An unethical (if not illegal) practice of a hedge fund purchasing and then selling securities (usually shares of a mutual fund) after the close of a trading day, but making the transactions appear as though they occurred before the market close.
For mutual funds, net asset value is (NAV) determined at 4pm EST (the market close), and it does not change until the market opens again. Hedge funds involved in late-day trading work out a special relationship with a mutual fund that, usually for higher-than-average fees/commissions, allows the hedge fund to buy and sell mutual fund shares after hours but record the trade at 4pm. This practice gives the hedge fund an opportunity to profit when material information affecting the fund is released after the market close. In such cases, because it is stagnant, the NAV may not represent the actual asset value, which won't materialize until the market opens again - at which time late-day traders sell their shares at a profit. New York Attorney General Spitzer has compared late-day trading to "betting on yesterday's horse races".
An annual load charged to a mutual fund holder for the time he or she is invested in the fund.
The loads in level-load funds are essentially management fees such as 12b-1 fees. Unlike front-end or back-end (deferred) loads in which the investor is charged (on top of the yearly fees) a fee upfront (front-end) or upon redemption of his or her shares (back-end), level loads simply charge the same fee, which is a percentage of the value of the investment, each year.Though these funds may seem superior to front-end or deferred loads, their yearly fees will typically never decrease, and, over time, actually become more expensive as the yearly fee continuously erodes the fund's return.
An investment fund featuring an asset mix determined by the level of risk and return that is appropriate for an individual investor. Factors that determine this mix include an investor's age, level of risk aversion, the investment's purpose and the length of time until the principal will be withdrawn.
Lifestyle funds can feature conservative, moderate or aggressive growth strategies. Aggressive growth lifestyle funds are targeted to investors in their late 20s, while conservative growth lifestyle funds are targeted to investors in their late 50s. Lifestyle funds are designed to be the main investment in a person's portfolio. The purpose of a lifestyle fund may be defeated if other funds are chosen at the same time because the asset allocation ratio will become distorted.
A fee or commission charged to an investor when buying or redeeming shares in a mutual fund. The fee may be charged at the time the investor buys into the mutual fund (called a front-end load) or when the investor redeems his/her mutual fund shares (called a back-end load).
Most mutual funds today carry some load, since costs are incurred in the operation of the fund and as a result of numerous shareholder transactions (i.e. buying and redeeming of mutual fund shares). Also, this load quite literally acts as a burden for investors, effectively discouraging them from trading the mutual fund short-term.
A mutual fund with shares sold at a price including a large sales charge. This sales fee may range from 3% to as high as 8% of the full purchase.
In exchange for paying your fees up front, mutual fund companies don't usually make you pay high administration fees.
A method of collecting the annual fees from investors in load funds through periodic deductions. These periodic deductions often are taken off of regular investor contributions to the fund to spread out the burden of the load fees over time.
With a load spread option, a mutual fund investor is able to contribute a fixed amount of savings to the fund on a periodic basis (e.g. after each employment paycheck) and avoid having to pay a lump-sum load fee each year, since a portion of the fee is paid with each contribution.
A type of mutual fund that mimics some of the trading strategies typically employed by a hedge fund. Unlike most mutual funds, long/short funds use leverage, derivatives and short positions in an attempt to maximize total returns, regardless of market conditions. The amount of leverage used and the number of derivatives and short positions that long/short funds may contain are limited by law. These funds invest primarily in stocks.
Long/short funds are the mutual fund industry's attempt to bring some of the advantages of a hedge fund to the common investor. Most long/short funds feature higher liquidity than hedge funds, no lock-in period and lower fees. However, they still have higher fees and less liquidity than most mutual funds. Furthermore, unlike most mutual funds, long/short funds usually require a minimum investment of more than $1,000, although some do not. Long/short funds aren't allowed to use as many derivative and short positions nor as much leverage as hedge funds, but they do provide some diversification to the average investor in down markets.
Portions of this page are © 2006 Investopedia Inc.
