Investment Terms Explained When we send reports to clients there

Investment Terms Explained When we send reports to clients there is a wealth of information and terms which can be difficult to understand. The purpose of this note is to try and explain some of the terms so you can better understand how well or badly your fund is doing. The explanations are deliberately brief and in many cases are more fully explained within our other notes. TABLE OF CONTENTS PARAGRAPH NUMBER NUMBER PAGE 1. NUMERICAL .......................................................................................................................................................................... 9 1.1 % of Equity..................................................................................................................................................................... 9 1.2 +/- Category .................................................................................................................................................................. 9 1.3 +/- Index......................................................................................................................................................................... 9 1.4 4 Tigers............................................................................................................................................................................ 9 2. A ............................................................................................................................................................................................... 9 2.1 Accumulation Units ..................................................................................................................................................... 9 2.2 Accumulative Return................................................................................................................................................... 9 2.3 Active Management...................................................................................................................................................10 2.4 Additional (Contribution) ........................................................................................................................................10 2.5 Administrator...............................................................................................................................................................10 2.6 Alpha..............................................................................................................................................................................10 2.7 Alternative Investment Market (AIM)...................................................................................................................10 2.8 Alternative Depository Receipts (ADR)................................................................................................................10 2.9 American Stock Exchange (Amex)........................................................................................................................10 2.10 Amsterdam Exchange (AEX) ................................................................................................................................10 2.11 Annual General Meeting (AGM) .........................................................................................................................10 2.12 Annual Management Charge (AMC) .................................................................................................................11 2.13 Annual Report...........................................................................................................................................................11 2.14 Annual Returns % ...................................................................................................................................................11 2.15 Annualised Return...................................................................................................................................................11 2.16 Asia 4 Tigers ..............................................................................................................................................................11 2.17 Asset Allocation........................................................................................................................................................11 2.18 Asset Classes.............................................................................................................................................................11 2.19 Asset Management .................................................................................................................................................12 2.20 Assets In Top 10 Holdings ....................................................................................................................................12 2.21 Australasia..................................................................................................................................................................12 2.22 Authorised .................................................................................................................................................................12 2.23 AUTIF ...........................................................................................................................................................................12 2.24 Average .......................................................................................................................................................................12 3. B .............................................................................................................................................................................................12 3.1 Balanced Fund ............................................................................................................................................................12 Page 1 of 53 3.2 Bank Of England ........................................................................................................................................................13 3.3 Basis Point....................................................................................................................................................................13 3.4 Bears ..............................................................................................................................................................................13 3.5 Benchmark...................................................................................................................................................................13 3.6 Beta ................................................................................................................................................................................13 3.7 Bid Price........................................................................................................................................................................13 3.8 Bid-Offer Spread.........................................................................................................................................................13 3.9 Big Bang........................................................................................................................................................................13 3.10 Blue Chip ...................................................................................................................................................................13 3.11 Bond ............................................................................................................................................................................14 3.12 Bond Funds ...............................................................................................................................................................14 3.13 Broker..........................................................................................................................................................................14 3.14 Bulls .............................................................................................................................................................................14 3.15 Business Services.....................................................................................................................................................14 3.16 Buy And Hold Strategy...........................................................................................................................................14 4. C .............................................................................................................................................................................................14 4.1 CAC 40 Index...............................................................................................................................................................14 4.2 Calendar Year Total Returns ...................................................................................................................................14 4.3 Callable Bond..............................................................................................................................................................15 4.4 Capital Asset Pricing Model (CAPM)....................................................................................................................15 4.5 Capital Gain .................................................................................................................................................................15 4.6 Capital Gains Tax (CGT) ...........................................................................................................................................15 4.7 Capital Structure.........................................................................................................................................................15 4.8 Capital Units ................................................................................................................................................................15 4.9 Cash ...............................................................................................................................................................................15 4.10 CAT Standards/CAT-Marking................................................................................................................................16 4.11 Central & Latin America .........................................................................................................................................16 4.12 Closed-Ended Funds ..............................................................................................................................................16 4.13 Commission ..............................................................................................................................................................16 4.14 Consumer Goods.....................................................................................................................................................16 4.15 Consumer Services..................................................................................................................................................16 4.16 Contact Details .........................................................................................................................................................16 4.17 Convertible Bond.....................................................................................................................................................16 4.18 Corporate Bond .......................................................................................................................................................17 4.19 Correlation.................................................................................................................................................................17 4.20 Cost Adjusted Performance..................................................................................................................................17 4.21 Countries Of Registration......................................................................................................................................17 4.22 Coupon.......................................................................................................................................................................17 4.23 Coupon Bond ...........................................................................................................................................................17 4.24 Credit Quality............................................................................................................................................................17 4.25 Credit Rating .............................................................................................................................................................17 4.26 Currency Depreciation ...........................................................................................................................................18 4.27 Currency Devaluation.............................................................................................................................................18 4.28 Custodian...................................................................................................................................................................18 4.29 Cyclicals ......................................................................................................................................................................18 5. D.............................................................................................................................................................................................18 Page 2 of 53 5.1 Date As Of ....................................................................................................................................................................18 5.2 Date................................................................................................................................................................................18 5.3 Date Of Inception.......................................................................................................................................................19 5.4 DAX 30 ..........................................................................................................................................................................19 5.5 Defensives ....................................................................................................................................................................19 5.6 Deferred Charge .........................................................................................................................................................19 5.7 Derivative......................................................................................................................................................................19 5.8 Discount Rate..............................................................................................................................................................19 5.9 Discount To NAV ........................................................................................................................................................19 5.10 Distributor..................................................................................................................................................................19 5.11 Diversification ...........................................................................................................................................................20 5.12 Dividend .....................................................................................................................................................................20 5.13 Dividend Yield ..........................................................................................................................................................20 5.14 Domicile .....................................................................................................................................................................20 5.15 Dow Jones Industrial Average .............................................................................................................................20 5.16 Durables .....................................................................................................................................................................20 5.17 Duration .....................................................................................................................................................................20 6. E .............................................................................................................................................................................................20 6.1 Earnings ........................................................................................................................................................................20 6.2 Earnings Per Share (EPS).........................................................................................................................................21 6.3 Economic Cycle ..........................................................................................................................................................21 6.4 Emerging Asia – Ex 4 Tigers....................................................................................................................................21 6.5 Emerging Europe........................................................................................................................................................21 6.6 Emerging Market ........................................................................................................................................................21 6.7 Energy............................................................................................................................................................................21 6.8 Enhanced Index Fund...............................................................................................................................................21 6.9 Environmental Fund..................................................................................................................................................21 6.10 Equities .......................................................................................................................................................................21 6.11 Equity Fund ...............................................................................................................................................................21 6.12 Equity Portfolio.........................................................................................................................................................22 6.13 Equity Risk Premium ..............................................................................................................................................22 6.14 Ethical Fund...............................................................................................................................................................22 6.15 Ethical Investment...................................................................................................................................................22 6.16 Eurobond ...................................................................................................................................................................22 6.17 Euronext .....................................................................................................................................................................22 6.18 European Central Bank..........................................................................................................................................22 6.19 European Union (EU).............................................................................................................................................22 6.20 Euro-Zone ..................................................................................................................................................................23 6.21 Exchange-Traded Fund (ETF)...............................................................................................................................23 6.22 Ex-Dividend / Ex-Coupon .....................................................................................................................................23 6.23 Exit Change................................................................................................................................................................23 7. F..............................................................................................................................................................................................23 7.1 Federal Funds Rate....................................................................................................................................................23 7.2 Federal Open Market Committee (FOMC).........................................................................................................23 7.3 Feed & Expenses ........................................................................................................................................................23 7.4 Fettered .........................................................................................................................................................................23 7.5 Financial Adviser.........................................................................................................................................................24 Page 3 of 53 7.6 Financial Services .......................................................................................................................................................24 7.7 Financial Services Authority (FSA) ........................................................................................................................24 7.8 Financial Year ..............................................................................................................................................................24 7.9 Financials ......................................................................................................................................................................24 7.10 Fixed Income Fund .................................................................................................................................................24 7.11 Flagship Fund............................................................................................................................................................24 7.12 FT 30............................................................................................................................................................................25 7.13 FTSE .............................................................................................................................................................................25 7.14 FTSE 100 ....................................................................................................................................................................25 7.15 FTSE 250 ....................................................................................................................................................................25 7.16 FTSE 350 ....................................................................................................................................................................25 7.17 FTSE All Share Index ...............................................................................................................................................25 7.18 Fund.............................................................................................................................................................................25 7.19 Fund Class .................................................................................................................................................................25 7.20 Fund Company.........................................................................................................................................................26 7.21 Fund Currency ..........................................................................................................................................................26 7.22 Fund Family...............................................................................................................................................................26 7.23 Fund Manager ..........................................................................................................................................................26 7.24 Fund of Funds...........................................................................................................................................................26 7.25 Fund Quickrank........................................................................................................................................................26 7.26 Fund Supermarket...................................................................................................................................................26 7.27 Fund Switching.........................................................................................................................................................26 8. G.............................................................................................................................................................................................27 8.1 G7 (Group Of 7).........................................................................................................................................................27 8.2 GARP ..............................................................................................................................................................................27 8.3 GBX.................................................................................................................................................................................27 8.4 Global Depositary Receipt (GDR) .........................................................................................................................27 8.5 GILTS ..............................................................................................................................................................................27 8.6 Global Fund .................................................................................................................................................................27 8.7 Greater China ..............................................................................................................................................................27 8.8 Green Fund ..................................................................................................................................................................27 8.9 Growth Strategy..........................................................................................................................................................27 8.10 Growth & Income Fund .........................................................................................................................................28 9. H.............................................................................................................................................................................................28 9.1 Hang Seng....................................................................................................................................................................28 9.2 Hardware ......................................................................................................................................................................28 9.3 Health ............................................................................................................................................................................28 9.4 Healthcare ....................................................................................................................................................................28 9.5 Hedge Fund .................................................................................................................................................................28 9.6 Her Majesty’s Revenue and Customs (HMRC) .................................................................................................28 9.7 Hex .................................................................................................................................................................................28 9.8 High Yield Bond..........................................................................................................................................................29 9.9 High Yield Fund ..........................................................................................................................................................29 9.10 H-Shares.....................................................................................................................................................................29 10. I ............................................................................................................................................................................................29 10.1 IMA Sector .................................................................................................................................................................29 10.2 Income Ratio.............................................................................................................................................................29 Page 4 of 53 10.3 Income Units.............................................................................................................................................................29 10.4 Independent Financial Adviser (IFA) .................................................................................................................29 10.5 Index............................................................................................................................................................................29 10.6 Index Fund.................................................................................................................................................................30 10.7 Individual Savings Account (ISA)........................................................................................................................30 10.8 Industrial Materials..................................................................................................................................................30 10.9 Inflation ......................................................................................................................................................................30 10.10 Information Radio.................................................................................................................................................30 10.11 Initial Charge ..........................................................................................................................................................30 10.12 Initial Investment ..................................................................................................................................................30 10.13 Initial Public Offering (IPO)................................................................................................................................30 10.14 Initial Units ..............................................................................................................................................................31 10.15 Institutional Investor ............................................................................................................................................31 10.16 Investment Management Association (IMA)................................................................................................31 10.17 Investment Objective...........................................................................................................................................31 10.18 Investment Trust....................................................................................................................................................31 10.19 Italian Stock Exchange (ISE) ..............................................................................................................................31 11. J............................................................................................................................................................................................31 11.1 Japan ...........................................................................................................................................................................31 11.2 Johannesburg Stock Exchange (JSE) .................................................................................................................31 11.3 Junk Bond ..................................................................................................................................................................32 11.4 Lagging Economic Indicators ...............................................................................................................................32 11.5 Large Cap ...................................................................................................................................................................32 11.6 Largest Region..........................................................................................................................................................32 11.7 Largest Sector ...........................................................................................................................................................32 11.8 Leading Economic Indicators...............................................................................................................................32 11.9 Legal Type..................................................................................................................................................................32 11.10 Life Style Fund........................................................................................................................................................32 11.11 Liquidity ...................................................................................................................................................................32 11.12 List Transactions ....................................................................................................................................................33 11.13 London Interbank Offered Rate (LIBOR).......................................................................................................33 11.14 London Stock Exchange (LSE) ..........................................................................................................................33 11.15 Lump Sum Investment........................................................................................................................................33 12. M..........................................................................................................................................................................................33 12.1 Management Charge..............................................................................................................................................33 12.2 Manager Information .............................................................................................................................................33 12.3 Manager Start Date .................................................................................................................................................33 12.4 Market Timing...........................................................................................................................................................33 12.5 Maturity.......................................................................................................................................................................33 12.6 Maxi-ISA......................................................................................................................................................................34 12.7 Mean return ..............................................................................................................................................................34 12.8 Media ..........................................................................................................................................................................34 12.9 Median Mkt Cap ......................................................................................................................................................34 12.10 Median Value .........................................................................................................................................................34 12.11 Mid Cap....................................................................................................................................................................34 12.12 Middle East and Africa.........................................................................................................................................34 12.13 Mini-ISA....................................................................................................................................................................34 Page 5 of 53 12.14 Minimum Additional Investment .....................................................................................................................35 12.15 Minimum Initial Investment ..............................................................................................................................35 12.16 Minimum Lump Sum Investment....................................................................................................................35 12.17 Minimum Purchase ..............................................................................................................................................35 12.18 Minimum Savings Plan........................................................................................................................................35 12.19 Modern Portfolio Theory (MPT) .......................................................................................................................35 12.20 Monetary Policy Committee (MPC) ................................................................................................................35 12.21 Morningstar Category ..........................................................................................................................................35 12.22 Morningstar Class Code ......................................................................................................................................36 12.23 Morningstar Fund Code ......................................................................................................................................36 12.24 Morningstar Rating For Funds...........................................................................................................................36 12.25 Morningstar Rating For Stocks (The Stars On Reports).............................................................................36 12.26 Mutual Fund ...........................................................................................................................................................37 13. N ..........................................................................................................................................................................................37 13.1 National Association of Securities Dealers Automated Quotations (NASDAQ)...................................37 13.2 Net Asset Value (NAV) ...........................................................................................................................................37 13.3 New York Stock Exchange (NYSE) .....................................................................................................................37 13.4 NIKKEI .........................................................................................................................................................................37 13.5 No Load Fund ...........................................................................................................................................................37 13.6 North America ..........................................................................................................................................................37 13.7 Number Of Funds In Category ............................................................................................................................37 13.8 Open Ended Investment Company (OEIC) .....................................................................................................37 13.9 Offer Price ..................................................................................................................................................................38 13.10 Olso Bors Code......................................................................................................................................................38 13.11 Ordinary Shares .....................................................................................................................................................38 13.12 Other.........................................................................................................................................................................38 14. P...........................................................................................................................................................................................38 14.1 Paris Bourse ..............................................................................................................................................................38 14.2 Passive Funds ...........................................................................................................................................................38 14.3 Penny Shares ............................................................................................................................................................38 14.4 Personal Equity Plan (PEP)...................................................................................................................................38 14.5 PEP Transfer ..............................................................................................................................................................39 14.6 Percentile Rank In Category .................................................................................................................................39 14.7 Performance..............................................................................................................................................................39 14.8 Performance Evaluation ........................................................................................................................................39 14.9 Performance Fee......................................................................................................................................................39 14.10 Performance Fee Index .......................................................................................................................................39 14.11 Personal Investment Authority (PIA) ..............................................................................................................39 14.12 Polarisation .............................................................................................................................................................39 14.13 Portfolio ...................................................................................................................................................................39 14.14 Portfolio Tool..........................................................................................................................................................40 14.15 Portfolio Types .......................................................................................................................................................40 14.16 Pound Cost Averaging .........................................................................................................................................40 14.17 Preference Shares.................................................................................................................................................40 14.18 Premium to NAV ...................................................................................................................................................40 14.19 Previous Analyses .................................................................................................................................................40 14.20 Previous Commentaries......................................................................................................................................40 Page 6 of 53 14.21 Previous Fund News ............................................................................................................................................40 14.22 Previous Interviews ..............................................................................................................................................41 14.23 Price-To-Book (P/B).............................................................................................................................................41 14.24 Price-To-Cash Flow (P/CF).................................................................................................................................41 14.25 Price-To-Earnings (P/E).......................................................................................................................................41 14.26 Primarily Invests In ...............................................................................................................................................41 14.27 Prospectus...............................................................................................................................................................41 14.28 Protected Fund .....................................................................................................................................................41 15. Q ..........................................................................................................................................................................................42 15.1 Q Ratio........................................................................................................................................................................42 15.2 Quarter 1....................................................................................................................................................................42 15.3 Quarter 2....................................................................................................................................................................42 15.4 Quarter 3....................................................................................................................................................................42 15.5 Quarter 4....................................................................................................................................................................42 15.6 Quarterly Returns ....................................................................................................................................................42 15.7 Quartile.......................................................................................................................................................................42 15.8 Quick Portfolio..........................................................................................................................................................42 15.9 Quick Stats.................................................................................................................................................................42 15.10 Quicktake.................................................................................................................................................................43 16. R...........................................................................................................................................................................................43 16.1 Redemption Fee ......................................................................................................................................................43 16.2 Region.........................................................................................................................................................................43 16.3 Regular Savings ........................................................................................................................................................43 16.4 Relative Category.....................................................................................................................................................43 16.5 Retail............................................................................................................................................................................43 16.6 Retail Price Index (RPI)..........................................................................................................................................44 16.7 Return .........................................................................................................................................................................44 16.8 Risk Profile.................................................................................................................................................................44 16.9 R-Squared ..................................................................................................................................................................44 17. S...........................................................................................................................................................................................44 17.1 Standard and Poors 500 (S&P 500) ..................................................................................................................44 17.2 Sales Charfe (Maximum) ......................................................................................................................................44 17.3 Savings........................................................................................................................................................................44 17.4 Sector Funds .............................................................................................................................................................44 17.5 Securities And Exchange Commission (SEC)..................................................................................................45 17.6 Stock Exchange Daily Official List (SEDOL) number.....................................................................................45 17.7 Select Holding ..........................................................................................................................................................45 17.8 Services.......................................................................................................................................................................45 17.9 Shares .........................................................................................................................................................................45 17.10 Sharpe Ratio ...........................................................................................................................................................45 17.11 Short (Sell Shares Short) ....................................................................................................................................46 17.12 Sociétés d'investissement à Capital Variable (SICAV) ...............................................................................46 17.13 Societe Interprofessionnelle pour la Compensation des Valeurs Mobilieres (SICOVAM) .............46 17.14 Small Cap ................................................................................................................................................................46 17.15 Socially Responsible Fund..................................................................................................................................46 17.16 Software...................................................................................................................................................................46 17.17 Split ...........................................................................................................................................................................46 Page 7 of 53 17.18 Spread ......................................................................................................................................................................47 17.19 Stability Pact ...........................................................................................................................................................47 17.20 Standard & Poors (S&P) ......................................................................................................................................47 17.21 Standard Deviation...............................................................................................................................................47 17.22 Staples......................................................................................................................................................................48 17.23 Stock market Average..........................................................................................................................................48 17.24 stocks........................................................................................................................................................................48 17.25 Switching Fee .........................................................................................................................................................48 18. T ...........................................................................................................................................................................................48 18.1 Tax Free Savings.......................................................................................................................................................48 18.2 Technology ................................................................................................................................................................48 18.3 Telecommunications ..............................................................................................................................................49 18.4 Tax-Exempt Special Savings Accounts (TESSAs)............................................................................................49 18.5 The City.......................................................................................................................................................................49 18.6 The Market.................................................................................................................................................................49 18.7 Tied Agent..................................................................................................................................................................49 18.8 Top 10 Holdings ......................................................................................................................................................49 18.9 Top 3 Stock Sectors ................................................................................................................................................49 18.10 Top 5 Holdings ......................................................................................................................................................49 18.11 Total Net Assets.....................................................................................................................................................49 18.12 Total Number Of Bond Holdings .....................................................................................................................50 18.13 Total Number Of Equity Holdings....................................................................................................................50 18.14 Total Returns ..........................................................................................................................................................50 18.15 Tracker......................................................................................................................................................................50 18.16 Tracking Error .........................................................................................................................................................50 18.17 Trailing Error ...........................................................................................................................................................50 18.18 Transaction Portfolio............................................................................................................................................50 18.19 Transaction Type ...................................................................................................................................................50 18.20 Transfer Agent........................................................................................................................................................50 18.21 Turnover...................................................................................................................................................................50 19. U ..........................................................................................................................................................................................51 19.1 Undertakings for Collective Investment in Transferable Securities (UCITS)..........................................51 19.2 United Kingdom (UK) ............................................................................................................................................51 19.3 Umbrella.....................................................................................................................................................................51 19.4 Umbrella Fund..........................................................................................................................................................51 19.5 Unfettered..................................................................................................................................................................51 19.6 Unit Trust....................................................................................................................................................................51 19.7 Unit Value ..................................................................................................................................................................51 19.8 Unit-Linked ................................................................................................................................................................51 19.9 Utilities ........................................................................................................................................................................52 20. V...........................................................................................................................................................................................52 20.1 Valoren........................................................................................................................................................................52 20.2 Value............................................................................................................................................................................52 20.3 Volatility......................................................................................................................................................................52 21. W .........................................................................................................................................................................................52 21.1 Western Europe – (EURO Zone).........................................................................................................................52 21.2 Western Europe – (Non EURO Zone) ...............................................................................................................52 Page 8 of 53 21.3 WertpapierKennNummer (WKN) .......................................................................................................................52 21.4 WRAP Account..........................................................................................................................................................52 22. Y...........................................................................................................................................................................................53 22.1 Year To Date (YTD) .................................................................................................................................................53 22.2 Yield.............................................................................................................................................................................53 22.3 Yield Curve.................................................................................................................................................................53 23. Z ...........................................................................................................................................................................................53 23.1 Zero Coupon Bond .................................................................................................................................................53 1. NUMERICAL 1.1 % of Equity The proportion of the fund's equity (share) investments invested in each geographical area. 1.2 +/- Category +/- Category shows how the fund has performed compared to the average of all of the funds in the same category. 1.3 +/- Index +/- Index shows the fund's performance level in relation to a proxy index, developed by Morningstar for that specific category. Please note that it is not in relation to an index that the fund manager may have chosen to benchmark the fund. 1.4 4 Tigers The Asian successes of Hong Kong, Singapore, South Korea and Taiwan. 2. A 2.1 Accumulation Units A term indicating that a fund does not give dividends. The opposite is an income fund. The fund may still generate income (and therefore may need to be added to your tax return) but this increases the value of the accumulation units rather than being paid out to you. 2.2 Accumulative Return Performance figures that cover a rolling period, whether annually, monthly, weekly, or daily. For example, on 14 March 2007, the 1-year trailing return would cover the period from 14 March 2006 through 14 March 2007 and the 1-week trailing return would cover the period from 7 March to 14 March 2007. Page 9 of 53 2.3 Active Management When a fund manager uses his own judgement to decide what shares to buy or sell rather than following an index. The opposite is known as passive management or index tracking. 2.4 Additional (Contribution) The smallest amount permitted to top up an existing fund investment. 2.5 Administrator The overseer of the policies and operations of a fund management company. 2.6 Alpha The amount by which a fund has out-performed its benchmark, taking into account the fund’s exposure to market risk (as measured by Beta). Alpha is also known as the residual return. 2.7 Alternative Investment Market (AIM) A stock market launched in June 1995 in London for smaller growing companies which would not normally qualify for listing on the main market. 2.8 Alternative Depository Receipts (ADR) Negotiable certificates held in an American bank representing title to a certain number of foreign shares. Non-American companies wishing to list on the US exchange must offer ADRs. 2.9 American Stock Exchange (Amex) The second largest floor-based exchange in America. AMEX focuses on the shares of small to medium-sized companies and has a strong presence in common shares, index shares and equity derivative securities. 2.10 Amsterdam Exchange (AEX) The Amsterdam Exchange is the exchange that comprises the AEX-Effectenbeurs, the AEXOptiebeurs (formerly the European Options Exchange or EOE) and the AEX-Agrarische Termijnmarkt. AEX is part of Euronext, which is the combination of the exchanges of Amsterdam, Brussels and Paris. 2.11 Annual General Meeting (AGM) An annual forum for a company where shareholders can exercise their voting rights. Page 10 of 53 2.12 Annual Management Charge (AMC) A fee, usually expressed as a percentage, charged by the investment manager to cover the costs of running the fund. It is deducted from the net assets of the fund. 2.13 Annual Report A legally-required document filed each year by each fund that includes a description of how the fund has invested its assets. It provides investors with an overview of the fund with financial details such as a company and consolidated balance sheets, a statement of total return, an auditor’s report and includes information on the managers, the directors and the chairman of the fund. The chairman’s statement reflects the past year and the report should also mention any upcoming issues and meetings relating to the fund. 2.14 Annual Returns % The performance of a fund over calendar year periods. 2.15 Annualised Return Refers to the conversion of the return on an investment into a yearly rate. For example, if Fund A returned 5% over six months and Fund B returned 4% over four months, Fund A´s annualised return is 10.5% and Fund B´s is 12.49%. 2.16 Asia 4 Tigers Proportion of portfolio invested in Hong Kong, Singapore, South Korea and Taiwan. This term is gradually going out of use as China becomes more important as a market. 2.17 Asset Allocation Deciding how to spread an investment between categories of financial assets (including shares, bonds, cash) and tangible assets (including commercial property, commodities, precious metals and collectibles). Asset allocation is generally driven by the desire to optimise the risk-return trade-off according to an investor’s time frame, risk aversion and investment objectives. 2.18 Asset Classes Broad investment categories that offer differing levels of risk and return, such as shares, bonds, property and cash. Page 11 of 53 Shares tend to provide the best potential for capital growth but with relatively high levels of risk. Bonds offer income with a moderate degree of risk. Property offers capital growth and income but with the potential for illiquidity. Cash presents the lowest level of expected return but ensures liquidity and the safety of the original investment. 2.19 Asset Management A general term for management of a portfolio of a pre-determined group of asset classes, such as shares, bonds or cash. 2.20 Assets In Top 10 Holdings The percentage of the fund’s portfolio which is invested in its biggest ten holdings. 2.21 Australasia Proportion of portfolio invested in Australia and New Zealand. 2.22 Authorised An authorised investment business is one that adheres to the Financial Services Act which states that all investment businesses operating in Britain are required to be a member of one of the regulatory bodies established under the Act. 2.23 AUTIF The old name for the Investment Management Association (IMA), the trade body which represents the management groups which run open ended investment companies and unit trusts. 2.24 Average This Average row shows the average of the different data points of the funds that have met search criteria. The data points include management fees, all the return figures (that is one day, one year, three years etc) where applicable, Morningstar ratings, Style Box details, and standard deviation. 3. B 3.1 Balanced Fund A fund with substantial holdings in both bonds and shares. A balanced fund will typically perform better than a share-only fund in a bear market but not as well in a bull market. Different balanced funds may hold different share to bond percentages which will affect risk levels and performance. Page 12 of 53 3.2 Bank Of England The central bank for the United Kingdom. responsible for setting interest rates. 3.3 Basis Point One one-hundredth of 1% (0.01%). Used to measure changes in interest rates. For example, a change in interest rates from 6.25% to 6.75% would be an increase of 50 basis points. 3.4 Bears Market pessimists. The opposite of Bulls. 3.5 Benchmark An index against which a fund measures its performance. performance against indices such as the FTSE 100 or the S&P 500. 3.6 Beta A measure of a fund’s sensitivity to market movements. The Beta of the market is 1.00 by definition. A Beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant. Conversely, a Beta of 0.85 indicates that the fund is expected to perform 15% worse than the market’s excess return during up markets and 15% better during down markets. 3.7 Bid Price The price at which the unit-holder of a unit trust can sell shares. 3.8 Bid-Offer Spread The difference between the Bid price - the price at which units or shares are sold back to the fund manager - and the Offer price - the price at which they are bought from the manager. Fund management companies use this difference to pay dealing costs and commissions, stamp duty and for their profit margin. 3.9 Big Bang The deregulation of the City of London in 1986. 3.10 Blue Chip Funds typically compare their The Monetary Policy Committee of the Bank is Page 13 of 53 Blue chips are shares in a large, reliable well-managed company with a strong credit rating. In the UK many blue-chips are listed on the FTSE 100. 3.11 Bond An IOU issued by a company or the government. During the life of the bond, the bondholder receives regular interest payments based on the coupon rate. On maturity the loan is repaid. Certain exceptions apply such as zero coupon bonds, which provide no interest payments, but are issued at a discount and some bonds have no redemption date. 3.12 Bond Funds A portfolio which invests mainly in bonds with the aim of providing a high level of income to investors. Its assets can include corporate debt, government debt or a combination of the two types. Also known as a Fixed Income Fund. 3.13 Broker A firm or individual that acts as an intermediary between a buyer and a seller of securities, thereby earning a commission on the transaction. Unlike a broker-dealer a broker does not own the securities that he or she sells. 3.14 Bulls Market optimists. The opposite of Bears. 3.15 Business Services Proportion of portfolio invested in advertising, printing, publishing, business, support, consultants, employment, engineering and construction, security services, waste management, distributors and transport companies. Examples include Bouygues, WPP and Easyjet. 3.16 Buy And Hold Strategy A method of investment which involves purchasing shares and keeping them for a relatively long period. By definition it entails a low turnover. The opposite technique is sometimes known as a trading strategy. 4. C 4.1 CAC 40 Index An index containing forty major French companies listed on the Paris Bourse. 4.2 Calendar Year Total Returns Page 14 of 53 The performance of a fund over calendar year periods. 4.3 Callable Bond A callable bond is a bond that can be repaid early, at the issuer’s discretion. A callable bond allows an issuer to refinance debt at a lower rate, should interest rates drop below the coupon rate on the bond. If interest rates have dropped significantly since the date of issue, a callable bond will trade as though its maturity were shortened to the call date, which is the earliest time at which the bond can be redeemed. 4.4 Capital Asset Pricing Model (CAPM) A mathematical model used to help price a security by determining the relationship between risk and expected return. CAPM is a key element in portfolio theory, in which the expected rate of return (E) on an investment is expressed in terms of the expected rate of return on the market portfolio (rm) and the Beta coefficient ((beta)), E = R + (beta)(rm - R), where R is the risk-free rate of return. 4.5 Capital Gain The profit made on the sale of an investment, i.e. unit trust shares. The loss on a sale is a capital loss. 4.6 Capital Gains Tax (CGT) The tax paid on profit from the sale of an individual’s investments, payable at their highest rate of income tax. 4.7 Capital Structure Refers to the way in which a company is financed by investors. between equity (shares) and debt (bonds). The basic financing choice is The ratio between debt and total capital, which combines debt and equity, is the most commonly cited summary of capital structure. 4.8 Capital Units Sometimes called Initial Units. Special units created by investment institutions to cover the marketing and commission sales costs of their products. The units carry high charges and early redemption values. 4.9 Cash The proportion of the fund invested in cash. Page 15 of 53 4.10 CAT Standards/CAT-Marking CAT standard indicates whether or not this fund has followed the government guidelines to receive a CAT-mark. CAT standards are voluntary government standards setting out acceptable Charges, Access and Terms (CAT) on ISAs. Overall, CAT marked ISAs (Individual Savings Accounts) must treat customers honestly and fairly, using simple language to explain financial terms, must not bundle the ISAs with other products, and need to give assurances to uphold the standards after the sale of the product. 4.11 Central & Latin America The proportion of portfolio invested in Argentina, Aruba, Bahamas, Barbados, Belize, Bermuda, Bolivia, Brazil, Cayman Islands, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, Suriname, Trinidad and Tobago, Uruguay and Venezuela. 4.12 Closed-Ended Funds Closed-ended funds, such as investment trusts, are divided into a finite number of shares. The shares trade on the London Stock Exchange with prices rising or falling based on investor sentiment. Investors buy shares at a Premium to Net Asset Value of the fund (NAV) or a Discount to NAV. 4.13 Commission The charge levied by a broker or paid to an intermediary for buying or selling investments on your behalf. The fee can vary depending on the size of the order and the degree of advice you received but is usually expressed as a percentage of the purchase cost. 4.14 Consumer Goods Proportion of portfolio invested in companies that manufacture or provide food, beverages, household and personal products, apparel, shoes, textiles, autos and auto parts, consumer electronics, luxury goods, packaging and tobacco. Examples include Benetton, BMW and Clarins. 4.15 Consumer Services Includes retail stores, personal services, home builders, home supply, travel and entertainment companies, and educational providers. Examples include Metro, Tesco and Hennes & Mauritz. 4.16 Contact Details Information on the fund management firm. 4.17 Convertible Bond Page 16 of 53 A company issued bond that may be converted into shares in that company during the life of the bond for a pre-stated price. The decision to convert may rest with either the issuer of the bond or the investor but is not obligatory. 4.18 Corporate Bond A bond issued by a corporation to an investor as a means of raising money. The par value (also known as face value) of the bond is repaid when the bond matures. In addition, interest is paid at set intervals and the bonds can be traded on major exchanges. Because bonds are taxable, they are also offered in tax wrappers such as ISAs (Individual Savings Accounts). 4.19 Correlation The correlation of one investment to another is A causal, complementary, parallel, or reciprocal relationship, especially a structural, functional, or qualitative correspondence between two comparable investments. Much of what we do is designed to provide clients with a fair mix of Uncorrelated investments to create a portfolio which performs reasonably in all market conditions. See Modern Portfolio Theory (MPT) 4.20 Cost Adjusted Performance Refers to the inclusion of each fund’s charges in their return to accurately compare the fund performance of the different companies. 4.21 Countries Of Registration The countries in which a fund can be sold or marketed. 4.22 Coupon The fixed percentage that is paid out on a regular basis on a fixed-income security. 4.23 Coupon Bond With a coupon bond, the interest and principal due are paid to the holder of the bond, who is not necessarily the one to whom it was initially issued. In return for a coupon attached to the bond being surrendered at regular intervals, an interest payment is issued. 4.24 Credit Quality The assessment of a bond based on its financial condition to establish its quality and safety. 4.25 Credit Rating Page 17 of 53 Assess the probability and likelihood that a company will default on a bond. Many ratings companies offer their own ratings systems including Moody´s, Standard & Poor´s and Fitch. Bonds with ratings from AAA to BBB- are deemed to be ´investment grade´ while BB+ and below are known as ´speculative grade´. 4.26 Currency Depreciation A fall in the value of one currency in relation to another. A movement in floating exchange rates results in one unit of a currency buying fewer units of another currency, thus the value of the first currency has depreciated. For example, with a floating exchange rate, if last week £1 bought $1.50 and this week £1 buys $1.45, the value of the pound has depreciated relative to the dollar because you get less dollars for the same amount of pounds. 4.27 Currency Devaluation This is usually seen where a currency’s comparative value is fixed by the government. The decrease in the value of a currency in comparison to another (usually the result of a government announcement) is devaluation. 4.28 Custodian The organisation such as a bank or trust company responsible for the safekeeping, and sometimes settlement, of investments owned by a fund. 4.29 Cyclicals Proportion of portfolio invested in companies operating in areas which are sensitive to the economic cycle. These include aerospace and aerospace industries, building supplies, industrial-building products, business equipment, chemicals, machinery (both light and industrial), metals fabrication (iron, steel, coal, and rare metals), paper and packaging, and photo equipment. Some examples of companies in this sector include BAE Systems, Boeing, Canon, Rio Tinto, Rolls Royce and Travis Perkins. 5. D 5.1 Date As Of Data as of is the date the portfolio was last updated in the Morningstar database. 5.2 Date Page 18 of 53 Date refers to the latest reported NAV 5.3 Date Of Inception The date the fund was launched. 5.4 DAX 30 An index containing the 30 largest German companies. They are ranked on the basis of free float market capitalisation (how much of the company is available to be traded on the market). 5.5 Defensives Shares in companies which are not generally sensitive to the economic cycle. For example, food producers or utilities. 5.6 Deferred Charge A fee or sales charge imposed when investors sell shares in certain unit trusts or other investment vehicles. The amount tends to decrease the longer you hold the shares, often to nothing after a set period of time, i.e. three or five years. This is typically to allow the investment company to recoup up front commission payments. It is also known as an Exit Charge. 5.7 Derivative A generic expression for securities whose prices are based on the prices of another underlying investment. Types of derivatives include futures, options, swaps and warrants. 5.8 Discount Rate A way of converting the future value of an investment into its present value. For example, this can help an investor decide what is a fair price to pay for a bond that will pay £50 in interest each year and £1,000 at maturity by determining how much the cash streams in the future are worth today. 5.9 Discount To NAV The difference between the value of the underlying assets of an investment trust and the value indicated by its share price. Usually expressed as a percentage. Investment trusts can also trade at a premium to their net asset value (NAV). 5.10 Distributor A person or company responsible for selling and marketing funds to investors. The distributor is also responsible for sending fund documentation, such as prospectuses, reports and statements of additional information. Page 19 of 53 5.11 Diversification Spreading risk by investing in assets with different characteristics. For instance, an individual might invest in a combination of bonds, property and shares. Or share-based funds might invest in a variety of countries or market sectors. Investors can also diversify by investing in a range of different types of funds. 5.12 Dividend A distribution of a company’s or fund’s profits to shareholders, normally specified in pence per share in Britain. Dividends are usually paid twice a year – interim and final. In the UK Basic rate Tax is deducted before the dividend is paid. 5.13 Dividend Yield A percentage that is calculated by dividing total dividends by the current price and multiplying by 100. For example, if a fund distributed a 10p dividend and the current share price is 210p the dividend yield is 4.76%. 5.14 Domicile The country of residence of a person, fund or company. It can have important tax implications. 5.15 Dow Jones Industrial Average A stock market index which tracks the performance of 30 of America’s largest companies. Often shortened to "the Dow". 5.16 Durables Proportion of portfolio invested in companies operating in areas such as automotives, household goods, multi-industry firms, recreation (luxury goods), rubber/plastic, shoes and leather, textiles, and textile manufacturers. 5.17 Duration The average time to payment. Also a measure of the effect of interest rate changes on the price of a fixed income asset or portfolio. Duration is defined in years (that is a three year duration means the value of the bond could rise about 3% if interest rates fall by 1%). 6. E 6.1 Earnings A company’s income during a certain period. The cost of sales, operating expenses, depreciation, taxes and other expenses are subtracted from revenue. Page 20 of 53 6.2 Earnings Per Share (EPS) A company’s total earnings divided by the current number of shares outstanding. EPS gauges the profitability of the company from the view of the shareholders. It is used to calculate the Price-ToEarnings Ratio (P/E. ) 6.3 Economic Cycle Consists of alternating periods of economic expansion and contraction typified by changing interest rates, employment levels and productivity, combining to form a long-term overview. The current economic period (that is growth, recession) will affect the performance of investment sectors. 6.4 Emerging Asia – Ex 4 Tigers Proportion of portfolio invested in emerging Asia which includes the Near East, Middle East and Far East but excludes Hong Kong, Singapore, South Korea and Taiwan. 6.5 Emerging Europe Proportion of portfolio invested in the countries that were formerly part of the Eastern bloc such as Albania, the Czech Republic, Russia and Yugoslavia. 6.6 Emerging Market The financial markets of a developing country. Some consider this a higher–risk investment sector because of potential political and economic instability, short investment history and illiquidity. 6.7 Energy Proportion of portfolio invested in companies that produce or refine oil and gas, oilfield services and equipment companies, and pipeline operators. Examples include Repsol, YPF, OMV and Statoil. 6.8 Enhanced Index Fund Funds which combine the techniques of passive fund management – tracking stock market indexes – with a degree of stock selection usually done by computer models. 6.9 Environmental Fund Another term for a green fund - one which invests on the basis of environmental as well as financial criteria. 6.10 Equities An alternative term for shares. 6.11 Equity Fund Page 21 of 53 A fund investing primarily in shares. 6.12 Equity Portfolio Investment valuation statistics refer to the portion of the portfolio invested in shares. 6.13 Equity Risk Premium The additional reward an investor can expect to receive for taking the risk of investing in shares rather than cash or government bonds. It can be expressed both in historical terms or as an expectation of future rewards. 6.14 Ethical Fund A fund investing primarily in Ethical Investments and usually with a theme which encompasses someone’s view of ethical business purposes. 6.15 Ethical Investment An Investment (usually shares) which takes into account ethical principles rather than just investment performance. An increasing number of funds have ethical or socially responsible remits. 6.16 Eurobond A form of debt in which the currency is different from that of the country in which it is issued. For example, a dollar-denominated bond issued in the UK. 6.17 Euronext The combination of the exchanges of Amsterdam (Amsterdam Exchanges), Brussels (Brussels Exchanges) and Paris (Paris Bourse). 6.18 European Central Bank The body that sets interest rates for the Euro-zone economies. 6.19 European Union (EU) Originally founded as a common market for six nations in 1957 by the Treaty of Rome, the EU was formerly known as the European Community. A common currency - the Euro, the aim of a single market for goods and services and a political alliance throughout its member countries are the uniting principles behind the union. Page 22 of 53 6.20 Euro-Zone The region which has adopted the Euro as its currency. Current members: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. 6.21 Exchange-Traded Fund (ETF) ETFs are hybrid instruments combining aspects of investment trusts and unit trusts and offering many the benefits of both. ETFs are products that trade like shares on the London Stock Exchange. They mimic stock market indices and are passively managed just like an index fund. 6.22 Ex-Dividend / Ex-Coupon Refers to a share sold without the right to the dividend - the seller retains the declared dividend. Ex-dividends are normally sold in the period between the announcement and payment of the dividend. 6.23 Exit Change A fee or sales charge imposed when investors sell shares in certain unit trusts or other investment vehicles. The amount tends to decrease the longer you hold the shares, often to nothing after a set period of time, i.e. three or five years. This is typically to allow the investment company to recoup up front commission payments. It is also known as a Deferred Charge. 7. F 7.1 Federal Funds Rate The most widely quoted American interest rate. This rate, determined by the Federal Reserve’s Federal Open Market Committee (FOMC), determines how much American banks charge one another to borrow Federal Funds - the money they have previously deposited into Federal Reserve banks to make up their reserve requirement. The system aims to facilitate those with excess reserves lending to those which have fallen short. 7.2 Federal Open Market Committee (FOMC) The body that sets American interest rates. It consists of seven members of the board of governors of the Federal Reserve and five of the 12 Reserve Bank presidents. The FOMC oversees open market operations - the primary tool of monetary policy - establishes ranges for the growth of monetary aggregates and directs operations undertaken by the Federal Reserve in foreign exchange markets. 7.3 Feed & Expenses The average fees and expenses for all funds in the portfolio. 7.4 Fettered Page 23 of 53 A term usually used in relation to a fund of funds. It means the fund of funds is restricted to investing only in the internal funds run by the same fund management group. The opposite is an unfettered fund of funds. 7.5 Financial Adviser An individual or firm that offers advice on investments and other financial products, either on a commission basis or for a flat fee. The current system, known as polarisation, allows two distinct types: Independent financial advisers (IFAs) who base their recommendations on all products in the particular market, and those tied to the products of a single company. This system of advice is currently under review. 7.6 Financial Services Proportion of portfolio invested in banks, finance companies, asset management firms, securities brokers and insurance companies. Examples include Egg, ING and BSCH. 7.7 Financial Services Authority (FSA) The City’s leading financial regulator. It is responsible for policing the financial services industry to protect investors´ interests. The FSA regulates the financial services industry and has four stated objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime. 7.8 Financial Year A 12-month accounting period over which a company reports its profits. It is not aligned with the calendar or tax year. 7.9 Financials Proportion of portfolio invested in companies operating in areas such as banking, insurance, investments and property investment. Some examples of companies in this sector include Amvescap, Aviva, HSBC and Lloyds TSB. 7.10 Fixed Income Fund A portfolio which invests mainly in bonds with the aim of providing a high level of income to investors. Its assets can include corporate debt, government debt or a combination of the two types. Also known as a Bond Fund. 7.11 Flagship Fund Typically the oldest of a group’s products or the one that boasts the largest assets under management. Such funds often bear the management group’s name. Page 24 of 53 7.12 FT 30 An index based on the share price performance of 30 of the largest British companies. Largely superseded by the FTSE 100. 7.13 FTSE FTSE, also pronounced "Footsie", is named for the Financial Times (FT) and the London Stock Exchange (SE), who are its joint owners. The FTSE family has numerous indexes including the FTSE 100, 200, and techMARK, but most commonly, Footsie refers to the FTSE 100. This is a common abbreviation for the FTSE 100, a stock market index based on Britain's 100 biggest companies. Other indices in the FTSE family include the 350 and the All-Share. 7.14 FTSE 100 An index comprised of the 100 largest companies by market capitalisation on the London Stock Exchange. 7.15 FTSE 250 An index that measures the share price performance of medium-sized British companies. The next 250 largest firms after those in the FTSE 100. 7.16 FTSE 350 An index that measures the share price performance of the 350 largest British companies. combination of the FTSE 100 and FTSE 250. 7.17 FTSE All Share Index An index the measures the share price performance of the 900 largest companies on the London Stock Exchange. 7.18 Fund A portfolio of assets such as bonds or shares. 7.19 Fund Class Most funds have different classes for different types of investors, for example institutional and retail. They typically vary in the types of fees they charge. A Page 25 of 53 7.20 Fund Company An investment group offering a range of funds to investors. 7.21 Fund Currency The currency in which a portfolio trades. 7.22 Fund Family A group of funds, with various investment strategies, available from the same fund group. Fund families may offer investors the opportunity to shift funds between the company’s funds for a reduced fee or waive the fee entirely. 7.23 Fund Manager An individual, employed by a fund group, who is responsible for managing a fund’s portfolio. 7.24 Fund of Funds A fund that specialises in buying shares in other funds rather than individual securities. 7.25 Fund Quickrank The Quickrank MorningStar tool enables users to order funds according to a wide range of criteria including: Returns over several time periods Morningstar rating Stylebox. Volatility Fees The tool can be applied to the whole universe of funds or alternatively it can be narrowed down to examine the funds within a selected category or fund group. 7.26 Fund Supermarket A company that sells funds over the internet. Fund groups and stockbrokers have both set up fund supermarkets. 7.27 Fund Switching Page 26 of 53 The transfer of money from one fund to another within a fund family. 8. G 8.1 G7 (Group Of 7) Refers to the seven leading industrial countries whose finance ministers meet to discuss economic and political issues affecting the group. The G7 consists of Britain, America, Canada, Japan, Germany, France and Italy. G8 includes Russia. 8.2 GARP Stands for Growth At a Reasonable Price. An investment strategy which involves trying to find fast growing companies trading at attractive stock market valuations. 8.3 GBX GBX stands for Great British Pence. 8.4 Global Depositary Receipt (GDR) A GDR is comparable to an ADRsB131. This negotiable certificate is held in a country’s local banks representing title to a certain number of foreign shares. Non-domestic companies wishing to list on the local exchange must offer GDRs. 8.5 GILTS Also called Gilt Edged Securities, are bonds issued by the UK Government which offer the investor a fixed interested rate Usually for a predetermined, set time. Because a gilt is guaranteed by the government it is generally one of the safest investments in the UK. 8.6 Global Fund A fund that invests in UK and international shares or bonds. 8.7 Greater China An investment region which consists of China, Hong Kong and Taiwan. 8.8 Green Fund A fund which invests in companies which are deemed to be friendly to the environment. 8.9 Growth Strategy Refers to an investment strategy that selects shares with a record of past growth and the potential for future increases in capital value. Usually, that means companies with high growth in earnings or Page 27 of 53 expected earnings, and hence the potential for big increases in the stock price. Shares in growth companies are usually expensive, relative to the internal or fundamental value of the company. If the company fails to deliver growth, the price can fall dramatically. Growth investing is usually considered more risky than value investing. 8.10 Growth & Income Fund A fund where the fund manager seeks to identify investments in shares that will provide both longterm growth and dividend income. 9. H 9.1 Hang Seng The main index of the largest companies on the Hong Kong stock market. 9.2 Hardware The proportion of portfolio invested in manufacturers of computer equipment, communication equipment, semiconductors and components. Examples Include Siemens, Cisco and Ericsson. 9.3 Health The proportion of portfolio invested in companies operating in areas such as pharmaceutical manufacturing, medical-instruments makers and pharmaceutical wholesalers. An example of a company in this sector is GlaxoSmithKline. 9.4 Healthcare Proportion of portfolio invested in biotechnology, pharmaceuticals, research, services, home health, hospitals, medical equipment and supplies, and assisted living companies. Examples include Fresenius, Aventis and GlaxoSmithKline. 9.5 Hedge Fund A private investment fund or pool that trades and invests in various assets such as securities, commodities, currency, and derivatives on behalf of its clients, typically wealthy individuals. 9.6 Her Majesty’s Revenue and Customs (HMRC) The UK government department which assesses and collects taxes on income, profits, gains and inheritance. 9.7 Hex Page 28 of 53 A Finnish system for numbering financial instruments. 9.8 High Yield Bond Corporate debt with a relatively high risk of default. Also known as a junk bond. 9.9 High Yield Fund A bond fund investing primarily in securities with lower investment grade or "junk" ratings. 9.10 H-Shares Mainland Chinese companies listed on the Hong Kong Stock Exchange. 10. I 10.1 IMA Sector A grouping of funds with similar objectives made by the Investment Management Association (IMA). Examples of IMA sectors include Global Emerging Markets and UK Smaller Companies. Roughly comparable to Morningstar categories. 10.2 Income Ratio The percentage of current income earned per share. It is calculated by dividing the fund’s net investment income by its average NAV. (The net investment income is the total income of the fund, less operating expenses.) The income ratio indicates how much of the fund’s total return comes from income. A high income ratio suggests that the underlying fund depends on dividend distributions or coupon payments to fill out its total return while a low income ratio suggests that capital appreciation is very likely responsible for the fund’s total return. 10.3 Income Units A holding in a unit trust that pays out income on a regular basis via dividends. 10.4 Independent Financial Adviser (IFA) An adviser who is legally obliged to advise investors on funds from the full range of management groups. The opposite is a tied agent who can only advise on the funds of one group. This system of advice is currently under review by the Financial Services Authority. 10.5 Index Page 29 of 53 A collection of securities chosen to attempt to represent a specific investment area. Common ones include the Dow Jones Industrial Average, the S&P 500 and the FTSE 100. Many funds choose to benchmark themselves against an index as a performance measure. 10.6 Index Fund A fund that tracks a particular index and attempts to match the returns of that index. The fund manager typically studies the index’s movements to ensure the fund’s securities are representative of the index with the sectors matched proportionally. Sometimes called a Tracker fund and sometimes emulated by an ETF. 10.7 Individual Savings Account (ISA) A form of tax shelter which can protect investors from capital gains tax and higher rate income tax for investments within government annual allowances. 10.8 Industrial Materials Proportion of portfolio invested in aerospace and defence firms, and companies that provide or manufacture chemicals, machinery, building materials and commodities. Examples include ABB, Air Liquide and EADS. 10.9 Inflation The level at which wages and prices increase over a certain period of time, usually a year. In the UK, this is measured by the Retail Price Index (RPI) and the index of National Average Earnings (NAE). 10.10 Information Radio The Information Ratio is a risk-adjusted performance measure. It is a special version of the Sharpe Ratio in that the benchmark doesn’t have to be the risk-free rate. Mathematically it is the excess return divided by the tracking error. 10.11 Initial Charge The fee payable to a management company upon the purchase of units to pay for administration, marketing of the fund and commission to the adviser(where applicable). 10.12 Initial Investment The smallest amount permitted to start an investment in the fund. 10.13 Initial Public Offering (IPO) The initial offering of shares to the public by a company which is listing itself on a recognised exchange, such as the London Stock Exchange, for the first time. Page 30 of 53 10.14 Initial Units Sometimes called Capital Units. Special units created by investment institutions to cover the marketing and commission sales costs of their products. The units carry high charges and early redemption values. 10.15 Institutional Investor A generic term for an organisation that invests large sums of money, often other people’s savings in securities and funds. Examples of institutional investors include pension funds, insurance companies, investment companies and endowment funds. 10.16 Investment Management Association (IMA) The trade body that represents the groups which run open ended investment companies and unit trusts. Formerly known as the Association of Unit Trusts and Investment Funds (AUTIF). 10.17 Investment Objective A fund manager’s stated goal for the money invested in his fund, such as capital growth or steady income flows to investors. 10.18 Investment Trust A collective investment that invests in shares of companies or fixed income securities. Its own share price does not necessarily reflect the value of its assets. When the net asset value (NAV) per share exceeds the share price, it is trading at a discount and when the NAV/share falls below the share price, it is trading at a premium. 10.19 Italian Stock Exchange (ISE) The Italian Stock Exchange is the result of the unification of Italy’s 10 national exchanges in 1991 led to the formation of this exchange. Based in Milan, the main indexes are the MIB, MIBTEL, and the MIB 30. 11. J 11.1 Japan Proportion of portfolio invested in Japan. 11.2 Johannesburg Stock Exchange (JSE) South Africa’s only stock exchange, heavily focused on gold and mining stocks. Many South African companies are listed on the London Stock Exchange. Page 31 of 53 11.3 Junk Bond Corporate debt that offers investors a high rate of interest because of the perceived higher risk of default. Also known as high yield bonds. 11.4 Lagging Economic Indicators Statistical measures that tend to follow the general pattern of economic activity in a country. For example, the unemployment rate tends to fall once an economic recovery is under way. 11.5 Large Cap The proportion of a fund invested in larger companies (large caps). Large cap companies are defined as those in the top 5% of capitalisation within their global region. 11.6 Largest Region The geographic area making up the biggest proportion of a fund such as Japan, North America or the UK. 11.7 Largest Sector The stock market sector making up the biggest proportion of a fund such as financials, services or technology. 11.8 Leading Economic Indicators Statistical measures that give some indication of the likely future movement of an economy. For example, advertising spending tends to give an indication of future trends. 11.9 Legal Type The structure of a fund based on the law in which it is domiciled. For example, these can include Fonds Commun de Placement (FCP) in Luxembourg, Open-Ended Investment Companies (OEICS) in the UK and Société d'Investissement à Capital Variable (SICAVs) in continental Europe. 11.10 Life Style Fund Funds which are designed to modify their holdings as the investor ages so that they are appropriate to different life stages. For example, an older person is likely to want a more conservative asset allocation than a younger one. Also known as Life Cycle Funds. 11.11 Liquidity Page 32 of 53 A measure of how easy it is to buy and sell shares without notably moving the share price. 11.12 List Transactions Chose the fund holding from the drop down menu to choose which ones are displayed. 11.13 London Interbank Offered Rate (LIBOR) The interest rate that the largest most creditworthy international banks charge each other for loans. The LIBOR rate is typically 12.5 basis points above LIBID (London Interbank Bid Rate). 11.14 London Stock Exchange (LSE) One of the largest stock exchanges in the world. The most frequently quoted index on the LSE is the FTSE 100. 11.15 Lump Sum Investment Investing a sum in one go rather than spreading it over monthly payments. The opposite of regular saving. 12. M 12.1 Management Charge A fee, usually expressed as a percentage, charged by the investment manager to cover the costs of running the fund. It is deducted from the net assets of the fund. 12.2 Manager Information Details on the fund’s manager. 12.3 Manager Start Date Date the manager began running the fund. 12.4 Market Timing An investment strategy in which investors switch in and out of securities or between types of funds in the hopes of benefiting from various economic and technical indicators that are thought to presage market moves. 12.5 Maturity The date on which the principal of a debt instrument, i.e. a bond, is due to be paid. For example, the maturity date for a five-year bond issued on 1 November 2007 would be 1 November 2012. Page 33 of 53 12.6 Maxi-ISA An ISAs (Individual Savings Accounts) in which you are allowed to place your maximum ISA allowance (currently £7000) with one ISA plan manager. For example, rather than splitting your savings between a cash mini-ISA, and/or a stock-and-shares mini-ISA, you choose one fund that will receive your entire allowance. You cannot do a Mini ISA if you have done a Maxi ISA. 12.7 Mean return The mean return is the average return obtained by the fund during the last three years. Mathematically, it is the annualized monthly arithmetic return over the last 36 months. 12.8 Media Proportion of portfolio invested in companies that own and operate broadcast networks and those that create content or provide it to other media companies, Examples include Time Warner, Pearson and TF1. 12.9 Median Mkt Cap To determine median market capitalisation of a fund, the companies in which it is invested are ranked from biggest to smallest. The median is size of the company in the middle of the list if the number of companies is odd. If the number of companies is even then the median is the average of the market capitalisation of the two middle firms. 12.10 Median Value The middle value of a group of values. For example, in the series 1, 4, 7, 8, 10, 11, 23, 45, and 52, 10 is the median. 12.11 Mid Cap The proportion of the fund invested in companies categorised as middle capitalisation companies (mid caps). A determination of large, mid or small cap is made by separating all of the shares into 10 global regions. The largest 5% are large caps, the next 15% are mid caps and the bottom 80% are small caps. 12.12 Middle East and Africa Proportion of portfolio invested in African and Middle Eastern countries such as Egypt, Morocco, Nigeria, South Africa and Turkey. 12.13 Mini-ISA Page 34 of 53 An ISAs (Individual Savings Accounts) which focuses on only one of the ISAs two elements (shares and cash). Individuals are allowed to put £3000 in a mini-cash ISA, and the same into a cash mini equity ISA. You cannot do a Maxi ISA if you have done an Mini ISA 12.14 Minimum Additional Investment The smallest lump sum amount that a new investor can put into a fund. 12.15 Minimum Initial Investment The smallest lump sum amount that a new investor can put into a fund. 12.16 Minimum Lump Sum Investment The smallest amount of money an investor can put into a fund. Typically, this can either be to open the account or for topping up the account. 12.17 Minimum Purchase The smallest amount that can be invested in the fund. 12.18 Minimum Savings Plan The smallest sum that a regular investor can put into a fund. 12.19 Modern Portfolio Theory (MPT) Refers to the body of innovations in portfolio management from the 1950s. The central plank of MPT is the concept of diversification - the fact that a well chosen group of assets can achieve a higher rate of return with a lower level of risk than any asset taken in isolation. Another important concept is that of Market Risk. A fund’s risk can be split into two parts: on the one hand, variations due to movements in the stock market as a whole (described by Beta), on the other hand, variations independent of broad market movements (specific risk). Alpha, Beta, R-squared, Correlation, Volatility are statistics usually associated with MPT and are explained elsewhere in this Glossary. 12.20 Monetary Policy Committee (MPC) The committee of the Bank of England that sets UK interest rates. 12.21 Morningstar Category Page 35 of 53 Funds are grouped into categories according to their actual investment style, not merely their stated investment objectives, nor their ability to generate a certain level of income. To ensure homogeneous groupings, Morningstar normally allocates funds to categories on the basis of their portfolio holdings. Several portfolios are taken into account to ensure that the fund’s real investment stance is taken into account. 12.22 Morningstar Class Code A Morningstar code which identifies whether a fund class is for accumulation or income. 12.23 Morningstar Fund Code An identification code assigned to funds by Morningstar. 12.24 Morningstar Rating For Funds A rank measure of risk-adjusted performance within a Morningstar Category. 12.25 Morningstar Rating For Stocks (The Stars On Reports) The Morningstar Rating for Stocks is calculated by comparing a stock’s current market price with MorningStar´s estimate of the stock’s fair value. The rating system also includes a risk adjustment, so that it’s more difficult for a company with above-average business risk to earn a 5-star rating. The margin of safety Morningstar demands before giving a stock 5 stars is determined by their assessment of business risk. Their analysts assign stocks to one of three business risk ratings. They make it tougher for stocks with above-average business risk ratings to earn 5 stars. Each of the five star-rating levels is defined based on expected returns, which assume that the stock’s market price and fair value eventually converge. Under the Morningstar system, 3-star stocks are those that should offer a "fair return," one that adequately compensates for the riskiness of the stock. Three-star stocks should offer investors a return that’s roughly comparable to the stock’s cost of equity. (The cost of equity is often called a "required return" because it represents the return an investor requires for taking on the risk of owning the stock.) Five-star stocks, of course, should offer an investor a return that’s well above the company’s cost of equity, and high-risk 5-star stocks should offer a better expected return than low-risk 5-star stocks. On average, Morningstar expect 5-star stocks with below-average risk to return at least 15.5% annualized over the next three years. Because the hurdle rate for stocks with above-average risk is higher, they expect a 30.5% annualized return for a 5-star stock with above-average risk. Conversely, low-rated stocks have significantly lower expected returns. If a stock drops to 1 star, that means Morningstar expect it to lose money for investors over the next three years, based on their assessment of the stock’s fair value. The Morningstar Rating for Stocks also includes a small buffer around the cut off between each rating, to reduce the number of rating changes produced by random market "noise." If a $50 stock Page 36 of 53 moves up and down by $0.25 each day over a few days, the buffer will prevent the star rating from changing each day based on this insignificant change. 12.26 Mutual Fund A general term for a unit trust, OEIC or any other collective investment scheme. 13. N 13.1 National Association of Securities Dealers Automated Quotations (NASDAQ) An American stock market which is best known for its technology companies. NASDAQ is the second largest market in America and was the world’s first electronic stock market. Listed companies include Cisco, Dell, Intel and Microsoft. 13.2 Net Asset Value (NAV) The value of the investments in a fund. In the case of a unit trust or OEIC the net asset value per share normally corresponds to the fund’s market price, subject to any sales or exit charge. However, the market price and the net asset value may vary noticeably for an investment trust. (See Discount to NAV and Premium to NAV.) 13.3 New York Stock Exchange (NYSE) The largest and oldest stock market in America. Based on Wall Street. Its most widely quoted indices are the Dow Jones Industrial Average and the S&P 500. 13.4 NIKKEI A stock market index which measures the performance of Japan’s largest companies. 13.5 No Load Fund A fund with no initial charge. However, the annual management charge is likely to be higher and there may be an exit charge for investors who only stay in the fund for a short period. 13.6 North America Proportion of portfolio invested in the United States and Canada. 13.7 Number Of Funds In Category The number of funds classified in the same category as this fund. 13.8 Open Ended Investment Company (OEIC) Page 37 of 53 An OEIC is a collective investment that takes its structure from both a unit trust and an investment trust. An OEIC is single-priced and issues shares like an investment trust. However, rather than buying and selling shares on a stock exchange, the investors transacts with the fund company. Several UK fund management companies have converted their unit trusts to OEICS. 13.9 Offer Price The price at which an investor can buy units from the fund management company. 13.10 Olso Bors Code A Norwegian system for numbering financial instruments. 13.11 Ordinary Shares Units of ownership in a company. They possess a greater element of risk to the investor as the investment in the company is affected by market forces and there is no guarantee that the original investment will be returned when they are sold. Ordinary shares entitle the holder to vote on measures at the company’s AGM and to receive dividends but they are the last creditors to receive anything if a company goes bankrupt. 13.12 Other The proportion of the fund invested in other securities such as property or other financial instruments. 14. P 14.1 Paris Bourse The French national stock market and part of Euronext which is the combination of the exchanges of Amsterdam, Brussels and Paris. 14.2 Passive Funds Another name for funds which track market indices such as the FTSE 100 or the S&P 500. Also called index funds, ETFs and tracker funds. 14.3 Penny Shares Typically a volatile, high-risk share of a company with generally low market capitalisation. Share price used to be less than 10 pence but can be higher now. 14.4 Personal Equity Plan (PEP) The predecessor to the ISA. brought in ISAs. New investment in PEPs stopped in April 1999 when the government Page 38 of 53 14.5 PEP Transfer Funds with this facility accept the proceeds of investment in a Personal Equity Plan. 14.6 Percentile Rank In Category Measures, on a scale from 1-100 - with 1 as the top score and 100 as the worst - a fund’s performance compared to the rest of the funds in the same category. 14.7 Performance How an investment has grown (or fallen) over a set period of time. Investors may compare the performance of funds with similar investment strategies to compare funds. 14.8 Performance Evaluation A two-step process of appraising a fund manager’s results. First, it examines whether the manager outperformed the chosen benchmark (for instance the investment objective of the fund was to return 2% more than the FTSE 250 - has this been done?). Second, it assesses the methods employed to realise this return (that is did they follow the original investment plan?). 14.9 Performance Fee A payment awarded to a fund manager if certain performance levels are attained in a set period of time. Often, it refers to the achievement of a return on a fund over and above the investment objective. Funds with performance fees are relatively rare and are usually offshore funds or hedge funds. 14.10 Performance Fee Index A benchmark against which the performance fee for a fund is calculated. 14.11 Personal Investment Authority (PIA) The previous financial services Quango to the Financial Services Authority. 14.12 Polarisation The system of advice that divides advisers between those tied to one management group and independent financial advisers (IFAs). This distinction is currently under review by the Financial Services Authority. 14.13 Portfolio A collection of different types of investments. See Diversification. Page 39 of 53 14.14 Portfolio Tool A Morningstar tool which enables users to aggregate their fund holdings and examine the characteristics of their entire portfolio. It includes a Portfolio X-Ray facility which allows users to break down their total fund holdings by numerous criteria including investment style, stock market sector and geographic regions. 14.15 Portfolio Types There are two types of portfolios: quick and transaction portfolio. A quick portfolio is the easiest way to create a portfolio. A transaction portfolio offers full-fledged portfolio tracking including buys, sells, splits and dividends. 14.16 Pound Cost Averaging A mathematical feature of regular savings schemes which enables them to reduce investment risk. If a fund's unit (or share) price falls then more units can be bought for a given amount of money. As a result the volatility of the investment is lower. 14.17 Preference Shares Shares that pay dividends at a specific rate while the dividends of ordinary shares fluctuate or may not be paid at all. They do not normally carry a vote unless dividends fall into arrears. They usually carry a claim prior to common shareholders on the earnings of a company and on the assets in the event of liquidation. 14.18 Premium to NAV When an investment trust is trading at a premium to NAV, it means that the underlying assets in the investment trust are worth less than the net asset value of the fund. Premium to NAV is normally expressed as a percentage and an investor will be paying more for the shares that than the shares themselves are worth. 14.19 Previous Analyses The most recent analysis pieces. 14.20 Previous Commentaries The most recent commentaries. 14.21 Previous Fund News The most recent news stories. Page 40 of 53 14.22 Previous Interviews The most recent interviews. 14.23 Price-To-Book (P/B) A financial ratio calculated as current share price divided by book value per share. It compares how the market values a company to the value on the company’s books. For example a company trading at several times its book value tends to indicate a growth stock where investors believe the book value will rise in the future. Typically a company with a low P/B means that investors think that the firm’s assets have been too highly valued on its financial statements. 14.24 Price-To-Cash Flow (P/CF) A financial ratio calculated as current share price divided by cash flow per share - where cash flow is the spending and receiving of cash in a business. For example, a P/CF of 10 indicates that for each £1 that flows through that company, the stock price is £10. Optimal P/CF ratios differ from industry to industry. P/CF ratios will be much lower in capital-intensive industries than in ones such as software. 14.25 Price-To-Earnings (P/E) P/E ratio calculated as current share price divided by current earnings per share (EPS= earnings for the last 12 months divided by the number of common shares outstanding). Also known as the multiple as in the multiple of earnings at which a stock is priced. Companies that investors expect to see grow strongly tend to have high P/E ratios while mature companies may often relatively low P/Es. For example, a share selling at £16 per share with projected earnings next year of £4 has a P/E ratio of 4 while that same stock with projected earnings next year of £6 has a P/E ratio of 2.67. The reverse ratio of P/E calculates earnings yield and is calculated as 1 divided by the P/E ratio. For example, if you had a P/E Ratio of 20, the earnings yield ratio would be 1/20, which equals 0.05. Therefore, an investor would typically expect to receive a 5% yield on an investment with a company with a P/E of 20. 14.26 Primarily Invests In The size of companies making up the biggest proportion of a fund. 14.27 Prospectus A fund’s formal written statement, issued before it issues shares to the public. In this statement the fund sets forth its proposed purposes and goals, and other facts (for example, history and investment objective) that an investor should know to make an informed decision. 14.28 Protected Fund Page 41 of 53 A fund which is structured to limit its losses to a certain amount within a certain period. example, it may be able to lose a maximum of 5% of its value over three months. 15. Q 15.1 Q Ratio For A measure of stock market valuation devised by James Tobin. Takes the total value of the stock market and divides it by corporate net worth. A high Q shows that the market is overvalued and a low Q shows that it is cheap. Andrew Smithers, an adviser to fund managers, is a leading exponent of Q in the UK. 15.2 Quarter 1 The performance of the fund from January to March inclusive. 15.3 Quarter 2 The performance of the fund from April to June inclusive. 15.4 Quarter 3 The performance of the fund from July to September inclusive. 15.5 Quarter 4 The performance of the fund from October to December inclusive. 15.6 Quarterly Returns How the fund has performed on a quarterly basis. 15.7 Quartile Indicates in which quartile the fund can be found in terms of returns and/or risk. The highest position is found in the first quartile. 15.8 Quick Portfolio The simple type of portfolio tool. Only percent of total holding is entered, only current holdings can be analyzed. 15.9 Quick Stats Overview of key data for a fund. Page 42 of 53 15.10 Quicktake The Quicktake report provides a detailed standardised fact sheet on all the funds in the Morningstar universe. Its standard format makes it easy to use and to make comparisons with other funds. Quicktake reports consist of four detailed sections: Overview Rating and risk Portfolio Management 16. R 16.1 Redemption Fee A charge that some fund groups levy if an investor exits a fund before a certain time. Also called a back-end load or a deferred sales charge. 16.2 Region Geographical area of the world. 16.3 Regular Savings A scheme that allows investors to invest a regular sum into a fund every month. The minimum is normally £50 to £100 per month. 16.4 Relative Category This column compares the fund with the average of all of the funds in its Morningstar Category. For example, if the Median Market Cap (Mil) of a fund is 2,000 and the Relative Category column says 0.5, the fund’s median market cap is about half that of the category average. A second example looks at the Regional Breakdown of a fund. If in the UK row, the “% of Equity” column for the fund reads 10% and the Relative Category column says 5.0, the fund has approximately five times as much of its assets invested in the UK than does the average fund in its Morningstar category. 16.5 Retail Proportion of portfolio invested in companies operating in areas such as apparel, department stores, food stores, and miscellaneous shops. Some examples of companies in this sector include French Connection, Gap, House of Fraser, Starbucks and Tesco. Page 43 of 53 16.6 Retail Price Index (RPI) A measure of inflation. This index tracks a basket of the goods and services, such as clothing, food, household goods and medical care, purchased by an average consumer. 16.7 Return The profit that an investor can receive from an investment. 16.8 Risk Profile The arrow on this risk profile bar shows the risk of the fund as measured by standard deviation. Standard deviation measures the risk of a fund by telling you how, on average, the performance of the fund moves away from the mean. A high standard deviation indicates that the performance varies a lot, whereas a low standard deviation tells you that the performance has been more stable. The funds falling in the Low range have standard deviations between 0 and 5.3, in the Moderate range between 5.3 and 10.6, and in the High range above 10.6. 16.9 R-Squared A measure of the percentage of a fund’s movements that can be accounted for by changes in its benchmark index. An R-squared of 100 indicates that a fund’s movements are perfectly correlated with its benchmark. Thus index funds that invest only in S&P 500 stocks typically could have an Rsquared close to 100. Conversely, a low R-squared indicates that little of the fund’s movements can be explained by movements in its benchmark index. An R-squared measure of 35, for example, means that only 35% of the fund’s movements can be explained by movements in the benchmark index. R-squared can be used to ascertain the significance of a particular Beta. Generally, a higher R-squared will indicate a more reliable Beta. If the R-squared is lower, then the beta is less relevant to the fund’s performance. 17. S 17.1 Standard and Poors 500 (S&P 500) A stock market index which represents the performance of 500 of America's largest companies. 17.2 Sales Charfe (Maximum) The highest fees a fund group levies for investment in the fund. 17.3 Savings The smallest amount permitted for regular contributions to a savings plan. 17.4 Sector Funds Page 44 of 53 Funds that invest in one particular sector of the economy such as healthcare, technology, media, biotechnology or financials. Because of their narrow scope sector funds tend to be more volatile than funds with a broader investment objective, since the overall market may alternate between favouring the different sectors. 17.5 Securities And Exchange Commission (SEC) The main American financial regulatory body. The SEC sets the rules and regulations which all companies with registered US share must follow. 17.6 Stock Exchange Daily Official List (SEDOL) number The SEDOL number is a seven digit European security identifier number for funds. 17.7 Select Holding Widen or narrow the number of transactions displayed. 17.8 Services Proportion of portfolio invested in companies operating in areas such as freight, airlines, business services, publishing, railroads, hotels, resorts, restaurants, personal services, recreational services and movies. Some examples of companies in this sector include British Airways, Pearson, Pizza Express, Securicor and Thistle Hotels. 17.9 Shares A unit of ownership in a company or investment fund. The American term is stocks. 17.10 Sharpe Ratio A risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the fund’s historical risk-adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund’s excess returns by the standard deviation of a fund’s excess returns. Since this ratio uses standard deviation as its risk measure, it is most appropriately applied when analysing a fund that is an investor’s sole holding. The Sharpe Ratio can be used to compare two funds directly on how much risk a fund had to bear to earn excess return over the risk-free rate. Page 45 of 53 17.11 Short (Sell Shares Short) Betting on a falling price. Being "short" a security means to have sold it without owning it. A fund or individual may sell a security that the fund/individual does not presently own and before settlement of the transaction, the fund/individual will purchase an equivalent amount of that security in order to satisfy the sale. This strategy entails anticipating that the price will fall and it will be possible to buy the securities at a lower price later than they were sold for. The profit made is the spread between the two prices. 17.12 Sociétés d'investissement à Capital Variable (SICAV) A SICAV, is an open-ended investment fund, similar to the UK's unit trust. Luxembourg-domiciled trusts are typically SICAVs. 17.13 Societe (SICOVAM) Interprofessionnelle pour la Compensation des Valeurs Mobilieres A French system for numbering financial instruments which is run by the trade body for French brokers similar to the SEDOL code convention. 17.14 Small Cap The proportion of the fund invested in companies categorised as small capitalisation companies (small caps). A determination of large, mid or small cap is made by separating all of the stocks into 10 global regions. The largest 5% are large caps, the next 15% are mid caps and the bottom 80% are small caps. 17.15 Socially Responsible Fund A fund which uses moral as well as financial criteria when selecting assets for its portfolio. Sometimes used to refer to funds which positively seek to invest in firms which are considered ethical. 17.16 Software Proportion of portfolio invested in companies engaged in the design and marketing of computer operating systems and applications. Examples include Microsoft, SAP and Siebel Systems. 17.17 Split A split happens when a company increases the number of its outstanding shares without altering the proportionate amount of shares each shareholder owns. Stock splits enable smaller investors access to high-priced shares. For example, a share currently trading at 900p per share could be split and replaced by three 300p shares. Shares in funds can also in the same way, leaving each investor with more shares representing the same monetary investment. Page 46 of 53 Share splits often lead to problems when trying to calculate the UK CGT liabilities. 17.18 Spread For Spread, please see Bid-Offer Spread (Fund). 17.19 Stability Pact The framework of rules which governs economic behaviour in the Euro-zone. For example, budget deficits should not exceed 3% of GDP except in exceptional circumstances. Its full name is the stability and growth pact 17.20 Standard & Poors (S&P) A company which provides fund information and is also known for rating bonds. 17.21 Standard Deviation Standard deviation of fund returns measures how much a fund’s total returns have fluctuated in the past. The term volatility is often used to mean standard deviation. This number is useful for two reasons. Firstly, because the more a fund’s return fluctuates, the riskier the fund is likely to be; standard deviation facilitates comparisons across all funds, from cash to emerging market equities. Secondly because funds that have been more volatile in the past tend to be the more volatile in the future. standard deviation can be a useful warning sign. The standard deviation is expressed in percentage terms, just like the returns. It is based on the fund’s most recent 36 monthly returns. How to use it? The simplest use is to compare funds. Additionally, you can estimate the range of returns that a fund can experience in any given year. This gives a useful estimate of how low returns can go. To perform this simple estimate, you just need two numbers: the average return and the standard deviation. You can estimate that, 95% of the time, the lowest annual return will be equal to the average return minus twice the standard deviation. Conversely, the maximum typical return, 95% of the time, will be equal to the average return plus twice the standard deviation. Example 1. A money market fund had an annual average return of 6%, with a standard deviation of 1%. The typical maximum annual return you would expect is: 6+1+1= 8%; the typical lowest return you would expect is 6-1-1=4%. In other words, if the fund continues to behave as it has in the past, 95% of the time, its annual returns will be between 4% and 8%. Example 2. An equity fund has experienced an average return of 18%, with standard deviation of 30%. Applying the same calculation, you can see that this fund’s typical annual returns will be between a negative 42% and a positive 78%. So even in good times, you can obtain an estimate of the downside for a given fund. Page 47 of 53 A fuller explanation would be that monthly returns follow more or less what is known as a normal distribution, popularly known as a "bell-shaped" curve. One of the properties of such a distribution is that you know that 95% of the time, returns will be comprised between average +/- 2 standard deviations. 67% of the time, returns will be comprised between average +/- 1 standard deviation. Of course, past volatility is no perfect predictor of future behaviour, but the information provided by standard deviation is too important to be overlooked. Another limitation of volatility is that, if you hold several funds, you can average the returns, but not the volatility. The aggregate volatility is likely to be lower than the average of the various funds individual volatilities. That is the benefit of diversification. 17.22 Staples Proportion of portfolio invested in companies operating in areas such as cosmetics, grooming supplies, distillers, breweries, food and food production, meats, dairy, confections, and tobacco. Some examples of companies in this sector include British American Tobacco, Body Shop, Boots, Cadbury Schweppes, Coca-Cola, Diageo and Philip Morris. 17.23 Stock market Average An arithmetic mean return of a collection of stocks chosen to characterize the overall market. Unlike an index, a stock market average is not weighted. The most frequently quoted average is the Dow Jones Industrial Average. 17.24 stocks The proportion of the fund invested in stocks (shares). 17.25 Switching Fee A charge levied by a fund management group when an investor moves money from one fund to another within the same group. For example, the investor moves from Fund Company A´s Asian Growth Fund to its UK Equity Fund. The majority of funds sold in the UK do not levy a switching fee or else they reduce it over time. 18. T 18.1 Tax Free Savings The tax shelter schemes through which this fund is available. Frequent the vehicle isn’t entirely tax free. 18.2 Technology Proportion of portfolio invested in companies operating in areas such as aerospace components, business data processing, computer leasing, electrical equipment, specialised machinery, and Page 48 of 53 precision instruments. Fujitsu. Examples of companies in this sector include Apple, BAE Systems and 18.3 Telecommunications Proportion of portfolio invested in companies that provide communication services using fixed-line networks or those that provide wireless access and services. Examples include Swisscom, Vodaphone and Telefonica. 18.4 Tax-Exempt Special Savings Accounts (TESSAs) A form of cash savings account which is no longer open to new investors. Many are now held as TESSA Only ISAs (TOISAs) 18.5 The City London's financial district. Also known as the square mile. 18.6 The Market Shows the moves of the main global stock markets. 18.7 Tied Agent An intermediary who can only advise on the funds of one management group. The opposite of an independent financial adviser (IFA) who must offer advice on funds from the full range of groups. This system of advice is currently under review by the Financial Services Authority. 18.8 Top 10 Holdings The ten largest investments in the entire portfolio of funds. 18.9 Top 3 Stock Sectors The three biggest stock market sectors in which the fund is invested. 18.10 Top 5 Holdings The five largest holdings in the fund. 18.11 Total Net Assets The size of a fund. The month-end net assets of the fund. It is recorded in millions of the fund currency denomination (that is millions of pounds for a fund trading in sterling, millions of dollars for a fund trading in the American currency). Page 49 of 53 18.12 Total Number Of Bond Holdings The amount of investments the fund currently has in bonds. 18.13 Total Number Of Equity Holdings The amount of investments the fund currently has in equities (shares). 18.14 Total Returns The absolute return of the fund, expressed as a percentage. 18.15 Tracker A fund that matches the returns of a particular index. Also called index funds or passive funds. 18.16 Tracking Error The volatility of the difference in returns between a fund and its benchmark. Also known as active risk. In the context of passive management (tracker fund), tracking error properly describes how well a fund tracks its benchmark. But in relation to active management it is a misnomer: It describes how far the fund manager has strayed from its benchmark, not an error. The measure is nevertheless useful in performance assessment: the higher the active return (out performance) in relation to the active risk (tracking error) the better. 18.17 Trailing Error Performance figures that cover a rolling period whether annually, monthly, weekly, or daily. For example, on March 14th 2007, the one year trailing return would cover the period from March 14th 2006 till March 14th 2007 and the 1-week trailing return would cover the period from March 7th to March 14th 2007. 18.18 Transaction Portfolio The more advanced portfolio tool, that keeps track of all transactions. 18.19 Transaction Type An adjustment to the portfolio such as buying or selling units or shares, receiving a dividend or having the stock split into additional shares. 18.20 Transfer Agent A firm engaged by a fund management group to run its shareholder records. 18.21 Turnover Page 50 of 53 A measure of the rate of trading activity for a fund during the previous year. It is shown as a percentage of the average total assets of the fund. For example, a turnover rate of 20% means that the value of trades represented one-fifth of the assets of the fund. However, a turnover ratio of 100% or more does not necessarily suggest that all securities in the portfolio have been traded. In practical terms, the resulting percentage loosely represents the proportion of the portfolio’s holdings that have changed over the past year. 19. U 19.1 Undertakings for Collective Investment in Transferable Securities (UCITS) UCITS refers to a European Union directive that establishes the terms under which a fund domiciled in one EU member state can be marketed in all EU countries. UCITS aims to simplify investment regulations across EU borders and increase investor protection. 19.2 United Kingdom (UK) Proportion of portfolio invested in the United Kingdom. 19.3 Umbrella A fund which is divided into several sub-funds or share classes each of which can invest in different assets or markets. 19.4 Umbrella Fund A general fund holding a range of sub-funds with separate individual investment strategies. Investors can sometimes move from one fund to another at a reduced cost. 19.5 Unfettered A general fund holding a range of sub-funds with separate individual investment strategies. Investors can sometimes move from one fund to another at a reduced cost. 19.6 Unit Trust One of the most common forms of investment funds used by retail investors. Increasingly they are being replaced by OEICS and UCITS. 19.7 Unit Value The price of a single share in a unit trust. 19.8 Unit-Linked A fund which is unitised into portions or shares which can be valued. Page 51 of 53 19.9 Utilities Proportion of portfolio invested in electric, gas and water utilities. Examples include E.ON, Electrabel and Veolia. 20. V 20.1 Valoren A Swiss system for numbering financial instruments. 20.2 Value An investment strategy that selects shares that are attractively priced, relative to the earnings or the internal value of the company – or, in some cases, relative to the market. The theory is that the share price of these companies will eventually rise to reflect the true value. Many consider value investing safer than growth investing, since prices of value stocks tend to be less volatile. 20.3 Volatility Volatility is the observed price movement of an asset. Standard deviation is the most widely used measure of volatility. Volatility and standard deviation are generally considered to be a measure of risk. (See standard deviation.) 21. W 21.1 Western Europe – (EURO Zone) Proportion of portfolio invested in the Euro-zone which is comprised of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. 21.2 Western Europe – (Non EURO Zone) Proportion of portfolio invested in the western European countries outside the Euro-zone: Andorra, Denmark, Gibraltar, Greenland, Iceland, Liechtenstein, Malta, Monaco, Norway, San Marino, Sweden, Switzerland United Kingdom and the Vatican City. 21.3 WertpapierKennNummer (WKN) A German system for numbering financial instruments on the same lines as a SEDOL code. 21.4 WRAP Account An internet-based account that allows investors to aggregate all of their investments, such as personal pensions and unit trusts, onto one platform. They can then buy, sell and manage their investments through this platform. Also known as a Platform although there is some dispute over the way each alternative charges. Page 52 of 53 22. Y 22.1 Year To Date (YTD) This figure indicates how well the fund, index or category has performed to this date in the year. For example, if you were looking at the site on March 21st, the YTD figures are from the December 31st to March 20th. They are updated every night, excluding weekends and bank holidays. 22.2 Yield The rate of return, expressed as a percentage, paid on an investment – in the form of dividends for stocks and funds or the coupon rate for bonds. Yield should not be confused with Total Return. 22.3 Yield Curve Depicts the relationship between a bond’s maturity and its yield. The yield curve usually refers to this relation for government bonds (gilts). Whilst the curve is often sloping upwards (i.e. higher yields for longer maturities), it is not unusual to observe other shapes (inverted, U-shaped, etc...). 23. Z 23.1 Zero Coupon Bond A fixed income investment that is issued at a discount to its face value but pays no coupons (interest) through its life. For example, an investor could pay £900, receive no annual payments for five years, but get £1000 when the bond matures. Please note that whilst every effort is made to ensure that the information contained within this explanation is correct, these notes are by necessity brief and in many cases are open to further interpretation. You should seek further clarification on any plans prior to undertaking any arrangement. Last updated 08.2007. E. & 0. E. Page 53 of 53