Displaying items by tag: mutual funds

Closed-end funds (CEFs), around since 1893, function much like pooled mutual funds but differ in that they have a fixed number of shares trading on public exchanges after their IPO. 

Unlike mutual funds, which create or redeem shares daily to match investor flows, CEFs trade like stocks, meaning their prices can swing above or below the fund’s actual net asset value (NAV). This market pricing dynamic allows investors to potentially buy a dollar’s worth of assets for 90 cents, creating attractive opportunities to purchase CEFs at discounts. 

In addition, CEFs can use leverage to amplify returns, which often translates to higher distribution yields than traditional funds. However, investors should generally avoid paying a premium above NAV, just as they wouldn’t pay $1.10 for a dollar. 

Finsum: CEFs trading at reasonable discounts with strong yields may offer a compelling addition to income-seeking portfolios, combining discounted asset value with robust payouts.

The Fidelity Trend Fund (FTRNX) is a top-rated global equity mutual fund, managed by Shilpa Mehra, with $3.25 billion in assets. Over the past five years, it has delivered strong returns, with an annualized rate of 18.98%, placing it in the top third of its category. 

Although slightly more volatile than its peers, with a 5-year beta of 1.13, it has consistently outperformed benchmarks, producing a positive alpha of 2.74. The fund's expense ratio of 0.55% is notably lower than the category average, making it cost-effective for investors. 

With 80.17% of its portfolio in stocks, primarily in the technology and retail sectors, the fund actively manages its assets with a 50% turnover rate. Overall, FTRNX offers strong performance, reasonable risk, and lower fees, making it an appealing choice for global equity investors.

Finsum: With the upcoming election, investors might consider the viability of international equity exposure in Trend funds such as these. 

Interval funds continue to gain popularity as investors become familiar with their benefits. New interval fund launches have increased since 2017, with 2024 on track for a record number. 

Assets under management have grown 40% annually, reaching $80 billion by April 2024. These funds offer daily NAV pricing and subscription, but limit redemptions to quarterly intervals. This structure allows for investments in higher-return assets, better alignment of assets and liabilities, opportunistic buying, longer investment horizons for catalyst realization, and greater visibility of redemption requests. 

Overall, interval funds combine traditional mutual fund features with unique advantages like a longer horizon allowing markets to less liquid investments. 

Finsum: Interval funds offer a goldilocks like solution for certain investors. 

A feature of separately managed accounts (SMAs) is that investors directly own securities, compared to an ETF or mutual fund. This makes them more tax-efficient, as investors have more opportunities to harvest tax losses and capitalize on volatility. In contrast, mutual funds, or ETFs, offer much more limited opportunities.  

With SMAs, tax losses can be harvested even in years with positive returns, as securities that are down can be sold. These losses can be used to offset gains and reduce an investor's overall tax bill. Positions can be rebought after 30 days to avoid wash sale restrictions, or stocks with similar factor scores can be purchased instead. 

Unlike mutual funds, SMAs are not subject to embedded capital gains. Embedded capital gains mean that an owner of a mutual fund is liable for capital gains depending on a position’s cost basis. This means that an investor in a mutual fund could be liable for capital gains, even if they have a loss on the position. 

In stressful markets, mutual funds can see distributions of capital gains if there is a surge of redemptions, adding to the risk of a capital gains tax bill in concert with a losing position. With SMAs, this risk is nonexistent since securities are directly purchased. Instead, there is more flexibility to pursue the most tax-efficient strategy.

Finsum: Separately managed accounts offer certain tax advantages to investors over investing in ETFs or mutual funds. Over time, the boost to after-tax returns can be quite significant, especially for high-net-worth investors. 

Grayscale has been a pioneer in terms of bringing crypto investments to a wider group of investors with the launch of Grayscale Bitcoin Trust (GBTC) in 2016. For some time, it was the primary vehicle to get exposure to the asset through traditional means. However, the SEC’s approval of bitcoin ETFs means that the landscape is more competitive, with offerings from leading asset managers at lower costs. 

Now, Grayscale is launching a spinoff version of GBTC, which will have a much lower fee of 0.15% vs. 1.5% for GBTC. The new ETF, Grayscale Bitcoin Mini Trust (BTC), will have the lowest fee among all spot bitcoin ETFs. At launch, about 10% of GBTC’s assets will be moved to BTC, which means GBTC shareholders can convert holdings into BTC without having to pay capital gains taxes. 

With the launch of several spot bitcoin ETFs, there were net outflows from GBTC despite bitcoin’s impressive gains over the past few months. Previously, gains in bitcoin would coincide with a surge in inflows into GBTC. 

The success of new bitcoin ETFs from Blackrock, Fidelity, Bitwise, and Ark also shows that there is strong demand for low-cost ETFs in the crypto space. In contrast, GBTC was structured more like a mutual fund. 

Finsum: Grayscale is launching a spinoff version of its Grayscale Bitcoin Trust (GBTC), which will come with significantly lower costs as the asset manager looks to compete with the launch of several bitcoin ETFs.