Essays /

15 F 378 Pp12 Essay

Essay preview

Financial Services Industry
Investment Companies
Mutual Funds/Exchange-traded Funds
Private Equity Funds/Hedge Funds

Overview
• Mutual Funds:
– Activities of mutual funds
– Size, structure and composition
– Balance sheets and recent trends
– Regulation of mutual funds

• Sovereign Wealth Funds
• Hedge Funds
• Exchange-traded Funds (ETFs)

Investment Companies
• Investors give these companies money to
invest on their behalf.
• Growing importance of investment companies
Type

1995

2009

Open-end mutual funds

$2,811

$11,121

Exchange-traded funds

$1

$777

Closed-end funds

$143

$228

Unit investment trust

$73

$38

Total Net Assets ($ Billion)

$3,028

$12,164

Mutual Funds
• Pool the resources of many small investors by selling
these investors shares and using the proceeds to buy
securities enhancing
diversification$ opportunities
$
IBM

Windsor Funds

securities




Investors

shares

Open-end (predominantly) versus close-end
Rapid growth during 1990s
Slow down in 2002 and 2003 due to trading abuses
Pick up from 2004 to 2007, significant decline in 2008
with a slight recovery in 2009
• 34.4% (i.e. 4.6 million) of Canadian households have
mutual funds in their investment holdings

Size, structure and composition
– Mutual funds first available in Canada in 1932 with slow growth, initially.
• 1970: $2.4 billion, 1998: $303.9 billion, 2007: $697.3 billion, 2008: $507 billion, 2014: $1,110 billion
• Fund assets have increased by an average of 15% per year over the last 20 years
• Canadians have greater confidence in mutual funds (81%) to meet financial goals

– Industry concentrated to 15 largest firms have 93% of the Canadian market share, representing $1.11 trillion in
assets under management at the third quarter of 2014.

Size, Structure and Composition
– Growth spurred by the introduction on RRSPs
– June 2005, bill C-43 increased the level of foreign content to 100%
– Mutual funds account for 26% of Canadian’s financial wealth – Each dealer must be a member of the Investment Industry
Regulatory Organization of Canada (IIROC).
– Mutual Funds Dealer Association (MFDA) is the formal self regulating organization in most provinces
– Regulated by OSFI by means of the Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act.
– The industry contributes $7 billion to tax revenues

Size, Structure and Composition
– By asset size, mutual fund industry is the second
most important financial group.
– The Big 5 banks control 47% or $522 billion in assets
under management.
– Recent inroads by commercial banks and insurance
companies: by 2013, insurance companies managed approximately 10% of mutual fund assets

– Great impact on retirement markets: Mutual funds

accounts for 64% of RRSP portfolios and of those containing mutual funds, comprise over 48% of the portfolio’s value

Advantages









Professional management
Built-in diversification
Variety of types of funds
Variety of purchase and redemption plans
Various special options
Liquidity
Transferability
Ease of estate planning
Loan collateral
Eligible for margin

Disadvantages
• Costs such as sales fees and management fees
detract from the investors’ returns
• Unsuitable for short-term investment (except for
money market mutual funds which are so tailored)
• Unsuitable for emergency reserve
• Professional management is not infallible
• Tax complications may arise if the investor’s tax
preferences are not consistent with the objectives
of the fund

Organizational Structure
• (1) Directors of trustees
• (2) Fund managers: decide where to invest the money
in the fund and when to buy and sell investments

– MER (%) = aggregated fees & expenses payable
during the year / (average) NAV for the year
– MER lower the return to investors

• (3) Fund distributors
• (4) Third-party Custodian: holds the assets of a

mutual fund, usually a trust company or chartered bank

Mutual Fund Companies
Fund Company

Parent Company

CIBC Asset Management

CIBC

C.I. Mutual Funds Inc.

Independent

Franklin Templeton Investments

Franklin Templeton Investments, U.S.

RBC Asset Management Inc.

Royal Bank

BMO Investments Inc.

Bank of Montreal

Aim Trimark Investments

AMVESCAP PLC, U.K.

TD Asset Management Group

TD Canada Trust

AGF Management Limited

Independent
...

Read more

Keywords

+20 -0.10 -1 -100 -3.62 -43 /2 /9.4 /average /share 0.00625 0.04 0.05 0.09 0.17 0.20 0.25 0.30 0.40 0.5 0.53 0.6 0.625 0.65 0.8 000 000/200 028 07/31/2014 1 1.11 1.2 1.20 1.21 1.4 1.66 1.78 1.83 1.93 10 10.03 10.44 10.5 10.53 10/share 100 11 110 12 12/31/2012 121 13 13.50 135.59 14 143 145.80 15 15.10 150m 15m 15m/year 16 16.60 16.70 164 167.20 17.90 18.58 180 184.00 19.92 1932 1953 1970 1976 1990s 1993 1995 1997 1998 2 2.36 2.4 2.5 2.54 2.80 20 20/share 200 2000s 2002 2003 2004 2005 2007 2008 2009 2013 2014 2020 20m 21 21.30 21.50 22.70 228 233.10 235.90 25 25.06 25.10 25.20 250 26 282.20 3 3.48 3.5 30 303.9 33.70 34.4 35m 36 37 37.9 378 38 3m 4 4.6 4.80 40 40.91 400 4000 44.20 45.38 47 477.20 48 49.3 5 5.3 500 507 51 52.2 522 53m 58.8 5m 6 6.06 6.38 60 61.40 64 697.3 7 7.20 7.90 721.70 729.70 73 777 8 8.00 8.29 80 800 81 811 86 9 9.00 9.40 93 93.36 abil abu abus access account accredit accru achiev act activ add adjust administr advantag advertis advis advisori affect agf aggreg aggress agilith aic aim alberta allow alpha also altern although alway amend american amount amplifi amvescap anoth anyth appear appli appreci appropri approxim arena aris assess asset asset-hold assets/equity assist associ assum attent audit author avail averag b b.e.s.t back back-end balanc bank bankrupt bankruptci base basi basic becam began begin behalf benefit bet better big bill billion bmo board bond bookkeep borrow brazil breach broker brokerag built built-in bullion busi buy buyout c c.i canada canadian candidaci cannot cap capit cash categor categori caus cc cdn certain chang characterist charg charter china ci cibc cifsc cipf cl claim clark class client close close-end closed-end closer collater commerci commiss committe common compani complet complic compos composit compris comput con concentr concern conduct confid conserv consid consist constitut contain content contribut control corpor cost cover coverag criteria currenc current custodian custom cut d d/e daili date day deal dealer decid decis declar declin default defer definit degre deliveri deposit deposit-lik depress deriv design determin detract develop dhabi dia/nyse direct director disadvantag disclosur discount discuss distribut distributor diversif diversifi divid dividend djia document dow driven drop dsc due e.g earli earn eas either elig emerg end enhanc entrepreneur equiti estat etf evalu even event everi ewz/nyse exampl exceed except excess exchang exchange-trad exclud exempt exist exit expens expos extra f fact fall feder fee fee-bas fidel file financ financi find fine firm first fit fix fluctuat focus foreign form formal formula founder founders-cl four franklin front front-end fund funds/exchange-traded funds/hedge gain gains/losses gambl general generat give given gld/nyse global go goal goe gold govern great greater group grow growth gst/hst gt harm hedg held help heritag high high-wealth higher hire hold horizon horizond household huge i.e ibm ida ii iiroc imbal impact import improp inc includ incom increas independ index individu industri infal inform initi inroad insid instead institut instrument insuffici insur intermediari introduct invers invest investig investor involv ipc ipo isc ishar issu issuer jc jone june kind know known kuwait l land larger largest last late law least legal less lesser level leverag liabil life light like limit line liquid ll load loan lock long long-term long/short longer longer-term look loss low lower lp ltd lyco m m/15m magnifi mahoney maintain major make manag mandat mandevill mani margin mark market market-neutr marking-to-market matur maxim may mean meet member mer merg mfda microscop million mimic minor minus mkts money monitor month montreal move msci must mutual mutual-fund name narrow narrowest nasdaq nation natur nav navt near need negat net net-asset neutral new no-load non non-direct non-redeem north norway notabl number o object observ obtain offer often one ontario open open-end oper opportun opportunist option organ organiz osc osfi outlin outstand overal overse oversight overview own ownership p p/e p/tsx p500 paid parent part parti particular partner partnership pay payabl pe pension peopl per perform period permit pick picton placement plan plc pool popular portfolio posit potenti powershar pp12 practic precis predomin prefer premium prepar present pretti price primari privat proceed profession profit project pros prosecut prospectus protect provid provinc provinci public purchas qqqq quarter question rais rang rapid rare rate ratio rbc re readi real realli receiv recent recoveri redeem redempt reduc reflect regul regulatori reit relat repay reporting/disclosure repres requir reserv resourc restrict result retail retir return return/risk revenu rise risk risk-adjust riski riskless roa roe role royal rrsp rrsps rt rtn run russian sale save scene screen sec second secur seek select self sell seller serious servic setup share sharehold sheet short short-term signific similar simplest simplifi singapor singl situat six size slight slow small small/mid smi sold solicit sophist sovereign spdr special specialti specif spur spy/nyse sro stabil stand standard start state state-own stay still stock strategi structur style subject swf swfs t/0 tailor take talent talk target tax td technic templeton tend term termin territori third third-parti throughout ticker ticket time top total trade trader tradit trail trailer transfer transpar trend tri trillion trimark trust trust-cl truste turn turnov twenti two type typic u.k u.s uncorrel under unit univers unlik unregul unsuit us usa use usual v valu vari varieti various vc venat ventur versus volatil wasn wealth week whether whose windsor within without world worth would xyz year yet yr zxc