Funds, ETFs & Mutual Funds

What a fund actually is, how fund returns are made, how funds are priced and traded, evaluating one specific fund, its risks, costs and taxes, and where funds fit in a portfolio.

Buying a whole basket at once

Lessons

• A fund is a wrapper, not an asset class of its own — Buying a fund buys a proportional claim on whatever it holds. Until you have opened the holdings list, the name on the ticket tells you almost nothing about what you own. (9 min)
• The fund manufactures nothing: pass-through, minus costs — A fund's return is the weighted return of its holdings less what it charges. Knowing that changes what you are actually forecasting when you forecast a fund. (11 min)
• Two prices: what the holdings are worth, and what somebody will pay — Net asset value is an accounting fact struck at a moment. An exchange-traded fund's market price is a live opinion. The gap between them is sometimes a mispricing and sometimes the more honest number. (12 min)
• Appraising one fund: the holdings file, the rules, and the gap to the index — Seven checks, in order of how much they change what you own. The two everybody runs - the name and the expense ratio - are the two cheapest, and the one nobody runs is where the exposure lives. (14 min)
• The cost you can read, the costs you cannot, and the tax bill you did not choose — Four layers of cost sit behind one printed number, and a fund's own trading can hand you a taxable event on a position showing no gain at all. (13 min)
• What a fund does that nothing else does, and what having it costs you — It converts a sum too small to spread into a spread sum, in one transaction. In exchange you buy every holding at somebody else's weights, including the ones you would never pick. (10 min)

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