Glossary
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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
The fund units that are purchased after the initial contribution unit. Generally speaking, accumulation units can be surrendered without penalty.
Absolute Return Objective
An investment objective that aims to generate positive returns for investments without refer to benchmark or reference.
Active Investment Approach
An investment strategy that involves active trading. Active managers change the components in portfolio time-to-time with the manager’s expectations of asset returns.
Active return
The difference between the return of portfolio and portfolio’s benchmark. This figure can be either positive or negative.
Advisory Fee
The fee that is paid to a financial advisor for recommending (non-discretionary client) or managing (discretionary client) a portfolio. Advisor can either receive fee on annual basis or one-time up front basis.
Alpha
Alpha is a measure of performance on a risk-adjusted basis. The excess return of the fund relative to the return of the benchmark index is a fund's alpha. Under Capital Asset Pricing Model (CAPM), the portfolio return in excess of the predicted return from an equilibrium model is alpha.
Arbitrage
An opportunity to take riskless profit with equivalent assets or combinations selling for different prices. Few arbitrage opportunities could be found in an efficient financial market.
Asset Allocation
According to a client's goal, risk tolerance and investment tenor, an investment strategy would be deployed aiming to balance risk and reward by apportioning a portfolio's assets.
Asset Under Management (AUM)
The market value of assets under the management of an investment company.
A coefficient measures a fund's volatility compared with a market index. If the coefficient is larger than 1.0, it means the fund is more volatile than the market, and vice versa. A beta of 1.0 represents the fund moves in step with the underlying index.
Benchmark
It is the standard against the performance of a fund or portfolio, and generally used to measure the capacity of an investment manager. For example, we may use Hang Seng Index as a benchmark for a HK equity fund manager.
Bond Fund
Bond fund is a collective investment scheme that invests in bonds and debts securities, such as sovereign bond, municipal bond and corporate bond.
Bid–ask spread
The difference between the buy and sell price of a security.
Broker
A person or company who executes buy and sell orders of securities and receives fees and commissions from clients.
BRIC
An initial used to refer to the combination of Brazil, Russia, India and China, and it was firstly prominently used in a report of the Goldman Sach in 2003.
Business cycle
A cycle of economic expansion and contraction, with fluctuations in GDP in relation to long-term trend growth.
It is a collective investment scheme with a limited number of shares (fund units), new shares are rarely issued after the fund is launched. Investors cannot redeem the shares until the fund liquidates, however they can trade the shares on secondary market.
Collective Investment Scheme, CIS
CIS is a way of investing money with other people to participate in a wider range of financial products those available to individuals. Mutual funds are one of the common CIS.
Compound Return
The rate of return represents the cumulative effect of a series of gains or losses on an original investment amount over a specific time horizon (usually on annual basis).
For example, if an investment is indicated to have an annual compound return of 15% over last 3 years, it means that at the end of 3 years, the cumulative return is equal to the principle that has grown by 15% every year. However, the actual return may vary throughout the period.
Credit Default Swap
A swap used to transfer credit exposure to another party. Buyer pays protection premiums to seller in return for the right to receive a payment from seller when a specified credit event occurs.
Credit Rating
Credit rating is an assessment of credit worthiness of a corporation or a country. Rating is mainly conducted by credit agency, like S&P and Moody's. High rating indicates the borrower should have high ability to pay its debt; a poor credit rating indicates a high risk of defaulting on a loan.
Credit Risk
The risk of loss of principal and potential return caused by a debtor’s failure to make a timely payment to meet a contractual obligation.
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Custodian Bank
It refers to a financial institution has the legal responsibility to safeguard client's asset.
It is the practice of investing a specific amount of capital at regular schedule in a particular investment, regardless of the price. Therefore, more units are purchased when the price is low, but fewer units when the price is high.
Due Diligence
It is an evaluation process of the soundness of an investment so as to confirm all material facts in regards to a sale.
Dealer
A person or company who buys and sells securities from his own account.
Deflation
A general decline in overall price of goods and services in an economy.
Delta
Refer to the sensitivity of the price of the option/strategy to changes in the price of the underlying.
It describes the markets that have an underdeveloped or developing infrastructure but with significant potential economic growth and increasing capital market participation for foreign investors.
Economic indicators
Economic data prepared by government and private company that used by investors or economists to interpret the overall health of an economy.
Earnings momentum
Companies which can generate high growth rate in quarterly year-over-year earnings. Investors call these companies with earning momentum.
Earnings per share
The amount of income earned of a share of common stock within a specific of time.
Equity Fund
Equity fund is a collective investment scheme that invests in equity securities. This may be a mutual fund or exchange-traded fund.
Eurozone
Region of European Union countries using the euro as a currency.
A debt with a investment grade but is downgraded to junk bond status.
Federal funds rate
The interest rate on overnight loans of reserves (deposits) between U.S. Federal Reserve System member banks.
Fund Administrator
It is an entity to carry out administrative duties of running a mutual fund, such as:
- Calculate NAV
- Prepare financial statements
- Maintain and reconcile books and records
- Pay fund expenses
- Settle daily trades
Fund Inception Date
It is the launch date of the fund, and started to count performance.
Fund Manager
A person or a team who is responsible for implementing investment strategy with reference to a specified investment goals, and managing portfolio trading activities on behalf of client's interest.
Fund Objective
It is usually stated in offering documents and fund fact sheet. It clearly gives the description of the purpose, targeted sector and limitation of the fund.
Fund Rating
It is a rating service given by fund rating agents. The evaluation criteria could be divided into two aspects. Firstly, the rating agent would be focused on quantitative analysis, i.e. return performance and volatility. Secondly, the agent would also examine the management in the light of investment philosophy, company culture and internal risk management, etc.
Fund Size
The market value of the underlying assets of a fund.
Fund of Funds
An investment fund invests in a range of other funds, including equity, bond and money market funds. If the underlying is a range of hedge funds, then it is known as Fund of Hedge Funds.
Gross domestic product (GDP) is the market value of all finished goods and services produced within a country in a specific time period.
GDP per capita
The number that divided the GDP by the resident population on a specific date. Sometimes this index is considered an indicator of a country's standard of living.
An investment fund undertakes a wider range of strategies than other investment funds, such as leveraged, long short and derivative positions, in order to achieve absolute return.
Hedge funds are most often set up as private partnerships that are open to sophisticated investors and require a very large initial investment amount. Since the underlying investments of the funds are generally illiquid, therefore it is common to see investors are required to be locked for a specific investment tenor, and valuation and trading of the fund is less frequent.
High-water mark (HWM)
Highest historical net asset value (NAV) of a fund. Performance fees could only be paid to fund manager when fund value exceeds previous HWM.
It is a ratio measures the fund manager's ability to generate excess return relative to benchmark. Specifically, the ratio is defined as portfolio return excess benchmark return (active return) divided by the volatility of those returns (tracking error).
Information Ratio = Active Return / Tracking Error
Insurance Policy
It is a contract determines the legal framework under which the features of insurance are enforced.
Investment-linked assurance scheme
A life insurance policy that combines with fund investments.
Inflation
A general increases in overall price of goods and services in an economy.
Characterized by a high level of trading activity. It is the degree to trade without delay at relatively low cost and in relatively large quantities.
This fund is run by a life insurance company, and allows policy holder to access another company's mutual fund through life insurance policies.
Monetary Policy
Monetary authority activity of a country concerning interest rates and the money supply to maintain economic growth and stability.
Money Fund
It is a mutual fund that invests in short-term debt instruments, such as Treasury bills, commercial paper and etc.
Mutual Fund
It is a general term of a professionally managed collective investment scheme. Investors' money would be pooled and invested in equities, bonds, money market instrument and other securities.
The NAV is the total value of the fund's portfolio less its liabilities.
Unlike Close-ended fund, Open-ended fund is a collective investment which can issue and redeem directly from the mutual fund company at any time.
Open-market Operation
It means central bank implements a set of monetary measures to control money supply, such as trading government securities or other financial instruments. Interest rate and exchange rate are generally used to guide this implementation.
It is an incentive-based form of compensation that a fund may be charged by the fund manager that is calculated by reference to the increase of fund's NAV. Therefore, the higher performance the fund manager achieves the higher fees he receives from the client.
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Prospectus
It is one of the offer documents and contains material information of mutual funds, such as description of investment objective, limitation, risk, background of fund manager and fund charging structure.
Policy Date
The date of an insurance policy becomes effective.
Real estate investment trusts (REITs)
A company with pools of money invested in real estate-related assets like properties & mortgage loans, publicly traded on major exchanges.
Recession
A business cycle contraction or economic downturn, generally defined as declines in GDP in 2 consecutive quarters.
Redemption Charge
The charges that will be levied at the time clients redeem their holdings. The charging structure is different among the funds, but it is mostly likely charged at a diminishing schedule.
Relative Return Objective
An investment objective that aims to outperforms the benchmark or reference of investments. It is possible for an investment out-performs its benchmarks but generates negative return.
Risk
The possibility that an investment actual return will differ from the expected. Market practitioners usually define volatility as a measure of risk, standard deviation of the historical returns is one the commonly standard of risk measurement.
Risk Aptitude Test
It is a test for clients to evaluate risk tolerance level based on their net worth, age and investment experience etc.
A ratio developed by Nobel laureate William F. Sharpe. It is a measure of risk-adjusted performance by subtracting the risk-free rate from the rate of return of a fund, and dividing the result by the volatility (standard deviation of portfolio return).
Sharpe Ratio = (Expected return – Risk-free rate)/standard deviation
Short selling
It is a trading strategy that an investor attempts to profit by first selling a security that he borrows from third party, and then buying it back at a lower price.
Sortino Ratio
It is a modification of the Sharpe ratio but it is barely focused on downside volatility, so the denominator is the standard deviation of the return that less than risk-free rate or a specific required rate of return.
Standard Deviation
Standard deviation represents risk of an investment. It is applied to the annual rate of return to measure the investment's volatility, and used as a gauge for expected volatility.
Subprime Mortgage
It is a type of mortgage made out to lower credit rating borrowers for those who are not offered conventional one.
Subsequent Investment
It means the succeeding capital injection after the initial investment.
Systematic Risk
It refers to the risk that is common to an entire market, and cannot be reduced through diversification. Therefore, it is known as market risk.
It means the 10 largest holdings within the fund's portfolio at a specific date. Such information is available in fund fact sheet. However, the full set of holding is generally available in semi-annual and annual report of the fund.
Toxic Assets
These assets (debts) have proved financially ruinous, i.e. the valuation has been cut and demand has vanished. The holders of those assets are facing huge write off in value and forced to raise capital.
A fund that has not been authorized by the regulator, i.e. SFC in HK.
Unsystematic Risk
It refers to company or industry specific risk that is inherent in investment. Unlike systematic risk, this risk can be eliminated by appropriate diversification.
A bond's rate of return that if an investor holds the bond until maturity. It is the ratio of coupon payment to the bond's current price.
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