A 12b-1 fee is a fee assessed by a mutual fund to its shareholders.The fees cover the fund's marketing expenses and are named after the section of the Investment Company Act of 1940 that makes them legal.
The 30-day annualized yield is a measure of the yearly rate paid to investors of an interest-bearing account, based on the returns earned in a 30-day period. The 30-day annualized yield is a measure of return usually used for mutual funds.
The 7-day annualized yield is a measure of the yearly rate paid to investors of an interest-bearing account, based on the returns earned in a 7-day period. The formula is: 7-Day Annualized Yield = ((A-B-C)/B) x 365/7 Where: A = The value of an account at the end of the 7-day period B = The value of an account at the beginning of the 7-day period C = A proportional week's worth of fees (if fund fees vary with the size of the account, assume the account is equal to the fund's mean or median account size) Let's assume Company XYZ money market fund needs to calculate its 7-day annualized return.
A shares are a type of mutual fund share.They are distinguished from B Shares and C Shares by their load (fee) structure.
An aggressive growth fund is a mutual fund which invests exclusively in high-risk/high-return stocks in an attempt to benefit from the potentially high returns on start-up companies and IPOs. An aggressive growth fund brings together a number of equity securities issued by start-up companies believed to have a high growth potential combined with shares of initial public offerings (IPOs) issued by existing companies intending to expand.
An all weather fund is a mutual fund that performs well regardless of market conditions. The performance of an all weather fund is largely unaffected by market climate.
An appraisal ratio is the ratio of a mutual fund's alpha to its risk. The formula for the appraisal ratio is: Appraisal Ratio = Alpha / Fund's Unsystematic Risk Let's assume Mutual Fund XYZ has an alpha of 0.06 and an unsystematic risk of 0.60.
Assets under management (AUM) refers to the total market value of investments managed by a mutual fund, money management firm, hedge fund, portfolio manager, or other financial services company. AUM generally changes according to the flow of money into and out of a particular fund or company.
B shares are a type of mutual fund share. They are distinguished from A shares and C shares by their load (fee) structure. B shares have a "back-end load." This means that the entire initial investment amount is invested into mutual fund shares, but when the investor is ready to sell the shares, a certain percentage is deducted and paid to the mutual fund as commission. Therefore, the investor receives less than the total value of the investment when the shares are sold. B shares can be converted into A shares if the investor decides the front-end load payment structure is more advantageous.
A back end load (also known as a sales charge or an exit fee) is a commission or sales fee.Investors pay back end loads when selling their investments, which are commonly associated with mutual funds and annuities. The fee is usually a percentage of the current value of the fund’s shares, with the amount gradually decreasing over time.
A balanced fund is a mutual fund that generally keeps to a 50-50 mix of stock and bond investments. Balanced funds are one of two general types of income funds (the other type is equity-income funds, which mostly invest in dividend paying stocks).Income funds seek to generate income but give some attention to capital appreciation -- that is, capital appreciation is secondary to maintaining current income and capital preservation. Balanced funds (and income funds in general) are mechanically very similar to bond funds but they include varying amounts of non-debt instruments like preferred stock, common stock, or even real estate.
A blend fund, also called a hybrid fund, is a mutual fund composed of a combination of securities from different asset classes designed to increase diversification with just a single fund. A blend fund differs from a traditional fund, which usually focus exclusively on one asset class such as value stocks or highly rated domestic bonds.
In the mutual fund world, a breakpoint is the size of an investment that qualifies the investor for a lower load. Let's assume you are interested in making a $10,000 investment in the Company XYZ mutual fund, which has a 4% front-end load (a fee for buying the shares).
C shares are a type of mutual fund share. They are distinguished from A shares and B shares by their load (fee) structure. The main aspect that differentiates C shares from A shares and B shares is that C shares are level-load. This means the full amount of money paid to the mutual fund is invested in shares. Commissions for level-load shares are paid to the mutual fund through annual fees. This level-load structure is unique to C shares.
Capital gains distributions are capital gains that are passed on to investment company shareholders. Let's assume that XYZ Company mutual fund invested well during the year and realized $1,000,000 in net capital gains (that is, capital gains after subtracting capital losses).
A closed end fund (CEF) is a publicly-traded security that offers its shareholders partial ownership in an underlying portfolio of assets. Closed-end funds initially raise capital through an initial public offering.
Also called a back-end load, a contingent deferred sales charge is a fee paid to sell a specific investment.It is expressed as a percentage of the amount invested, and may also be called an exit fee or a redemption charge.
Discount to net asset value (NAV) refers to a situation where shares of a closed-end stock fund are trading at a price lower than the fund’s net asset value per share.For example, a fund could be described as "trading 5% discount to NAV." Discount to NAV (and "premium to NAV") is most often used to describe the price per share of closed-end stock funds.
A diversified common stock fund is a type of mutual fund that invests exclusively in shares of common stock. Diversified common stock funds may comprise any combination of common stocks.
A dividend ETF is a basket of dividend-paying securities that are bundled together into a single security that can be bought and sold like a stock. A dividend ETF usually mimics part or all of a dividend stock index.
A dividend fund is a type of mutual fund which invests exclusively in equity shares which pay regular dividends. A dividend fund seeks to provide investors with income from common and preferred shares of stock which yield dividends in cash and stock (in some cases) on a regularly-occurring basis.
An emerging markets fund is a fund that invests in the securities of companies and governments in developing countries. Emerging markets have lower per-capita incomes, above-average sociopolitical instability, higher unemployment, and lower levels of business or industrial activity relative to the United States; however, they also typically have much higher economic growth rates.
An equity fund is an open or closed-end fund that invests primarily in stocks, allowing investors to buy into the fund and thus buy a basket of stocks more easily than they could purchase the individual securities. There are literally thousands of equity funds out there, and each has unique characteristics.
Exchange-traded funds (ETFs) are securities that closely resemble index funds, but can be bought and sold during the day just like common stocks.These investment vehicles allow investors a convenient way to purchase a broad basket of securities in a single transaction.
The expense ratio is the recurring management fees for a mutual fund.A fund company charges its fund holders the expense ratio each year (expressed in terms of a percentage of the fund's assets).
Forward pricing is the SEC-mandated policy of processing buy and sell orders for open-ended mutual fund shares at the net asset value (NAV) as of the next market close (not the most recent market close). For example, let's say you place an order today to buy $100 worth of mutual fund XYZ this morning.Last night, XYZ had a net asset value (NAV) of $10 per share.
A front-end load is a fee paid to purchase a specific investment.It is expressed as a percentage of the amount invested.
Fund usually refers to mutual fund, which is an open-ended investment company that pools investors' money into a fund operated by a portfolio manager.This manager then turns around and invests this large pool of shareholder money in a portfolio of various assets or combinations of assets.
A fund manager is an investment professional who oversees the investments within a portfolio. A fund manager implements the chosen investment strategy by selecting when to buy or sell the assets held in a portfolio.
A hedge-like mutual fund is a mutual fund that engages in strategies similar to a hedge fund. Hedge funds are capitalized by and available only to individuals with high net worth.
An income deposit security (IDS), also known as an "enhanced income security," is an exchange-traded security composed of both an issuer's common shares and its subordinated notes. An IDS is a hybrid security that consists of both common stock and a bond rolled into one instrument.
An income-oriented ETF is an exchange-traded fund that pays frequent dividends or interest payments to investors in the ETF. An income-oriented ETF is made up of stocks that typically pay substantial monthly or quarterly dividends and, in some cases, bonds that make higher-than-average interest payments.
Like other ETFs, an index ETF is essentially a passive mutual fund -- similar to traditional index funds -- that allows investors to purchase a basket of securities in a single transaction.An index ETF mimics part or all of an external index.
Index funds are mutual funds that are designed to track the performance of a particular index. When an investor purchases a share of an index fund, he or she is purchasing a share of a portfolio that contains the securities in an underlying index.
An index hugger is a type of mutual fund whose performance closely tracks a major stock index. An index hugger is also referred to as a closet tracker.
Also called Y shares, institutional shares are mutual fund shares that are available for sale only to institutions. Let's say that the XYZ Mutual Fund invests in a variety of defensive stocks.
International bond funds invest in bonds issued by foreign governments or foreign companies in a variety of markets, industries, and currencies.They allow investors to have an easy way to gain a diverse exposure to foreign securities.
International fund usually refers to an investment or mutual fund composed of international bonds and foreign company stocks. A number of the largest families of mutual funds include international funds within their portfolio of products and services to investors. International funds offer a diverse amount of asset types, including foreign government and corporate bonds, which can act as hedges against currency exchange rate changes. These international funds also target specific market segments with growth potential.
Created by Barclays Global Investors, iShares are a trademarked brand of exchange-traded funds (ETFs). Exchange-traded funds (ETFs) are securities that closely resemble index funds but can be bought and sold during the day just like common stocks.
Late-day trading is the practice of illicitly recording trades executed after hours as having occurred prior to the end of market trading. A mutual fund's net asset value (NAV) reflects the value recorded at the close of a given trading day (4 p.m.
A level-load is a periodic fee (usually annual) paid by the investor during the time he or she owns the investment. Level-load mutual funds are often referred to as "C Shares." Level-loads are expressed as a percentage, and they must be disclosed to potential investors in the fund’s prospectus. Let’s look at an example: Assume you invested $10,000 in the XYZ Company mutual fund, which has a 4% annual level-load. In the first year the investment grows to $12,000, but you are not ready to sell. At the end of year one, you pay $480 ($12,000 x .04) to the fund company, leaving you with $11,520 in your account.You the fund for another year and it grows to $14,000. At the end of year two, you owe 4% of $14,000 ($560) leaving you with $13,440. This payment structure continues for as long as you own shares in the fund. The rate of the load is constant (level), but the payment amounts grow as the investment increases in value.
A load is a fee paid to purchase or sell a specific investment.It is expressed as a percentage of the amount invested.
A load fund is a mutual fund that carries a fee to purchase or sell its shares.This load is expressed as a percentage of the amount invested.
A market neutral fund is a mutual fund whose goal is consistent returns in any market climate. A market neutral fund namely generally holds both short and long share positions in specific stocks and it holds stocks that the fund managers view optimistically as well as pessimistically.
A momentum fund invests in companies with a trend of positive earnings or price, expecting a further increase in the price of the stock. Momentum funds evaluate the trends for individual companies in the stock market. When a momentum fund spots an upward trend in the company's earnings or price, for example, it will buy shares or options in the company, expecting to sell for a profit.
The Morningstar risk rating is Morningstar's evaluation of a mutual fund's level of risk. The mutual fund ratings agency Morningstar ascribes a risk rating to each fund it covers.
A municipal bond fund is a mutual fund that invests primarily in securities issued by municipalities. Municipal bonds are issued by local or state agencies to raise money for infrastructure projects, such as the construction of a convention center, water treatment facility or regional airport.Generally, these bonds are not subject to federal income taxes.
Mutual funds are open-ended investment companies that pool investors' money into a fund operated by a portfolio manager.This manager then turns around and invests this large pool of shareholder money in a portfolio of various assets, or combinations of assets. Mutual funds may include investments in stocks, bonds, options, futures, currencies, treasuries and money market securities.
Most commonly used in reference to mutual or closed-end funds, net asset value (NAV) measures the value of a fund's assets, minus its liabilities.NAV is typically calculated on a per-share basis.
In finance, the net asset value per share (NAVPS) is the value of one share of a mutual fund. A fund's NAVPS fluctuates with the value of its underlying investments.
A no load fund, also called a "no transaction fee mutual fund," is a mutual fund that does not charge a sales commission to investors.shares of no load funds are purchased directly from the fund companies rather than through brokers.
An offering circular is an abbreviated prospectus. For example, let's assume than Company XYZ wants to conduct an initial public offering (IPO) of its shares.
An offshore mutual fund is a mutual fund based in another country. Offshore mutual funds cannot be sold in the United States unless they comply with American regulations; however, they can invest in U.S.
A portfolio manager is responsible for investing a fund's assets, overseeing investment strategy and carrying-out day-to-day trading. A portfolio manager manages mutual funds and other investment funds, such as hedge or venture funds. He or she is usually an experienced investor, broker, fund manager, or trader with general industry knowledge and a track record of results. Portfolio managers often have a specific investment approach, such as a focus on active or passive investments.
A prospectus is a legal document filed with the Securities Exchange Commission (SEC) to accompany securities or investment offerings for sale.Containing key facts and information about the offering, a prospectus makes investors more aware of the risks of an investment. A prospectus also protects the company from claims that it didn’t disclose enough information about itself or the securities in question.
QQQQ was the ticker for the Nasdaq 100 Index Trust ETF (it is now QQQ). The Nasdaq 100 Index is composed of the 100 largest stocks (based on market capitalization) traded on the Nasdaq.
A quant fund is typically a mutual fund that picks investments based solely on mathematical analysis. For example, let's say John Doe runs the XYZ Fund.
Also called commission or a load, a sales charge is a fee paid to purchase or sell a specific investment.It is expressed as a percentage of the amount invested.
A spider (SPDR) is an exchange-traded fund (ETF) that tracks the Standard & Poor's 500 Index.SPDR stands for S&P Depository Receipts.
A stratified sampling approach is an indexing strategy whereby a fund manager divides an index into different "cells" that represent different characteristics of the index.The fund manager then chooses investments that mimic those cells.
Target date funds are mutual funds designed to target the date of an investor’s goal, such as retirement or college education funding.The strategy of the fund will focus on capital appreciation at the beginning of the cycle and capital preservation as the target date approaches.
A tax-efficient fund is a mutual fund or ETF that minimizes the fundholder's tax bill in some way. For example, let's say John is in a high tax bracket.
Tracking error is the difference between a portfolio's returns and the benchmark or index it was meant to mimic or beat.Tracking error is sometimes called active risk.
A unit investment trust is a type of investment fund comprising a fixed portfolio of securities that is sold in units to potential investors similar to a mutual fund. Also called unit trusts or fixed trusts, unit investment trusts are made up of a portfolio whose security assets are fixed and remain unchanged throughout the life of the trust.
A water ETF is an exchange-traded fund that invests in water-related companies. An exchange-traded fund (ETF) allow investors to purchase a basket of securities in a single transaction.
Also called institutional shares, Y shares are mutual fund shares that are available for sale only to institutions. For example, let's say that the XYZ Mutual Fund invests in a variety of defensive stocks.
A yield tilt index fund is a mutual fund that mirrors a specific stock index but gives extra weight to stocks within the index that offer high dividend yields. Let's assume the XYZ mutual fund is a yield tilt index fund.