Question

Value Core/Blend Growth Which funds would typically considered for performance comparisons? Equity Fund 1 Equity Fund 2 Equity Fund 3 Equity Fund 4 Why does Morningstar group funds in categories as shown What is an example of a difference between an open end mutual fund and an ETF? Which fund structure will typically be targeted by vulture investors?

Answer 1

1. Morning star groups funds in these categories as shown because of its easy understanding. The market is categorized into three categories Large, small and mid-cap stocks. Whereas the investment style of the fund manager is categorized as growth, value or a mix of these two strategies called blend. For an investor, it becomes fairly easy to choose funds. For example, if the investor is looking for long term growth, then he must choose funds either in mid-cap growth box or small-cap growth box. On the other hand if the investor has a shorter horizon, they are better off selecting large cap growth.

2. Open ended mutual funds are actively managed by fund managers for producing the alpha, which is a return higher than that of the bench mark. Since these are actively managed the expense ratios are higher.

An ETF is a passively managed fund and mirrors a broad index like the S&P 500 and returns do not beat the index. However the expense ratios of ETF are lower than actively managed funds.

3. Vulture investor generally target Value fund structure. They buy beaten down, cheapest and most troubled assets at low value with the hope that these would turn around and make them big returns.