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Glossary
Active management
A style of investment management, which aims to provide returns above, a set benchmark, through asset allocation and stock selection. The opposite is passive management.
Aggressive
An investment approach designed to provide above-average returns by taking above-average risk.
Alpha
The alpha of a fund measures its performance when the performance of its benchmark is zero. It is indicative of the ability of the fund manager to outperform its benchmark, taking the market risk into account. The more positive the better.
Asset
Any item of economic value owned by an individual or corporation, especially that which could be converted to cash.
Asset allocation
The process of dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, to optimize the risk/reward trade-off based on an individual's or institution's specific strategy and goals.
Asset classes
The different categories of financial assets, such as shares, bond (or fixed interest), property and cash.
Average annual return
A calculation that converts a cumulative total return into an annualized figure expressed as a percentage.
Balanced fund
An investment fund that spreads its holding over a range of asset classes, creating a balance between risk and return.
Bear market
A prolonged period of falling prices, usually 20% or more, accompanied by widespread pessimism. Opposite of bull market.
Benchmark
The benchmark of a fund is its main investment yardstick. It is mostly a well-known market index, a combination of indexes or an in-house index, if no appropriate index is available. Comparing the performance and the risk indicators of a fund relative to its benchmark offers a way to assess the quality of the fund management.
Beta
The Beta of a fund indicates its sensitivity to fluctuations of the benchmark. A Beta higher than 1 (lower tan 1) indicates that the fund tends to gain (lose) x% when the benchmark gains (loses) x%. Hence, the Beta is a measure of risk: a figure far above 1 reflects a strong sensitivity to market fluctuations.
Bond
A type of security that pays a fixed amount of interest at a regular interval over a certain period of time.
Bull market
A market in which prices are moving upward over time, usually by 20 % or more. Opposite of bear market.
Capital appreciation
An increase in the market price of an asset.
Capital gain
The amount by which an asset's selling price exceeds its initial purchase price.
Capitalisation shares
Do not pay out any income but accumulate ( =capitalise) it, thus generating capital gains.
Click funds
Offer investors the opportunity to participate in the upside potential of an underlying index, while trying to maintain a certain Net Asset Value (floor) through investing in transferable securities of high quality issuers.
Derivative
A financial contract that derives its value from another physical asset's.
Distribution shares
Income shares that accumulate the income generated by the fund and pay an annual dividend.
Diversification
A portfolio strategy designed to reduce exposure to risk by combining a variety of investments, which are unlikely to move all in the same direction.
Dividend
Income generated by a fund and paid annually to the investor.
Duration
The duration of a bond portfolio can be defined as the average life of the bonds in the portfolio weighted by the present value of all future cash flows from the bonds. The longer the duration, the stronger the sensitivity of the portfolio to interest rate changes.
Emerging markets
A financial market of a developing country, usually a small market with a short operating history, which have a low per head income compared with the developed world but which nevertheless have functioning stock exchange.
Equity
A security representing the owner's partial share in the capital of a stock company.
European passport
The local control authorities of European countries cannot forbid the commercialisation of UCITS having the European passport, because only the home control authority can decide about the contents. The local control authorities can, however, impose conditions / rules about the information distributed to local shareholders ('commercialization rules').
Exchange
Any organization, association or group which provides or maintains a marketplace where securities, options, futures, or commodities can be traded.
FRN - floating rate note
A bond whose interest rate is adjusted according to the interest rates of other financial instruments. Also known as floaters, these instruments provide protection against rising interest rates but pay lower yields than fixed rate notes.
Fund Management Ratings
AAA / AA / A The mutual fund demonstrates the highest / very high / high standards of quality in its sector based on its investment process and management's consistency of performance as compared to funds with similar objectives.
Futures
A standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date.
Information ratio (annualised)
The information ratio measures the average excess performance (relative to the benchmark) of a fund adjusted for relative risk. In technical terms, it is the ratio of the average excess performance over the tracking error.
Investment company
Firm that invests the pooled funds of retail investors for a fee. There are two types:open-end and closed-end.
Investment fund
An entity possessing legal personality consisting of securities and pecuniary resources invested in securities in accordance with the formerly approved and unchangeable investment target of the fund.
Market price
A security's last reported sale price (if on an exchange) or its current bid and ask prices (if over-the-counter).
Market risk
Risk which is common to an entire class of assets or liabilities.
Micropal average
The Micropal Average measures the average performance of all funds registered for sale in the fund category defined by Micropal. Comparing a fund to its Micropal average enables investors to identify the funds outscoring or underscoring the average performance of all funds present in this category.
Micropal Star ranking
The Standard & Poor's Micropal Ranking is calculated using a fund's monthly performance relative to its sector average for each of the 36 months over the 3 years to date. The average and volatility of these 36 numbers are used to calculate a fund's star ranking. 5 stars mean top 10%, 4 stars mean top 11-30%, 3 stars mean top 31-50%, 2 stars means next 25% and 1 star means bottom 25%.
Money management
The process of managing money, including investments, budgeting, banking, and taxes, also called portfolio management or investment management.
Mutual fund
An open-ended fund operated by an investment company, which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Benefits include diversification and professional money management. Shares are issued and redeemed on demand, based on the fund's net asset value that is determined at the end of each trading session.
NASDAQ
National Association of Securities Dealers Automated Quotations system. A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks.
Net Asset Value (NAV)
The share price of a mutual fund. It is calculated by dividing the total net assets of the fund by the total number of shares outstanding.
Nikkei Index
Index of 225 leading stocks traded on the Tokyo Stock Exchange.
Offshore fund
Fund that does not depend directly on the law of the country where it is registered.
Online trading
The increasingly popular activity of buying and selling securities over the Internet.
Open-ended fund
Same as mutual fund.
Option
The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time. For stock options, the amount is usually 100 shares. Also called option contract.
Over-the-counter (OTC)
A security which is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, broker/dealers negotiate directly with one another over computer networks and by phone.
Passive management
A style of investment management that aims to achieve performance equal to the market or index returns.
Performance
The performance of a fund shows the percentage change of the net asset value of the fund between two dates. The performance is an important indicator of quality of the fund management, but by no means the only one. Its major drawback lies in the fact that it does not take risk into account.
Portfolio
A collection of investments, all owned by the same individual or organisation.
Price
Cost, usually expressed in monetary terms.
Price/Earnings Ratio (P/E ratio)
The most common measure of how expensive a stock is. Equal to a stock's capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period but occasionally the current or forward period.
Prospectus
A legal document offering securities or mutual fund shares for sale. It must explain the offer, including the terms, issuer, objectives (if mutual fund) or planned use of the money (if securities), historical financial statements, and other information that could help an individual decide whether the investment is appropriate for him/her.
Protected Mix funds
The basic objective is to maximise equity exposure, while trying to maintain on a daily basis a certain level (70%, 80% or 90%) of the NAV through an optimal allocation between equities and fixed income securities and by using derivative contracts such as over-the-counter options.
Qualitative research
Traditional analysis of a company's outlook. While it is based on data collected, there is no formal quantitative framework used to generate projections.
Quantitative analysis
The process of determining the value of a security by examining its numerical, measurable characteristics such as revenues, earnings, margins, and market share.
Quarterly report
Un-audited document required by the regulatory authorities for all public companies, reporting the financial results for the quarter and noting any significant changes or events in the quarter.
Ranking
Comparison of an investment's performance to others over a given time period.
Rating service
A company that publishes ratings, such as Standard & Poor's or Moody's.
Reinvestment
Using the dividends, interest, or profits from an investment to buy more of that investment.
Return (1m/3m/1y)
The profit earned on an investment, usually expressed as a percentage of the invested amount.
Risk
The variability of returns, referring to the possibility that an asset may not achieve its expected rate of return.
Risk-averse
Investing conservatively. Also, wanting to avoid risk unless adequately compensated for it; the attitude of most investors.
Retail investor
An individual who purchases small amounts of securities for him/herself.
R-squared
R-squared measures the degree of correlation between a fund and its benchmark. It calculates the proportion of the fluctuations of the net asset value of the fund that can be attributed to fluctuations of the benchmark. A value of 1 means that the fund is perfectly correlated with the benchmark.
Sector fund
A mutual fund which invests entirely or predominantly in a single sector.
Securities
Another name for stocks and shares but also applies to any approved or registered financial instrument, such as bonds.
Shareholder
One who owns shares of stocks in a corporation or mutual fund.
Sharpe ratio (annualised)
The Sharpe Ratio of a fund is a measure of risk-adjusted performance, as it can be defined as the ratio of average excess return over the volatility of the return series. The higher this ratio, the better the risk adjusted performance. It is an absolute performance indicator, implying that it does not require the definition of a benchmark.
Small caps
"Small caps" shares are companies with a relative small market capitalisation and a high growth potential.
Standard & Poor's 500 (S&P 500)
A market value weighted index of 500 blue-chip stocks, considered to be a benchmark of the U.S. stock market.
Stock
An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation's assets and profits.
Stock exchange
An exchange on which shares of stock and common stock equivalents are bought and sold.
Swap
An exchange of streams of payments over time according to specified terms. The most common type is an interest rate swap, in which one party agrees to pay a fixed interest rate in return for receiving an adjustable rate from another party.
Tracking error (annualised)
The Tracking Error is a measure of relative risk. It calculates the standard deviation of the excess performance, i.e. the difference between the performance of the fund and the performance of its benchmark. In other words, the tracking error is indicative of the extent to which the fund is actively managed.
Transfer agent
An agent employed by a corporation or mutual fund to maintain shareholder records, including purchases, sales, and account balances.
UCITS-I Status
The UCITS -I Status (Undertaking...) is given to an Undertaking for Collective Investments (UCI) which was set up in accordance with section I of the Luxembourg law on collective investment undertakings (corresponding to the rules of the European Directive). It receives a European passport from the Luxembourg control authority.
UCITS -II Status
The UCITS - II Status (Undertaking...) is given to an Undertaking for Collective Investments (UCI) which was set up in accordance with section II of the Luxembourg law on collective investment undertakings. It does not receive a European passport from the Luxembourg control authority.
Valuation date
Date from which credited (or debited) amount begins bearing interest. This date can be different from the credit (debit) date.
Value Added Tax (VAT)
A consumption tax, which is levied at each stage of production based on the value, added to the product at that stage.
Volatility (annualised)
The (annual) volatility of a fund is the most common measure of its risk. It measures the annual standard deviation of the successive returns of the fund. A high volatility indicates a high risk.
WAM - Weighted average maturity
The weighted average maturity of the individual loans underlying the security, using the balance of each loan as the weights.
Yield
The yield of a fixed income asset shows the annual cash flows from this asset as a percentage of the market price. For bond funds, the yield is usually calculated as the average duration-weighted yield, in order to take into account the differences in duration of each individual bond.
Yield curve
A curve that shows the relationship between yields and maturity dates for a set of similar bonds, usually Treasuries, at a given point in time.
Yield to maturity
Yield that would be realized on a bond or other fixed income security if the bond was held until the maturity date. It is greater than the current yield if the bond is selling at a discount and less than the current yield if the bond is selling at a premium.
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