A mutual fund that invests in several different types of medium and long-term government securities in addition to top quality corporate debt. Gilts originated in Britain.
Gilt funds differ from bond funds because bond funds invest in corporate bonds, government securities, and money market instruments. Gilt funds stick to high quality-low risk debt, mainly government securities.
A mutual fund that can invest in companies located anywhere in the world, including your own country.
Many people confuse a global fund with an international fund. The difference is that a global fund includes the entire world, whereas an international fund includes the entire world except for your home country.
A diversified portfolio of stocks that has capital appreciation as its primary goal, and thereby invests in companies that reinvest their earnings into expansion, acquisitions, and/or research and development.
Most growth funds offer higher potential growth but usually at a higher risk.
The highest peak in value that an investment fund/account has reached. This term is often used in the context of fund manager compensation, which is performance based.
The high watermark ensures that the manager does not get paid large sums for poor performance. So if the manager loses money over a period, he or she must get the fund above the high watermark before receiving a performance bonus. For example, say after reaching its peak a fund loses $100,000 in year one, and then makes $250,000 in year two. The manager therefore not only reached the high watermark but exceeded it by $150,000 ($250,000 - $100,000), which is the amount on which the manager gets paid the bonus.
A mutual fund that seeks to provide stable current income by investing in securities that pay interest or dividends.
Income funds typically invest in utility stocks and blue chips.
A class of shares offered by a dual purpose fund that has little room for capital appreciation but gives the holder a portion of all income earned in the portfolio.
This type of share typically attracts those investors looking for a steady stream of income rather than capital appreciation. The holders receive their portion of all income created in the portfolio plus any additional returns on the stocks' par value at the time of the fund's dissolution.
An investment trust that holds assets which are income producing. The income is passed on to the unit holders.
Some of the most popular income trusts are real estate investment trusts and natural resource trusts.The main attraction of income trusts is their ability to generate constant cash flows for investors.
A fund that is offered privately when it is first created. Investors of this type of fund are usually employees associated with the fund and their family members. Incubation allows fund managers the ability to keep a fund's size small, while testing different investment styles, before the fund is available to the public and subject to restricting rules and regulations.
There are two paths that can be taken by an incubated fund. If the fund is able to achieve excessive returns it is "born" and made available to the public. However if returns are not adequate the funds are liquidated and "buried."The use of incubated funds has come under criticism as of late. Since incubated funds are not managed under normal conditions the returns that are achievable can be greater than they normally would have been. Subsequently when the fund is advertised to the public the returns that are shown are ones that may not be able to be replicated in the future. To avoid problems investors must be able to identify if a fund was first an incubated fund. However this is easier said than done, as fund managers usually attempt to hide a fund's incubator origins.These types of funds are never officially called "incubated," but are rather called "limited distribution."
A trial process in which a fund company operates a number of funds privately with its own capital or employee capital, and only opens the top performing funds to the public. The higher performing funds that survive the incubation period are used by the fund company to generate business. The funds with unattractive performance, which would be more difficult to market, are liquidated.
While there is nothing illegal about this practice, some consider it to be unethical because it can overstate the investing performance of the fund company, creating what is known as incubation bias.For example, suppose that a fund company starts three funds that earn returns of -5%, 2%, and 20% respectively over a one-year period. If the fund company only opens the 20% fund to the public and does not disclose the other performances, a bias is created because the average performance of the three funds is actually 5.7%.
A portfolio of investments that is weighted the same as a stock-exchange index in order to mirror its performance. This process is also referred to as "indexing".
Investing in an index fund is a form of passive investing. The primary advantage to such a strategy is the lower management expense ratio on an index fund. Also, a majority of mutual funds fail to beat broad indexes such as the S&P 500.
A mutual fund that tends to perform very similar to a benchmark index like the S&P 500.
These funds aren't very attractive to investors. They'd be better off just investing in an index fund, rather than an equity mutual fund that ends up performing the same as the index (because the fees are much lower in an index fund). To avoid an index hugger, look for fund managers who are aggressive and individualistic.
A measure of portfolio management's performance against risk and return relative to a benchmark or alternative measure.
This ratio was developed by Nobel laureate William Sharpe. It is a straightforward way to evaluate the return a fund manager achieves, given the risk they take on.
A mutual fund targeting high value investors with low fees, but high minimum requirements.
These funds must indicate within their prospectuses or name that they're institutional and typically solicit managers of retirement plans, institutional investors, and large endowment trusts.
A class of mutual fund shares available for sale to investing institutions, either on a load or no-load basis. With sizable minimum investments, usually around $500,000 or more, funds will typically waive any front-end sales charges on these shares.
Institutions, such as large money managers, often buy a significant number of shares in mutual funds at any one time. Buyers of big blocks of mutual fund shares expect, and often receive, a break on commission charges. Because of the large investments required to receive these breaks, individual investors typically cannot afford these shares.
A nine-box matrix that displays the characteristics of international stock funds. On the horizontal axis, funds are separated into one of three categories - either value, blend or growth. On the vertical axis, funds are separated into one of three categories - small, medium or large market capitalization.
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. International equity style boxes show funds with less that $1 billion in median market capitalizations as small cap, funds with between $1 billion and $5 billion in market capitalization are medium cap, and those with more than $5 billion in market capitalization are considered large cap. On the horizontal axis, funds are grouped into either value, blend or growth based on the portfolio's average price-to-cash-flow and price-to-book ratios.
A mutual fund that can invest in companies located anywhere outside of your own country.
Many people confuse an international fund with a global fund. The difference is that a global fund includes the entire world, and an international fund includes the entire world excluding your home country.
A fund that combines the features of open-ended and closed-ended schemes, making the fund open for sale or redemption during pre-determined intervals.
In other words, this is a mutual fund with redemption features in between those of closed-end and open-end funds.
A corporation or trust engaged in the business of investing the pooled capital of shareholders in the financial instruments of other companies. This is most often done either through a closed-end fund or an open-end fund (also referred to as a "mutual fund"). In the U.S., most investment companies are registered with and regulated by the Securities & Exchange Commission under the Investment Company Act of 1940.
Individual investors in an investment company can achieve a high level of diversification with minimal effort and cost, since the funds from all investors in the fund are pooled together for the investment company to make investments. Investment companies make a profit by charging fees to investors wishing to buy shares in the company and by affixing a percentage claim on the company's returns.
Created in 1940 through an act of Congress, this piece of legislation clearly defines the responsibilities and limitations placed upon fund companies that offer investment products to the public.
Enforced and regulated by the Securities and Exchange Commission, this act clearly sets out the limits regarding filings, service charges, financial disclosure and fiduciary duties. It is the document that keeps investment companies in check.
Mutual fund shares purchased by individual investors as opposed to institutional shareholders. When individual investors buy shares of a mutual fund, they are typically charged either a front-end or back-end fee. The charges are based on the total dollar amounts of their purchases.
Investor shares are subject to a commission charge at purchase or upon sale/redemption. For example, if you were to invest $1,000 in a fund that charged a 5% fee, you would pay/owe $50 up front, or upon sale. By law, funds can charge fees, also known as "loads" up to a rate of 8.5%. However, as a result of competition, many funds charge lower rates.
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