Question 6

Other Elements to consider

Answer 6

People
-Manager, team, owners, business, compensation, compliance

Philosophy
-Growth, Value, Sector rotation, momentum, GARP (growth at reasonable price)

Process

• Verifiable and Transparent
• Team Based Approach. One Single individual may not have the total decision-making power
• • they have better succession-planning

Performance
-Style Drift