# Types of Funds
# ETF (Exchange-Traded Funds)
- Buy/sell like stocks
- Baskets of stocks (sometimes bonds), publish what they're holding
- Transparent and liquid
# Mutual Funds
- Buy/sell at the end of day
- Quarterly disclosure, so you don't know what they're holding since last disclosure
- Less transparent
- Liquid on a daily basis, might have to go through a broker
# Hedge Funds
- Buy/sell by agreement
- Hard to exit like the funds above, you leave your money in for a certain window
- No disclosure, even to investors
- Not transparent
Common for mutual fund symbols to have 5 letters, and ETFs to have 4 or 3 letters.
# Compensation of Fund Managers
Part of the compensation is based on AUM (Asset Under Management). Expense Ratio indicates what percent of AUM is charged as incentive by the fund manager.
- ETFs: Expense Ratio for ETFs are 0.01% to 1.0%
- Mutual Funds: Expense Ratio of 0.5% - 3.0%
SPY is a popular example of an ETF. In this case, the fund manager only has to ensure the client's portfolio is holding all the stocks in SNP 500, which is why the ETF expense ratio if lower.
Mutual Funds on the other hands are supposed to require more skills constantly to manage their funds, and therefore, can charge more
- Hedge Funds: "Two and Twenty" which means 2% of AUM and 20% of profits. This is a popular compensation model, but now hedge funds charge rates like "One and Ten"
# How funds attract investors
Investors are:
- Individual
- Institutions
- Funds of funds
Investors pick managers by looking at:
- Track record
- Simulation + Story
- Good portfolio fit
# Hedge fund goals & metrics
# Goal
- Beat a benchmark. For eg - Beating the performance of SP500 to pick the best stocks
- Absolute returns: slow gradual positive returns no matter what. Using long/shorts
# Metrics
- Cumulative return
- Volatility using Standard Deviation
- Risk adjusted Reward typically measured using Sharpe Ratio