On May 1, 10:27 pm, Tad Borek <bore...[at]pacbell.net> wrote:
mitations put on the managers for any fund
- quote -

Thank you for the further explication.

BreadWithSpam[at]fractious.net wrote:
- quote -


Yowza! Thanks for the link. Those "ultra" kinds of funds were what I was
thinking of at the end of my last post but I didn't know one had seen
those kind of dips. And from the prospectus - RichC brought up this
topic earlier:

DISCUSSION OF PRINCIPAL RISKS
Counterparty Risk (All ProFunds). The ProFunds will be subject
to credit risk with respect to the amount it expects to receive
from counterparties to financial instruments entered into by the
fund or held by special purpose or structured vehicles. If a
counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, the value of your investment
in a Fund may decline. ProFunds may experience significant
delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding. ProFunds may obtain only limited
recovery or may obtain no recovery in such circumstances.
[end snip]

It looks from the profile like "other" investments represent about 26%
of the fund's assets, the rest being stocks & cash. So 26% of the assets
are exposed to this additional risk factor (risk of the derivative
counterparty going belly-up). And 100% of the assets are exposed to the
risk factor "Nasdaq 100 = lousy investment". Who buys this stuff!?

-Tad

Tad Borek <borekfm[at]pacbell.net> writes:
- quote -

There was this one:
http://finance.yahoo.com/q/pm?s=UOPIX

ProFunds UltraOTC which seeks to return 200% of the
Nasdaq-100. In the space of one year, it lost -
get this - 92% of its value. $10,000 invested at the
beginning of Q200 was worth $700 at the end of Q101.
Its worst 3-month period cost investors over 65%.

This was done partially with direct investments in
stock and partially with derivative instruments.

FWIW, though, the fund didn't rip anyone off. It
did *exactly* what it was supposed to do - the index
it tries to double - the NAS100 - did *miserably*
during those periods of time, too.

As we discussed, the underlying assets of a fund -
which are owned, thereby, by the shareholders - may
lose value - without the fund (management company)
either failing, ripping anyone off, or losing the
money itself. In fact, this particular fund is still
in existence and active.

FWIW.

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darkness39[at]yahoo.com wrote:
- quote -


I'm not aware of any mutual fund (legally: "investment company") that
has that kind of exposure to derivatives. I think it would be hard to,
without running afoul of the Investment Company Act's restrictions
regarding diversification, leverage, etc.

I can think of one similar example though...the Refco fiasco and
resulting illiquidity in some commodity-futures betting
pools...uh...trusts, such as JWH Global Trust. That wasn't a mutual fund
though and the same type of failure wouldn't be possible for a fund
whose securities were held through DTC. And supposedly investors are
going to be made whole, eventually, at least with respect to
Refco-related problems.

I'd definitely look at the limitations put on the managers for any fund
or ETF that seems likely to use derivatives and leverage -- for example
the ones that provide, you know, 2X the upside/downside of an index. For
your garden variety stock or bond fund this issue just wouldn't come up.

-Tad

On Apr 29, 1:22 am, "Mark Freeland" <BnetOne...[at]sbcglobal.net> wrote:
- quote -

Thank you! Helpful distinction to keep in mind.

- quote -

Interestingly, in the UK this happens all the time, although primarily
in the investment trust ('Closed End Fund') world. Because the
directors are de facto (and de jure) directors of a quoted (listed)
company, investment trust directors take their responsibilities to
shareholders quite seriously.

In unit trusts ('mutual funds') the normal practice is to merge a
failing fund into something bigger, that is more successful, thus
removing the bad performance record from the family tree. If only one
could do the same with troublesome relations ;-).

- quote -

My own view is that one really has to pay close attention to who is
managing a fund, within an organisation? Is it the same fund manager,
or is it a team, and do they stick to a winning style or method? For
that reason, if one is choosing active management, I tilt towards
small, entrepreneurial fund management companies, over the 'stable (or
staple) funds' of large congolmerates.

"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote in message
news:m33b2mrhp6.fsf[at]animato.home.lan...
- quote -

This same distinction is worth keeping in mind when comparing fixed and
variable annuities. Fixed annuities are like bank deposits (in excess of
insurance) - your annuity is no more safe than the company issuing it. But
the variable accounts are like mutual funds - segregated from the debt of
the issuing company (so creditors of the issuing company can't go after the
assets if the company fails).

- quote -

"Never" is such a harsh word :-). Let's say ridiculously infrequently.

Navellier Aggressive Small Cap Equity Fund fired Louis Navellier, went out
and hired MFS Investment Management, and renamed the fund MFS Aggressive
Small Cap equity. (A few months later, Navellier won a proxy battle for the
board, and the new board hired Navellier back.)
http://www.thestreet.com/comment/wrong/4102.html

The Japan Fund was managed by Scudder for many years. Its board fired
Scudder, hired FMR (Fidelity) to manage the fund, and yet a third company -
SEI - to distribute it (sell, do bookkeeping).
http://news.morningstar.com/article/...e.asp?id=77686

Mark Freeland
BnetOnewsX[at]sbcglobal.net

On Apr 27, 5:26 pm, darknes...[at]yahoo.com wrote:
- quote -

erratum: Note not not ;-).

Closed End Funds (investment trusts in UK
- quote -

Now that I think of it, this is also how the crash of 1929 kicked
off. There were a series of leveraged CEFs ('trusts') that held high
paying shares (like utilities) plus debt. Hence giving geared
dividend returns. Goldman Sachs was prominent in promoting at least
one.

When the market slipped, the equity value of the shares fell, and
eventually they had to liquidate to pay off the debt. Investors were
left with nothing (or near as).

The Investment Companies Act was enacted by Congress in response to
this debacle.

See also Bernie Cornfeld and the IOS in the early 70s, one of the
first international stock mutual funds (and a complete scam, Cornfeld
was running a ponzi scheme).

There are disturbing resemblances between (some) hedge fund strategies
and the strategies of investors during the 1928-29 period. And other
similarities between the US now, and the US during that era: thinking
F. Scott Fitzgerald and The Great Gatsby.

On Apr 26, 6:15 pm, Tad Borek <bore...[at]pacbell.net> wrote:
- quote -

Tad

Presumably if a mutual fund entered into the (wrong) option or
derivative contracts, it's value could drop to zero? That would be as
close to 'going bust' as any insolvency?

Not also for any browser. Closed End Funds (investment trusts in UK
parlance) which use leverage (borrowing) *can* go bust, and from time
to time do: the UK had something called the 'split capital trust
fiasco' (google it) which was about CEFs launching different classes
of shares (to give some groups of investors higher income), and it
eventually all unravelling.

<BreadWithSpam[at]fractious.net> wrote in message
news:yobodlavoeo.fsf[at]panix3.panix.com...

- quote -

Yes, I can see that. But I am curious as to what circumstances might cause a
management company to go bankrupt. Poor performance of the fund? If the
value of the stocks themselves declined for some reason, I suppose it is a
moot point. The investors in the fund would lose most of their money anyway.
Yes, I see that the main risk for an investor lies in loss of value of the
stocks held by the fund. The safety factor is that the investor would still
own whatever stocks were in the fund at the time of bankruptcy, although
they could be of little value. On the other hand, I suppose a superbly
performing fund could go bankrupt too.

"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote in message
news:m33b2mrhp6.fsf[at]animato.home.lan...

- quote -

Thanks. That helps clear it up for me. But I still have a somewhat
uncomfortable feeling, because everybody thought all was well with the
Savings and Loan Associations, and still the government had to intervene to
make good the obligations.

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote in message
news:Cf8Yh.368986$5j1.329289[at]bgtnsc04-news.ops.worldnet.att.net...

- quote -

I understand that mutual funds are safe only to the extent the stocks held
by the funds are safe. I am curious as to whether or not investors in the
funds would lose money if, because of some widespread economic disaster,
many mutual funds went out of business all at once.

rick++ wrote on [Thu, 26 Apr 2007 17:08:47 -0500]:
- quote -

That doesn't make much sense, at all.

Why are all these retirement plans, which people really can't afford to
lose, invested in the market?

- quote -

The usual aphorism still holds - dotn invest money in the market you
cant afford to lose.

"Don" <dwzimm[at]telus.net> writes:

- quote -

You are comparing apples and oranges.

- quote -

What's safe is your ownership of the assets held by
a mutual fund. The assets themselves may suck (ie. a
company whose stock is in a fund may go bankrupt and
the fund thereby will lose money). But the mutual
fund management company has no claim on those assets
and if the management company goes bankrupt, the
assets remain owned by the shareholders in the fund.

Banks were nothing like that. Banks borrow money
from depositors. Mutual funds do not borrow money
from the investors who buy shares.

(Of course, some mutual fund *management* companies
are in fact public and you can invest in them - but
that's entirely different from buying shares in a
fund)

Investing in, say, equities, via a mutual fund is
no less safe than investing in equities by buying
them directly (minus a management fee, but plus
having someone else take care of specific decisions
and diversification for you).

Let's take a less risky example - say, a US Treasury-only
money-market fund. When you buy shares in it, you
are buying short-term US Treasury securities. The
management company takes a small slice of the interest
(well, hopefully a small slice - some are rip-offs),
but you, the shareholder, do not own the mutual fund
management company. You own US Treasuries. If the
fund company goes under, either your Treasuries are
sold and you get the proceeds, or another fund company
comes in, as explained elsewhere, and continues managing
your portfolio of US Treasuries for you. Either way,
you own the underlying securities - in this case,
US Treasuries - not a fund management company. Your
risk is whatever risk is involved in the underlying
securities. In the case of US Treasuries, well, if
they default, chances are you have something else
to worry about already...

Anyway, "safer than banks" in the context you've
placed it above is entirely meaningless. You neither
define "safer" nor does it acknowledge that you are
comparing apples and oranges.


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Plain Bread alone for e-mail, thanks. The rest gets trashed.
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"Don" <dwzimm[at]telus.net> wrote in message
news:4t7Yh.9947$_G.5686[at]edtnps89...
- quote -

I think you need to go back and re-read this thread because no one has said
anything like mutual funds are super safe. They are saying that whether the
fund is successful or not is independent of whether the management company
makes a profit. The mutual fund you purchase may invest in unsuccessful
companies and therefore itself be unsuccessful - or vice versa.

Elizabeth Richardson

"Don" <dwzimm[at]telus.net> writes:

- quote -

Well, comparing banks and mutual funds are comparing apples
and oranges.

Your bank deposits are a direct obligation of the bank. And your
deposits (in excess of insurance) are totally at risk if one single
company (the bank) fails.

Your mutual fund holdings are a direct obligation of the *fund*, but
not of the *fund management company*. The *fund*'s assets are held at
independent custodian banks.

As Tad said, the fund is a separate legal entity from the fund manager
and the fund manager is hired to run the fund. In theory, even a fund
that's part of a fund family can choose to hire any manager it wants.
So in theory, some Fidelity fund could go maverick and hire an
American Funds manager. In practice, the so-called "independent
directors" aren't and would therefore never pull a stunt like that.

So the previous posters are correct -- the failure of the *fund
management company* won't affect the value of your *fund* holdings one
bit. And even within the fund itself, it would be very, very hard to
lose everything, since all the companies the fund is invested in would
have to fail.

Though there is the issue of what happens if the custodian bank fails.
Perhaps nothing, if all the custodian bank is doing is physical
storage and back office services for the fund and doesn't have the
fund's securities in its own street name. But it would be interesting
to know what, if any, protection a fund (and its shareholders) has
against failure of the custodian bank.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:Q55Yh.845$RX.395[at]newssvr11.news.prodigy.net...

- quote -

Hmm. People are saying that mutual funds are super safe, even if disaster
strikes the companies running the funds. The en masse failure of the Savings
and Loan Associations back in the 1980s comes to mind. People at that time
believed those associations, like banks, to be safe no matter what happened
to the economy. The impression I am getting by reading this thread is that
people now believe mutual funds to be even safer than banks and savings
institutions.

s o wrote:
- quote -

While it may not look this way, from a legal perspective Company XYZ is
just a money manager that's been hired by the board of directors of Fund
ABC to run the mutual fund. Fund ABC's assets are kept completely
separate from Company XYZ's assets. So if Company XYZ goes out of
business it should have no effect on the assets of Fund ABC.

This is why you never see mutual fund failures, it really can't happen.
They can be unsuccessful and perhaps need to change names or merge into
another mutual fund, but you're not going to pick up the paper tomorrow
and see that your mutual fund was now worth zero because the fund
company filed for bankruptcy (as could happen with an individual stock).

As others have posted the much greater risk is that Company XYZ simply
does a lousy job managing Fund ABC, and you lose money that way -- from
investment losses.

-Tad

On Apr 25, 4:27 pm, s o <jou...[at]yahoo.com> wrote:
- quote -


Your assets are being held by an independent holding company.

"s o" <jou128[at]yahoo.com> wrote in message
news:1177541219.265418.246820[at]u32g2000prd.googlegroups.com...
- quote -

If company XYZ is in trouble then it or its funds will most likely be taken
over by another mutual fund management company.

You might want to consider another question: "What happens to my money if
fund ABC invests in overvalued assets?". To find the answer to that question
Google on the search words: heartland high-yield municipal bond fund .