Investments, tenth edition

Assets 

($ billion)

% of 

Total Assets

Number 

of Funds

Equity funds

  Capital appreciation focus

$  2,356

20.3%

2,686

 World/international

1,359

11.7

1,285

 Total 

return

    1,490

  12.8    

   610

    Total equity funds

$  5,205

44.8%

4,581

Bond funds

  Corporate

$     452

3.9%

252

 High 

yield

212

1.8

179

 World

259

2.2

205

 Government

261

2.2

246

 Strategic 

income

1,204

10.4

484

 Single-state 

municipal

159

1.4

347

 National 

municipal

       338

    2.9    

   216

    Total bond funds

$  2,885

24.8%

1,929

Hybrid (bond/stock) funds

$     839

7.2%

495

Money market funds

  Taxable

$  2,400

20.7%

431

 Tax-exempt

       292

    2.5    

   201

    Total money market funds

$  2,692

23.2%

632

Total

$11,621

100.0%

7,637

bod61671_ch04_092-116.indd   98

bod61671_ch04_092-116.indd   98

6/18/13   8:35 PM

6/18/13   8:35 PM

Final PDF to printer

---

  C H A P T E R  

4

  Mutual Funds and Other Investment Companies 

99

in large part in speculative grade, or “junk,” bonds with high yields. However, names 

of common stock funds often reflect little or nothing about their investment policies. 

Examples are Vanguard’s Windsor and Wellington funds.   

  How Funds Are Sold 

 Mutual funds are generally marketed to the public either directly by the fund underwriter 

or indirectly through brokers acting on behalf of the underwriter. Direct-marketed funds 

are sold through the mail, various offices of the fund, over the phone, or, more so, over the 

Internet. Investors contact the fund directly to purchase shares. 

 About half of fund sales today are distributed through a sales force. Brokers or financial 

advisers receive a commission for selling shares to investors. (Ultimately, the commission 

is paid by the investor. More on this shortly.) 

 Investors who rely on their broker’s advice to select their mutual funds should be aware 

that brokers may have a conflict of interest with regard to fund selection. This can arise 

from a practice called  revenue sharing,  in which fund companies pay the brokerage firm 

for preferential treatment when making investment recommendations. 

 Many funds also are sold through “financial supermarkets” that sell shares in funds 

of many complexes. Instead of charging customers a sales commission, the broker splits 

management fees with the mutual fund company. Another advantage is unified record 

keeping for all funds purchased from the supermarket, even if the funds are offered by 

different complexes. On the other hand, many contend that these supermarkets result in 

higher expense ratios because mutual funds pass along the costs of participating in these 

programs in the form of higher management fees.