An investment pool, such as a mutual fund or ETF, in which core holdings are fixed income investments. A debt fund may invest in short-term or long-term bonds, GNMAs and other securitized products, money market instruments or floating rate debt. The fee ratios on debt funds are lower, on average, than equity funds because the overall management costs are lower.
The main investing objectives of a debt fund will usually be preservation of capital and generation of income. Performance against a benchmark is considered to be a secondary consideration to absolute return when investing in a debt fund.
A passive form of portfolio management that involves the matching of future cash flows with future liabilities.
The process of dedicating a portfolio may be used as an alternative to multiperiod immunization. Since the portfolio is usually comprised of investment-grade instruments, there is usually no need to rebalance the portfolio. Additionally, the payments are almost always guaranteed.
The process of changing corporate structure from a mutual fund company to some other form, such as a limited liability or corporation.
This means mutual/life insurance companies convert from policyholder companies to stock companies.
1. An extremely hard gemstone used mainly for jewelry and tools. 2. An exchange traded security, issued by the American Stock Exchange, that replicates the movements in the Dow Jones Industrial Average.
2. By owning the Dow Diamonds you get instant diversification by purchasing as little as one share.
A mutual fund that invests its assets in a wide range of common stocks. The fund's objectives can be growth, income, or a combination of both.
The name basically says it all. It's a fund that invests in a bunch of different stocks.
A type of investment fund that contains a wide array of securities and is adequately diversified. A mutual fund classified as a "diversified fund" will actively maintain a high level of diversification in its holdings, thus reducing the amount of risk in the fund, since events that affect one sector won't have the same effect on other sectors. For example, the fund may restrict its purchases so it is not dominated by companies from one industry or representing one market capitalization size.
A diversified fund contrasts with specialized or focused funds, such as sector funds, which focus on stocks in specific sectors such as biotechnology, pharmaceuticals or utilities, or in particular regions such as Asia or Europe. If you want to be broadly diversified across the entire market, diversified funds are a good place to start looking.
The peak-to-trough decline during a specific record period of an investment or fund. It is usually quoted as the percentage between the peak and the trough.
Basically a drawdown is from the time a retrenchment begins to when a new high is reached (because you won't know the valley until the new high is reached).
A fund created by a closed-ended investment company that offers two classes of stock. Each class offers entitlements to either income or capital appreciation.
The two types of stock offered by a dual purpose fund are capital and income. The fund's two kinds of potential cash flows allow individual investors to choose a specific class that is more in line with their investment objectives.
A line created from the risk-reward graph, comprised of optimal portfolios.
The optimal portfolios plotted along the curve have the highest expected return possible for the given amount of risk.
A mutual fund investing a majority of its assets in the financial markets of a developing country, typically a small market with a short operating history.
These funds offer higher potential returns in exchange for greater risk.
A mutual fund that has a primary goal of matching the returns of a market index with a secondary goal of outperforming the same index. Managers of these funds may use several techniques to acheive this secondary goal including the use of hedging techniques, leverage, specific over and underweightening of sepecific stocks in the index along with general market timing techniques. The idea with these funds are that through some active management techniques these funds should be able to enhance the overall performance of an indexing strategy.
Enhanced Index Funds are a relatively new product in the marketplace. However, many enhanced index funds have not beaten the index that they track over their lifetime, mainly due to their higher average expense ratios, and higher turnover rates. Higher turnover than a comparable index fund is twice bad, as higher commissions add with short-term capital gains to create many expenses not found in the comparable standard index fund. Investors should read a prospectus for an enhanced index fund carefully so as to be aware of all the strategies the fund manager is using to boost returns.
A mutual fund that is based on a standard stock market index, but with certain modifications in place to allow for more equivalent position sizes, the exclusion of certain securities, or the use of leverage, all with the goal of beating the return of the comparitive index. Enhanced-index funds are actively managed, and the most common index used as a base is the S&P 500.
A relatively new entrant into the managed fund space, enhanced-index funds trade with the "index fund" title, but to be fair, that's where the comparison usually ends. True index funds have consistently lower fees, lower turnover, and passive management. Many enhanced index funds were created in the aftermath of the bear market for largecap stocks between 2000 and 2002; in 2000 the 10 largest stocks in the S&P 500 represented nearly 1/3 of the total market capitalization of the index. By adding more equal position sizes, the a manager of one of these new funds would look to limit downside losses.Enhanced index funds using leverage can have twice the price volatility of the underlying index, exposing investors to much more risk than a standard index fund.
A mutual fund that invests in a broad, well-diversified group of stocks.
An equity fund typically won't invest in any bonds or notes. The invested funds will either be in cash or stock.
1. Income that is earned through an investment in equity. 2. A type of mutual fund whose portfolio is invested in companies that are determined to be of high quality and have a strong history of dividend growth.
1. A shareholder receives equity income usually through dividends or capital gains. 2. This type of investment strategy attempts to provide a stable income for investors by choosing securities that will provide both capital appreciation and consistent dividends.
The opportunity given to a mutual-fund shareholder to exchange a fund for another within the same fund family at no additional cost.
This privilege allows investors to switch funds when market conditions change. For example, you might want to be in an aggressive growth fund when the market is going up, but when the markets start heading downward, you may switch to a bond fund. There is usually a limit as to how many times per year you can switch to other funds within a family.
The percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return that fund holders achieve. These expenses include management fees and operating expenses. The management fee is the fee that is charged to the fund by the portfolio manager, and it is often a fixed percentage. The operating expenses are the expenses that the fund incurs through operation and this can include brokerage fees, taxes, investor services and interest expenses.Also known as the "management expense ratio" (MER).
The amount of the MER is usually dependent on how active the portfolio manager is in the trading of the fund; an actively managed fund will have a higher ratio than an index fund, for instance. It is important for investors to be aware of the MER as it affects the rate of return that an investor in the fund achieves. The amount of the MER must be stated in the fund's prospectus.
A mutual fund that tends to perform well during favorable economic conditions.
In other words, this is a fund that performs best when the stock market is doing well.
A group of mutual funds offered by one investment or fund company. Each mutual fund has different characteristics and can range depending on investment objective.Also referred to as a "Mutual Fund Family" or simply a "Fund Family".
Most fund companies today offer a wide range of mutual funds for investors to choose from. A benefit to fund families is they often allow investors to transfer money between funds for a nominal charge or no charge at all. Therefore, an investor who decides to switch from a growth fund to a balanced fund could do so without any new sales charges if each of these funds were part of the same fund family.
A fund that conducts virtually all of its investing through another fund (called the master fund).
This is similar to a fund-of-funds arrangement, except that the master fund manager is responsible for managing the underlying investments. Often, an onshore feeder fund will invest in an offshore master fund. This is done so that the foreign master fund can gain a tax advantage for the domestic investors.
A legal document stating the price of a newly issued security, the delivery date and other facts that are important for investors.
The final prospectus must be given to every investor who purchases a new issue of registered securities. A key difference between a final prospectus and a preliminary prospectus (or red herring) is that the final prospectus contains the security's price.
A nine-box matrix that displays the characteristics of international and domestic fixed-income investment funds. On the horizontal axis, funds are separated into one of three categories - either short term, intermediate term, or long term, depending upon the average effective duration of the bonds contained in the fund. On the vertical axis, funds are separated into one of three categories depending upon the average investment grade of the bonds in the fund. Bond funds with average ratings from 'AAA' to 'AA' are considered high quality. Funds with average ratings from 'A' to 'BBB' are considered medium quality. Those with average ratings below 'BB' are considered low quality.
The equity style box was created by Morningstar and is meant to visually demonstrate the size and investment characteristics of mutual funds. Since their introduction, equity style boxes have been adjusted to demonstrate a variety of different characteristics of investment funds. Fixed-income style boxes visually demonstrate the two most important characteristics of funds of fixed-income investments: credit quality and average effective duration.
Funds that contain a large holding of a small amount of stocks.
There are three general types of focused funds: 1. Those who hold a portfolio concentrated in approximately 10 to 30 stocks. 2. Those who concentrate their holdings within 1 to 3 sectors. 3. Those who hold a large number of different stocks, but a large portion of their total portfolio value is concentrated in a very small number of stocks. Also known as "underdiversified funds" or "concentrated funds."
A form sent to investors by investment fund companies. The form is a record of all taxable capital gains and dividends paid to an investor, including those that have been re-invested in a given taxation year. The amounts stated on the form represent the amounts that fund companies are attributing to each investor's investment return for the year and reporting to the IRS. Investors use Form 1099-DIV to help report income received from investments on their tax return each year.
Form 1099-DIV reports the ordinary dividends, total capital gains, qualified dividends, non-taxable distributions, federal income tax withheld, foreign tax paid and foreign source income from each investment account held by a fund company. Forms are not sent to investors who received or re-invested a total of less than $10 per fund.
A Securities and Exchange Commission regulation that requires that investment companies price all of their buy and sell orders of fund shares according to the next net asset value (NAV). This valuation process is for open-end mutual fund transactions in which the mutual fund itself is constantly issuing and redeeming mutual fund shares at the most recent NAV per share.
Forward pricing is implemented when a trade is placed to buy or sell shares of an open-end mutual fund. This occurs because open-end funds only recalculate the net asset value of their mutual fund shares after the market closes each trading day. As a result, any mutual fund order placed by an investor can't be quoted at a previous net asset value price, and must instead be given according to the next computed net asset valuation.
A mutual fund that tends to perform well during poor economic conditions.
In other words a fund that does well when the stock market does not.
A commission or sales fee charged at the time of the initial purchase for an investment, usually mutual funds and insurance policies. It is deducted from the investment amount and thus, lowers the size of the investment. For mutual funds, the use of loads is suggested to prevent frequent trading of the fund, which can hurt a fund if it has to hold large cash reserves to meet payouts.
Loads are added to the net asset value of shares when the offering price is calculated. Remember, this fee is nothing more than a sales commission. Its supporters (who, strangely enough, are usually mutual fund salespeople) argue that a load is the price you pay for a broker's expertise in selecting the correct fund for you. Despite this reasoning, just about every study shows that load funds do not outperform no-load funds.
A highly trained investment professional with a vast amount of investment experience with good performance and exceptional formal education. The fund manager's main responsiblities include investing the assets of a mutual, pension, trust, or hedge fund, implementing investment strategy and managing the day-to-day portfolio trades.
The whole point of investing in a fund is to leave the security picking to professionals. Therefore, the fund manager is one of the most important factors to consider when looking at any particular fund. Researching a fund manager's past performance in the last five or more years will tell you a lot. Have they had consistent performance? Have they bounced around from fund to fund? Do they have a history of underperforming?
A mutual fund that invests in other mutual funds.
For example, an investor would select a general risk profile and the fund-of-funds manager would pick underlying investments from a range of products managed by external managers. The big downside is you are paying management fees twice. This method is sometimes known as "multi-management."
A figure used by real estate investment trusts (REITS) to define the cash flow from their operations. It is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis.
The FFO-per-share ratio should be used in lieu of EPS when evaluating REITs and other similar investment trusts.
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