As I have said in the past, what keeps investing interesting (and hard) is that the rules keep changing as clever people invent yet more investment products. Here is a new type of "bond".
Mutual-Fund Investing Takes a New Structure
'Certificates' Work Like Bonds And Look Attractive for Retirees But Lack Oversight and Fee Data
December 2, 2005
As investors scour the globe looking for ways to generate income while giving their money a chance to grow, they have been pouring cash into a new type of investment tied to mutual funds or hedge funds.
The money in these investments, known as structured notes, goes into stock or bond mutual funds or even funds of hedge funds. But the investments, also known as certificates, work in many ways like bonds. They usually have a maturity date and offer an annual return.
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In the U.S., which the International Monetary Fund estimates accounted for 9% of the $140 billion in structured notes sold world-wide last year, the notes have been sold largely to wealthy individuals. But Ben Phillips, managing director at Cerulli Associates, a fund research firm in Boston, predicts they will become more popular because they can offer "steady yield" that will appeal to baby boomers who are beginning to retire.
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In Europe, the notes are mostly created and sold by banks, which provide regulators and investors with a prospectus that describes the structure and fees charged by the bank. Banks typically attach the prospectus of the underlying fund or funds. Investors then have to sift through two or more sets of dense documents to add up all the fees. Mutual funds, by contrast, must report fees and performance in a more straightforward manner.
