This term paper wants the reader to get an idea of what asset investors would prefer if they had the choice between Exchange Traded Funds and Managed Funds. Therefore, the author starts with giving an overview about these two assets including basic information, special key facts and some numbers, that show the relevance within the current capital market. After that the term paper includes a chapter about the research method as the research question will be answered with a questionnaire, which will give subjectively information by volunteer private investors. This part will be followed by an explanation about the evaluation method, at which the collected information will be analyzed and compared. Then the questionnaire`s results will be evaluated, separated into general part, ETF-part and MF-part. With the help of a self-created scorecard the preference of the interviewed people will be shown. Last but not least the author will give a conclusion, in which he will shortly summarize the content of the previous chapters and will show the final result regarding the research question.
If you don`t find a way to make money while you sleep, you will work until you die.”1 This quote belongs to the US star investor Warren Buffet and inspires people all over the world to invest their money to get gain in value as well as passive income. To reach these goals people put their savings in several investment assets within a special kind of market. The capital market is a place with millions of participants, who invest in shares, bonds, properties, currencies, commodities and many more alternatives. Even digital currencies like the cryptocurrency Bitcoin is getting an interesting instrument to invest in. The universe of products that promise monetary benefits to investors is quite big and difficult to oversee. One important asset class, which has not been mentioned in this text yet, does belong to funds.
Table of Contents
1. Introduction
2. What are Exchange Traded Funds?
3. What are Managed Funds?
4. Research method
5. Evaluation method
6. Evaluation – Which investment class is preferred?
6.1 General results
6.2 Exchange Traded Funds
6.3 Managed Funds
6.4 Comparison
8. Conclusion
Objectives and Research Focus
This term paper investigates the investment preferences of private investors when choosing between Exchange Traded Funds (ETFs) and Managed Funds. The core research question addresses which of these two investment classes is preferred by individuals and for what specific reasons, utilizing a quantitative questionnaire to analyze subjective investor opinions and decision-making criteria.
- Comparison of cost structures and performance expectations
- Evaluation of flexibility in trading and management style
- Analysis of investor knowledge regarding financial instruments
- Impact of professional management versus passive index tracking
- Subjective assessment of risk limitation preferences
Excerpt from the Book
3. What are Managed Funds?
Managed Funds, which are also called Mutual Funds, do exist within the capital market for about 60 years as banks, brokers and other financial institutions charged a lot commission when their customers were doing trades at the stock market. For retail investors that was very unattractive as diversifying their portfolios was quite expensive because of the huge number of necessary trades implicated high trade commissions. Mutual funds offer the investor to have a cheap possibility to access diversification without many to-dos but at the same time having a stock selection benefit. The assets of a Mutual Fund are managed by a professional manager or management company. The management does regularly check the fund`s assets and restructure the fund to react to changing market conditions and trends. This implicates costs of around 1.5 – 3 percent per year independent whether the Managed Fund performs well or not. Paying this commission, which are only the running costs, but do not include the buying costs, raises the investor`s expectations to receive an outstanding performance better than any other standard index. Mutual funds can only be traded for the net-asset-value-price (NAV-price). As the NAV is fixed only once per day by calculating with all the asset´s values, buy and sell orders are collected and executed for the next day´s NAV. This implicates an issue of non-flexibility trading wise. This forward pricing is because the funds management has to make sure that there is enough cash value to pay the sell-investor. The largest asset managers managing mutual funds are BlackRock Asset Management with total managed assets of around 5.2 trillion USD and Vanguard Asset Management with around 4.2 trillion USD.
Chapter Summaries
1. Introduction: Outlines the motivation behind the paper and provides an overview of the investment landscape and the research approach.
2. What are Exchange Traded Funds?: Defines ETFs and explains their key characteristics, such as index correlation, flexibility, and cost efficiency.
3. What are Managed Funds?: Explains the structure of Mutual Funds, focusing on professional management, cost structures, and the impact of forward pricing.
4. Research method: Describes the design and execution of the questionnaire used to collect primary data from 44 participants.
5. Evaluation method: Explains the scoring system used to quantify investor preferences based on the survey results.
6. Evaluation – Which investment class is preferred?: Presents and analyzes the collected data, comparing the performance and characteristics of ETFs and Managed Funds based on participant responses.
8. Conclusion: Summarizes the findings, confirming a clear preference for ETFs among the surveyed private investors due to their cost efficiency and flexibility.
Keywords
Exchange Traded Funds, Managed Funds, Mutual Funds, Private Investors, Capital Market, Asset Management, Portfolio Diversification, Investment Preferences, Net Asset Value, Financial Instruments, Trading Flexibility, Cost Efficiency, Index Tracking, Investment Strategy, Performance
Frequently Asked Questions
What is the primary goal of this research paper?
The paper aims to determine whether private investors prefer Exchange Traded Funds (ETFs) or Managed Funds by analyzing their preferences regarding cost, flexibility, and management styles.
Which investment instruments are compared in this study?
The study conducts a comparative analysis between Exchange Traded Funds (ETFs) and Managed (Mutual) Funds.
What research methodology was employed?
The author utilized a quantitative approach by conducting an online questionnaire among 44 participants to capture subjective investor perceptions and preferences.
How were the investment preferences measured?
The author developed a scorecard system where specific survey answers were weighted to assign points to either ETFs or Managed Funds, leading to a comparative final score.
What are the core differences between ETFs and Managed Funds according to the findings?
ETFs are characterized by low running costs and high trading flexibility, whereas Managed Funds rely on professional management and are typically traded once daily at a fixed Net Asset Value.
What were the final results of the investment preference evaluation?
The study concludes that private investors in the survey clearly prefer ETFs, primarily due to their lower total costs and higher flexibility in trading.
Why did the author use a funnel-shaped question structure in the survey?
The funnel structure was chosen to guide respondents from general interest and knowledge questions to specific decision-making criteria between the two asset classes.
How does the issue of forward pricing affect Managed Funds?
Forward pricing means orders are executed at the next day's Net Asset Value, which limits trading flexibility compared to the real-time trading capabilities of ETFs.
- Arbeit zitieren
- Markus Weißmann (Autor:in), 2020, Exchange Traded Funds vs. Managed Funds. Which investment do private investors prefer?, München, GRIN Verlag, https://www.grin.com/document/932831
