An investment account that is owned by an individual investor and looked after by a hired professional money manager. In contrast to mutual funds (which are professionally managed on behalf of many mutual-fund holders), managed accounts are personalized investment portfolios tailored to the specific needs of the account holder.
For example, if an investor buys ABC Mutual Funds, which invests in Company 1 and Company 2, and that investor wants to reduce the weighting of Company 1 in the fund, the fund company wouldn't allow it since the money manager looking after the fund cannot make investment decisions based on one investor's preferences. On the other hand, with managed accounts, investors are given the freedom and ability to do what they want with the investments within the portfolio, and any decision made by the money manager is based on the individual investor's goals and objectives. Thus, if an investor holds a managed account and wants to reduce holdings in Company 1, he or she could do so.
A means of investment where the investor, rather than buying and selling their own securities, places their investment funds in the hands of a qualified investment professional for a predetermined annual fee.
Mutual funds are a good example of managed money; investors simply put their money into the fund, which deducts a specified percentage from the funds on a periodic basis for the service of researching prospective investments and maintaining the fund's portfolio. Essentially, investors with managed money believe they can earn higher returns by employing someone else to professionally handle their investments.
A charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise. It can also include other items such as investor relations expenses and the administration costs of the fund.
The management fee is the cost of having your assets professionally managed. The fee pays other people to select which securities your money (along with that of the other investors in the fund) is invested into, to do all the paperwork needed and to provide information about the fund's holdings and performance.Management fee structures vary from fund to fund, but they are typically based on a percentage of assets under management. For example, a mutual fund's management fee could be stated as 0.5% of assets under management.
The risks associated with ineffective, destructive or underperforming management, which hurts shareholders and the company or fund being managed. This term refers to the risk of the situation in which the company and shareholders would have been better off without the choices made by management.
Management risk refers to the chance that company managers will put their own interests ahead of the interest of the company and shareholders. An example of this is the recent scandals with Enron, Worldcom and other large companies, whose managers acted in a manner that eventually bankrupted the companies and destroyed shareholder wealth. Management risk also applies to investment managers, whose decisions and actions may divert from the investors' wishes or reduce the value of an investment portfolio.
A class of financial intermediary that hires professional investment managers to oversee aspects of a client's investment fund. More specifically, the MOM tracks the performance of each investment manager and has the power to fire ineffective managers and then hire a replacement on the behalf a client. Using a MOM to handle investments funds is an alternative to hiring a single investment portfolio manager that makes all the asset management decisions.
For example, a teacher's union hires a MOM to invest its pension fund. The MOM then hires a number investment managers (such as a bond expert, a money market expert and a large cap stock expert), who each have the responsibility of managing each respective asset class. Since no single manager is an expert in investing in all asset classes, using a MOM allows clients to have an expert asset manager will be working on each aspect of their investment at all times.
The comparison of an account's performance to that of a representative peer group of money managers.
This is used when analyzing the performance of a money manager. In addition to being compared to a standardized index such as the S&P 500, the performance of a manager is compared to the performance of others who look over similar accounts in terms of asset class, style, etc. The peer group is referred to as the money manager's universe.
A strategy undertaken by an investor or an investment manager that seeks to profit from both increasing and decreasing prices in a single or numerous markets. Market-neutral strategies are often attained by taking matching long and short positions in different stocks to increase the return from making good stock selections and decreasing the return from broad market movements. Market neutral strategists may also use other tools such as merger arbitrage, shorting sectors, and so on. There is no single accepted method of employing a market-neutral strategy.
Managers who hold a market-neutral position are able to exploit any momentum in the market. Hedge funds commonly take a market-neutral position because they are focused on absolute as opposed to relative returns.A market-neutral position may involve taking a 50% long, 50% short position in a particular industry, such as oil and gas, or taking the same position in the broader market.
In general, an investment vehicle that enables individual investors to invest money into one or more underlying investments that are operated by professional managers.
Master funds can generally be categorized into three types: discretionary funds, fund of funds, or feeder funds. With this last type, shares would be sold to the public only by the feeder fund, but invested through the corresponding master fund.
A collection of funds from individual investors that are pooled together in order to obtain wholesale prices and rates unavailable for regular investors.
This is kind of like bulk shopping. When you offer to buy more securities, companies are willing to give a better rate. Therefore, a group of investors can combine their assets for greater leverage.
A type of mutual fund, typically run by a life insurance company, that enables an investor to access another company's mutual fund through his or her life insurance policies.
For example, you might be able to invest in a Fidelity mutual fund through your life insurance policy with Royal & SunAlliance. These types of funds usually involve extra fees/charges.
A method of evaluating a portfolio's return based upon a time weighted analysis.
The Modified Dietz Method is more accurate way to measure the return on your portfolio than a simple geometric return method. This is because the Modified Dietz Method identifies and accounts for the timing of all random cash flows while a simple geometric return does not.
Investment funds that invest in companies based on current trends in such things as earnings or price movement. The portfolio manager will look for companies that have been trending in a certain direction (e.g. a series of extremely positive earnings releases or upward price momentum in the short term). The manager will then take positions in the same direction as the trend and attempt to ride the wave and sell once it has peaked. These funds are also known as "momo funds".
This type of fund, which was very popular in the late 1990s, will often make investments in companies that have grown their earnings or sales at a rapid pace, looking for further increases in the near future. Momentum funds also invest based on technical indicators such as price breakouts from historic levels. The investment premise of this type of fund has often been questioned by the more long-term, value oriented segments of the market, as it is considered difficult to predict short-term price movement.
A mutual fund that invests in short-term debt instruments. The fund's objective is to earn interest for shareholders while maintaining a net asset value of $1 per share.
Generally sold with no load, money market funds may also offer low minimum investments to entice investors.
A series of indexes constructed by Morgan Stanley to help institutional investors benchmark their returns. These indexes are also used for investment purposes - in the form of exchanged-traded funds - by all types of investors. There are a wide range of indexes created by Morgan Stanely covering a wide range of developed and emerging economies and a wide range of economic sectors.
Most of these indexes can be purchased through iShares by institutional and retail investors around the world. In providing benchmarks for institutional investors such as mutual funds and hedge funds, MSCI offers region- and sector-specific indexes that may be more relevant compared to a large market index such as the S&P 500. For example, a more appropriate index for a mutual fund that invests in small-cap stocks in the U.S. would be the 'MSCI US Small Cap 1750 Index' instead of the S&P 500.
A rating system that measures how often a fund loses money compared to the risk-free rate of return (T-bill return).
A rating of 1 is considered average for each class of funds. So, if a mutual fund's risk rating is 1.25, then it is 25% more risky than the other funds in its class.
An investment fund that is managed by more than one investment manager, each with a particular specialty. The goal of the multi-advisor fund is to make investment decisions based on multiple professional opinions, rather than relying on a single person to have comprehensive knowledge of investment options.
The multi-advisor fund tends to have a very specific international focus; for example, a fund may invest in high-grade South American debt and Asian equities, with one manager responsible for South American debt and a team responsible for the Asian equities component. As investment options become more complex, multi-advisor funds become increasingly necessary to fully understand the markets and businesses in which we invest. "Multi-advisor fund" is most commonly used to describe a type of hedge fund.
A type of investment account that allows access by several specialized investment managers within one main account. The account is split into several sub-accounts that are separately run by managers with relevant expertise. The multi-discipline account provides investors with an efficient way to get professional investment management and asset diversification. It is also referred to as a "multi-style" and "multi-strategy account".
These type of investment accounts were created as an alternative to separately managed accounts that have only one type of management expertise and make it more difficult to diversify. Generally the minimum amount needed to invest in a separately managed account is around $100,000 while the minimum for a multi-discipline account is $150,000. So, with the separately managed account, if an investor wanted to split assets into 60% equity and 40% fixed income, he or she would need to open two separately managed accounts and would need at minimum $200,000. With the multi-discipline account, however, the investor needs only to open the one account, requiring only a total of $150,000, and separate the assets into two sub-accounts.
A mutual fund that invests in municipal bonds, operating either as an investment trust or as an open-end fund.
Because the bonds are local government issues, they usually help to maximize tax-exempt income.
A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed.
The fund's net asset value (NAV) is determined each day. Each mutual fund portfolio is invested to match the objective stated in the prospectus.It has been shown in study after study that a majority of mutual funds fail to beat the market. Also, picking mutual funds purely on the basis of past performance usually does not work.
A trust company, bank or similar financial institution responsible for holding and safeguarding the securities owned within a mutual fund. A mutual fund's custodian may also act as the mutual fund's transfer agent, maintaining records of shareholder transactions and balances.Also referred to as a "mutual fund corporation".
Since a mutual fund is essentially a large pool of funds from many different investors, it requires a third-party custodian to hold and safeguard the securities that are mutually owned by all the fund's investors. This structure mitigates the risk of dishonest activity by separating the fund managers from the physical securities and investor records.
A ratio published monthly by the Investment Company Institute that compares the amount of cash relative to total assets held by a mutual fund.
The mutual fund liquidity ratio is used by equity investors to gauge the demand for shares and the bullishness or bearishness of portfolio managers. For example, if a mutual fund is sitting on a large amount of cash, the theory is that it is doing so because it is hard pressed to find quality investment opportunities; therefore, it has a bearish sentiment towards the market. Conversely, if a mutual fund is highly invested and has a very small amount of cash on hand, the theory is that it has found some excellent investing opportunities and is taking advantage of these opportunities by being nearly fully invested - that is to say, it is bullish.
A money manager who works outside of the fund, and is hired by a fund manager to help with an investment portfolio. These subadvisors are allowed to manage all or some of a fund's assets, and usually are given a set of investment objectives to adhere to when selecting securities.
Mutual fund subadvisors usually head teams of smaller, more specialized investment firms. They are hired because of their expertise using specific securities in various industries. For fund managers, the benefit of using subadvisors is that they allow funds to tap talent that is not available in-house.Investors should be aware of the fees the fund must pay to subadvisors. These fees could be charged to shareholders over and above any fees that already exist. These fees may take away value from a shareholder's investment.
A legal but frowned-upon practice whereby traders attempt to profit from the short-term differences between the daily closing prices of a mutual fund. Timing occurs when investors attempt to gain short-term profits from buying and selling mutual funds. This has a negative effect on the fund's long-term holders, as they will be subjugated to higher fees due to the short-term trading. In order to prevent this, many mutual funds will impose a short term trading penalty upon the sale of funds that are not held for a minimum period of time. This transfers the short-term costs of buying and selling new shares within the fund's portfolio to those investors not planning to stay with the fund for the long-term. Don't confuse market timing with mutual fund timing. Market timing is a practice of trying to predict the best time to buy and sell stocks for a short-term gain. Mutual fund timing is publicly frowned upon by many mutual fund companies in their prospectuses.
In September of 2003, some mutual fund companies were investigated for permitting hedge funds to "time" mutual funds purchases. These hedge funds paid the mutual fund companies money for the right to buy and sell funds on a short-term basis without any short-term penalties.
A portfolio of mutual funds that are selected to match a pre-set asset allocation model based on the investor's objectives and offered in a single investment account together with the services of a professional investment advisor. Typically, investors won't be charged separate transaction fees, but periodic (i.e. monthly/quarterly/yearly) asset-management fees based on the average value of assets held within the account. Also known as a "mutual fund wrap".
Unlike managed accounts where the financial advisor has full discretion over any investment decisions, mutual-fund advisory programs allow the investor to work with the advisor in developing the optimal asset-allocation strategy. The advisor will help determine which model is best based on various factors such as the investor's goals, risk tolerance, time horizon and income, while providing ongoing guidance and investment support.
1. In the context of mutual funds, the total value of the fund's portfolio less liabilities. The NAV is usually calculated on a daily basis. 2. In terms of corporate valuations, the book value of assets less liabilities.
The NAV is usually below the market price because the current value of the fund's assets are higher than the historical financial statements used in the NAV calculation.
1. The value of a mutual fund share. Calculated by dividing the total net asset value of the fund by the number of shares outstanding. Calculated as:
2. A fundamental analysis indicator that gives an estimate of the value of a fund's shares after all assets are sold and all liabilities are paid off.
1. NAVPS is the value of a single unit of a mutual fund. This figure is affected by both its underlying value and market forces. It is important to consider both these factors when buying a mutual fund because the price fund investors pay is based on those factors. 2. The NAVPS is usually below the market price per share because the current value of the fund's assets is higher than the value appearing on the historical financial statements used in the NAVPS calculation.
A mutual fund whose shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission upon the initial purchase at the time of sale.
Since there is no cost for you to enter a no-load fund, all of your money is working for you. If you purchase $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if you buy a load fund that charges a commission of 5% upon purchase, the amount actually invested in the fund is $9,500. If both funds return 10%, the no-load fund would have grown to $11,000 while the loaded fund only rose to $10,450.The major idea behind a load fund is that you will make up what you paid in commissions with the solid returns that the managers will provide. However, most studies show that loads don't outperform no-loads.
Dividends from a mutual fund or some other regulated investment company that are not taxed. Taxes are not paid out because the fund invests in municipal and other tax exempt investments.
The mutual fund must invest over 50% of its capital into tax exempt investments for the dividends to be classified as nontaxable.
A sentiment indicator based on the Nova and Ursa funds from the Rydex Fund Group. The Nova fund is bullish with a target beta of 1.5. Whereas, the Ursa fund is bearish with a target beta of -1.0. This ratio can be used as a proxy for the direction of market sentiment. More specifically, a high value represents a bullish sentiment and a low value represents a bearish sentiment.Calculated as:
For example, A beta of 1.5 means that Nova has a target of 150% of the S&P 500 Index. Ursa's -1.0 means it has a target performance inverse to the S&P 500 Index. That is, if the S&P 500 is down 10%, Ursa should be up 10%. Rather than just measuring someone's opinion about market direction, this ratio shows where people actually are putting their money.
A legal document stating the objectives, risks and terms of investment involved with a private placement. This includes items such as the financial statements, management biographies, detailed description of the business, etc. An offering memorandum serves to provide buyers with information on the offering and to protect the sellers from the liability associated with selling unregistered securities.Also known as a "private placement memorandum (PPM)".
You can essentially think of the offering memorandum as a fancy business plan. In practice these are a formality to meet the requirements of securities regulators since most sophisticated investors perform their own extensive due diligence. Offering memorandums are for private placements, while prospectuses are for publicly-traded issues.
A mutual fund that is managed and housed in a foreign country, usually outside the U.S.
Always be careful when investing your money in offshore accounts; they may be more prone to scams because of relaxed regulations in many offshore countries.
A type of company or fund in the UK that is structured to invest in other companies with the ability to adjust constantly its investment criteria and fund size. The company's shares are listed on the London Stock Exchange, and the price of the shares are based largely on the underlying assets of the fund. There are no bid and ask quotes on the OEIC shares; buyers and sellers receive the same price.
These are open ended, which means that they can adjust the amount of shares in the fund by either issuing or eliminating shares. When shares are issued, the fund receives money and invests it. When eliminating shares, the fund pays out money from the fund. These funds can mix different types of investment strategies such as income and growth, and small cap and large cap.
A type of mutual fund where there are no restrictions on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-end funds also buy back shares when investors wish to sell.
Most of the mutual funds available in the marketplace are open-end funds. Open-end funds are generally managed actively and are priced according to their net asset value (NAV). Open-end funds are wide-ranging. Some Open-end funds are more conservative and provide consistent returns with low risk, and some are more aggressive in seeking to make capital gains through constant trading.
A company that distributes and redeems securities it issues. The most common open-end management companies are mutual fund companies which sell and redeem shares at the net asset value per share.
This is just a fancy legal name for a mutual fund. An investor in an open-end fund essentially pools his/her money with other investors in order to attain economies of scale, professional management, etc. This differs from a closed-end fund which has a limited number of shares available. Unlike with open-end funds, an investor in a closed-end fund typically sells his/her shares on the open market to another investor instead of back to the fund company.
A portfolio of securities used to closely track an index without the exposure of purchasing all securities within that index.
OPALS are similar to ETFs and are generally used by large institutional investors because there are usually minimum requirements associated with them.
1. A situation where a portfolio holds an excess amount of a particular security when compared to the security's weight in the underlying benchmark portfolio. Overweighting a security often happens in actively managed portfolios when doing so will allow the portfolio to achieve excess returns. 2. An analyst's opinion regarding the future performance of a security. Overweight will usually signify that the security is expected to outperform either its industry, sector, or even the market altogether.
1. Securities will usually be overweight when a portfolio manager believes that the security will outperform other securities in the portfolio. An example of overweighting a security would be, when a portfolio normally holds a security at a weight of 15%, and subsequently raises the security's weight to 25%, in an attempt to increase the returns of the portfolio. 2. An example of an analysts definition of overweight would be "The stock's return is expected to be above the average return of the overall industry over the next 8 - 12 months". Analyst definitions vary regarding the time frame used and the benchmark the security is compared against.
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