Stock and commodities markets
Tips For Investors: US Investment Funds
26 November 08:26 AM
Article from Profit Forex
Effective functioning of financial markets is a vital condition of the dynamic growth of a certain country’s economy. It requires a number of financial institutions in various sectors of the financial market.
Investment funds accumulate investors’ money to invest it in bonds, stocks and other assets. Let’s have a look at what the notion of a US investment fund means for investors, how popular they are and which ones are the most popular.
US Investment Fund: Basics
Most potential investors lack investment skills, experience and opportunities. That is the ground for creating investment funds. Their goal is to collect investors’ funds and to invest them in stocks currencies, commodities and other markets.
First investment funds appeared in Belgium in the 1820s. In the second half of the 18th century they became popular in the UK (to invest in the companies located in the British colonies).
In the USA (the world’s financial superpower) investment funds became very popular as well. There are 3 types of US investment funds:
· open-end funds
· close-end funds
· unit investment trusts
The same classification is used in a number of other countries with fairly developed financial systems. Mutual funds are based on the principle of openness for new investors. Investing is done continuously. The shares are emitted without limitations according to the current demand. Close-end funds, on the contrary, place their shares only once through IPO. They are traded in stock exchanges.
Investment funds VS banks: Investment funds have a number of advantages over banks. For example, for an investor, the activities of an investment fund are more transparent than the ones of a bank. A bank pays its depositors only a predetermined interest rate irrespective of its performance and the rest of the profit remains with the banks whereas an investment fund distributes the entire net profit among its investors.
The forming of an investment portfolio: an investment fund’s portfolio has a predetermined structure, which remains unchanged until the very closure of the fund. A US unit investment trust generates a certain (fixed) among of shares to sell them to investors during IPO.
Once again, according to the US law, investment companies are divided into open-end funds and close-end funds.
■ Close-end funds emit shares or certificates, which cannot be bought back from investors. They are traded in stock markets and are liable to redemption when the investment fund closes.
■ Open -end (mutual) funds can redeem their shares or certificates at any time until expiration at a certain price equal to the corresponding share in the fund’s assets. Such funds are the most widespread ones in the USA and worldwide.
Open-end funds became more popular in developed countries (Finland, UK, Germany, Spain , Italy, Poland, France, Croatia, Switzerland, Australia, Singapore, Israel, Japan etc.) mostly due to their high liquidity. In the USA those institutions yield only to insurance companies and pension funds in terms of accumulated funds.
The main purpose of investment funds is to profit from a company’s stocks and other assets. In plain words, an investment company attracts some capital and invests it in various assets (stocks, bonds, securities etc) to make profit.
Therefore, such companies get an opportunity to cooperate with a wider range of institutions. Moreover, investment are more secured as an investment company must provide some guarantees.
US investment funds: What should investors know about them?
According to Eugene Olkhovsky, the head of the US-Canadian Association of Traders and Investors under Masterforex-V Academy, most of the US investment funds are open-end (or mutual) funds, close-end funds and unit investment trusts. The data given in the chart below testify to the performance of various funds:
As we can see, the following management companies own investment funds:
Direxion Funds, Horizons BetaPro ETFs, ProShares, ETF Securities Ltd, Friedberg Direct ltd., Source Commodity Markets PLC, PIMCO, Vanguard, BNP Paribas Investment Partners Lux, iPath VSTOXX, AMCFM Vietnam, ZIIF ZIF Obligationen, CSIMF Bonds, ETF Securities Ltd, Derivative Bear ETF.
This is the TOP 10 US investment funds in terms of profitability during the 1st month of investments:
Direxion Daily Russia Bear 3X Shares, Horizons BetaPro S&P 500 VIX ST F BP ETF, Direxion Daily China Bear 3X Shares, Horizons BetaPro COMEX, Copper Bear, Horizons BetaPro S&P/TSX Glb BMtls Bear, Horizons BetaPro COMEX Silver Bear, Direxion Daily Agribusiness Bear 3X Shrs, Direxion Daily Emrg Mkts Bear 3X Shares, Direxion Daily Latin America Bear 3X Shs, Direxion Daily Basic Matls Bear 3X Shrs.
The profitability outsiders are:
ProShares Short Oil & Gas, Swisscanto (CH) IBF USD TOP AST, ETFS 3x Long USD Short GBP, DnB NOR OBX Derivative Bear, CSIMF Bonds USD D, Horizons BetaPro U.S. Dollar Bull, CSIMF Bonds USD F, ProShares UltraShort S&P500, ETFS 3x Short GBP Long USD, XACT Derivative Bear ETF
US funds: Profitability… or how to attract investors.
Investment fund can be successful despite some single misfortunes. According to Eugene Olkhovsky, today US funds (as well as investment funds in other counties) are in demand as more and more investors want to secure their capital as major investment funds provide some guarantees. Therefore, the demand for investment services is growing. However, investment companies themselves should tend to improve their services as this is a cornerstone of their success.
Most US banks also have trust departments. Their goal is to manage investors’ funds on the basis of agency contracts.
The notion of a US investment fund. According to the analytic team of Nord FX, this can be a big-scale private or institutional company – a pension /charity / family / insurance fund or a fund that belongs to a social organization.
US banks. US banks, including investment ones, are a part of the shared investment system. Recently they has been focused on both big-scale and small-scale investors, thus offering two types of deposits – risky and riskless. The risky deposits are accumulated to invest in risky assets. The interest rate is accrued proportionally to the profit. The riskless deposits are invested in US bonds and mortgage-backed securities. Such deposits are ensured by the state. That’s why they are riskless. However, the profit is much lower.
Therefore, banks can be both managers of funds and subjects accumulating them. However, quantitative figures (performance) of such activities are much poorer than the one shown by non-bank institutions - Face Amount Companies, Unit Investment Trust Companies and Management Companies.
Face Amount Companies emit certificates (in essence, they represent contracts between the company and its investor). They define the face value, the payback period and the management conditions. Therefore, such companies are their clients’ debtors. It is them who carry investment risks. The average payback period is 8 years, the average face value is $3000. Such companies usually invest in fixed property, construction lending, securities.
Unit investment trusts are investment companies that buy a specific fixed portfolio of stocks, bonds, or other securities having a definite life. UITs are assembled by a sponsor and sold through brokers to investors. As the structure is static, there is no need in operative management and board of directors. The functional management is done by the first depositor (the so called principal, who deposits at least $100K and gets a certain amount of certificates in return).
Market Leader and Masterforex-V Academy would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Should investors trust their money to investment funds?
