Question

Factors That Affect the Performance of Mutual Funds Post by Day 3 a 3- to 6-paragraph assessment of the factors that contribute to a mutual fund’s performance. Please make sure to include responses to the following specific questions: What are the three most important factors that contribute to a mutual fund’s performance? How confident are you that either passively managed or actively managed mutual funds are better performers than the other? To what degree would ownership in the mutual fund by its manager enhance your motivation to invest in it? Would the percentage ownership be more important than the dollar amount ownership, or the other way around? Why?

Answer 1

The three major factors affecting the performance of a mutual fund on investment performance and risk, sector performance and the fee and load on the mutual fund. Investment performance and risk is the primary factor which affects the value of the securities in a mutual fund. The price of the mutual fund increases when the share prices increase. Sector performance is an important factor which affects the performance of a mutual fund especially if the fund is concentrated in a single sector. For instance funds that are concentrated in the Oil and Gas sector will do well when the oil prices increase. Management fees and loads is an important Criterion for assessing the performance of mutual funds. This is because the investor is paying a certain amount to manage the portfolio and this will reduce the profits derived from the mutual funds. It is important to understand the front load, back load and expense ratios which are charged on a fund.

An actively managed fund is a better performer than a passively managed one since it makes it possible to beat the market index. They are in a position to earn huge Returns with changes in the market situation.

If the manager has substantial ownership in a mutual fund I would be more motivated to invest in it due to the confidence displayed by the fund manager. Fund managers are Specialists in their areas and if they have invested their own capital into the fund I would assume that it is with careful judgment and detailed assessment of an expert and hence it will increase my confidence in the fund.

Percentage ownership will be more relevant than a dollar ownership since a manager who has a percentage stake in the fund has taken on a higher risk in the fund since fluctuations can cause him to gain or lose huge amounts. This shows a higher confidence in the fund than a dollar ownership