Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
3.
Rookie funds often cost more than established funds because they have more shareholders to pay dividends to.
False. They cost more because they have fewer shareholders. They don't benefit from an economy of scale.
4.
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.
5.
What can you not count on when trying to get an idea of a rookie fund's risk level?
Historical risk measures. A new fund will have no (or perhaps many fewer) past years of risk measures to draw from. Therefore, you should gauge risk by how the portfolio is constructed currently.
