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Issue 8 / Spring 2009
click to view pdf version
Managing Your Finances in the New Economy
Gifts on the Go
Understanding the Role of Mutual Fund Managers in Financial Planning
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It is a commonplace occurrence in today’s volatile Stock Market for specific securities to rise and fall by as much as 30% in daily trading. After watching a corporation’s stock price increase by a large percentage, many investors are often left to wonder, “Why didn’t my financial planner buy that security?” The answer is found in the role of the mutual fund manager in financial planning. At Waller Financial, investment decisions are guided through a unique plan structured on a client’s financial goals, which entail desired rates of risk and return. The financial planner assesses the level of risk required to achieve a desired return and selects a portfolio of mutual fund investments that match the assigned risk tolerance. Once a client’s funds have been invested, mutual fund managers make decisions on the client’s behalf to purchase securities for a given fund. Mutual funds are governed by managers with specific industry and investment expertise. The manager is responsible for performing due diligence on a wide variety of securities to be considered for inclusion in the fund. While there are thousands of different mutual funds, all funds fall under two management categories: active and passive. In passively managed funds (also known as “index funds”), the manager’s role is simplified. Stock purchases and trades are based on “the same securities as those in a market index.”* As an example, Standard and Poor’s 500 index monitors the overall return on America’s 500 largest public companies’ securities. A committee from the S&P 500 index determines which companies are chosen to make up that index. Managers of passively managed mutual funds based on the S&P 500 track the index and only buy or sell when the index changes to maintain the fund’s blend. |
Alternatively, actively managed funds require a more systematic approach to the purchase and trade of stocks and bonds. There are many variations and classifications of these funds, but all are maintained by managers who thoroughly research securities, market trends, and economic conditions to develop a specific portfolio based on an investment theme. Mutual fund themes include emerging technologies, middle market businesses, or alternative energies. When making purchase decisions, the fund manager selects securities that best fit the mutual fund’s investment theme, while sufficiently diversify the fund for risk management.* Waller Financial selects only those mutual funds whose investment managers who have demonstrated a commitment to making consistent, high quality investment decisions. In many cases, these managers have purchased specific securities that have increased significantly in value on behalf of our clients, but only after ensuring that the securities matched the theme and risk tolerance of the mutual fund. If you would like more information on the mutual funds utilized for your specific investment plan, contact your financial planner today at 614.457.7026.
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