Choose wisely. There is only one correct answer to each question.
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1.
Why should you favor managers who invest in their own funds?
Their interests are aligned with yours. Managers who also own the funds they run are shareholders, too, which means they're more likely to keep costs lower and minimize taxable distributions.
2.
Why do rookie funds often cost more than established funds?
Because rookie funds generally have fewer shareholders to cover costs. As funds grow, they begin to enjoy economies of scale; in other words, there are more shareholders to cover costs.
3.
Why is it important to examine a rookie fund's portfolio?
Both of the above. Without past return and risk statistics to guide your decision, the portfolio is the best indication of a fund's potential.
4.
For most investors, rookie funds should _______.
Be held in small quantities, if at all. Consider starting out with a small position in a rookie fund, and if the fund lives up to your expectations, you can always add to it over time.
5.
Because they are new on the scene, rookie funds are likely to carry lower expense ratios than older funds.
False. They are likely to carry higher expense ratios because they have fewer shareholders, compared to established funds, to bear the costs.
