Many of the terms below are used in our product literature. Use this index to find specific examples and their meaning.
This refers to the performance of a fund in absolute terms. For instance, if a report says that a fund gained 10% in absolute terms during the 12 months to the end of 2013, the performance of the fund in question is not being compared with that of its peer group or the benchmark.
The return that an asset achieves over a period of time. This measure simply looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a fund - faces over a period of time. Absolute return differs from relative return because it is concerned with the return of the asset being looked at and does not compare it to any other measure.
Absolute return funds look to make positive returns whether the overall market is up or down, while index tracking funds try to beat the index they are tracking.
Active Fund Management
The fund manager of a portfolio will take investment decisions to try and enable the fund to outperform the index against which its performance is compared. A fund manager could decide, for example, not to hold as many financials stocks as the fund’s index because he cannot find many companies in this area of the market that meet his investment criteria. In this instance, the fund would have an underweight position in financials – or a relatively smaller position in this sector than the index. An active fund manager is therefore able to fully reflect his views on companies, sectors and geographies as much as the fund’s guidelines allow.
Ancillary Liquid Assets
Liquid assets that can be converted into cash in a short period of time. These are of secondary importance to the main investment portfolio of the fund.
Annual Management Charge
The annual management fee (AMC) is the amount that a fund management company charges investors to manage money on their behalf. The annual management charge will be a very small amount of the fund’s total assets under management expressed in percentage terms.
Annual Rate of Return
There are several ways of calculating this. The most commonly used methodologies reflect the compounding effect of each period’s increase or decrease from the previous period.
In general terms, asset allocation is a breakdown of how a fund’s assets are invested. A fund’s net asset allocation figure should always come to 100%. Asset allocation of the ABC Multi Asset Fund as at 31 December 2013 was as follows:
Asset allocation can also be a strategy employed by the fund manager of a multi-asset fund to balance the risk of the assets in a portfolio. He will spread money across equities, bonds and property – depending on where he sees the best opportunities for reward given the potential amount of risk carried by each of these assets. The fund manager of an asset allocation investment strategy will consider a whole host of issues that could influence the price of these assets, such as economic, geopolitical and company-specific factors, when deciding where to invest.
Asset Backed Security (ABS)
Is a security that is backed by a pool of loans or receivables. These include: auto loans, consumer loans, commercial assets (planes, receivables), credit cards, home equity loans and manufactured housing loans.
The term asset class is a collective term used to describe equities, bonds and property. A multi-asset fund can invest in equities, bonds and property, for example.
Assets Under Management
The term ‘assets under management’ refers to the amount of money invested in a fund or the total amount of money held by an asset management group. For example, the ABC Equity Fund has $3.2billion assets under management, while fund management group ABC Investments has $200billion assets under management. The size of the ABC Equity Fund is $3.2 billion.
Authorised Corporate Director (ACD)
The term used to denote the manager of an OEIC fund.
A term used to refer to the combination of Brazil, Russia, India and China. General consensus is that the term was first prominently used in a thesis of the Goldman Sachs Investment Bank. The main point of this 2003 paper was to argue that the economies of the BRICs are rapidly developing and by the year 2050 will eclipse most of the current richest countries of the world. Due to the popularity of the Goldman Sachs thesis, "BRIC" and "BRIMC” (M for Mexico), these terms are also extended to "BRICS" (S for South Africa) and "BRICKET" (including Eastern Europe and Turkey) and have become more generic terms to refer to these emerging markets.
A short-term credit investment created by a non-financial firm and guaranteed by a bank.
Bear market is the term used to describe a period of time when share/ bond prices are falling. Bear markets arise when the majority of investors are pessimistic about the outlook for the stock market and therefore decide to reduce their exposure to company shares. The rate at which share prices fall can vary widely from bear market to bear market and so can the length of time a bear market lasts.
As the name suggests, a benchmark is used to ascertain how a fund has performed during a given period of time. It can also show how much exposure a fund has to a particular asset, such as equities, or a stock or bonds. For example, if a fund has a weighting of 3.0% in BP Google’s shares compared with the benchmark’s weighting, we can say that the fund is underweight BP – i.e. has a smaller position in this business than the benchmark.
For funds that invest in the shares of companies from around the world, the most commonly used benchmark or comparator is the MSCI World Index. Not only are benchmarks country based, but they can also be industry based, such as the MSCI Consumer Discretionary Index.
A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
A bond future is a contractual obligation for the contract holder to purchase or sell a bond on a specified date at a predetermined price. A bond future can be bought in a futures exchange market and the prices and dates are determined at the time the future is purchased.
Bond/Fixed Interest Security
A bond is a type of investment that represents a written promise to repay a debt at an agreed time and to pay an agreed rate of interest on that debt. It provides periodic payments (which may be fixed or variable) and the return of capital at maturity. Generally, because these types of assets produce an income and can be less risky than other types of assets they offer a lower return.
A prolonged period when share prices are moving upwards is known as a ‘bull market’. This type of market arises when most investors are optimistic and therefore decide to increase their exposure to shares. The rate at which share prices rise can vary widely from bull market to bull market and so can the length of time a bull market lasts.
Certificate of Deposit
A savings certificate entitling the bearer to receive interest. It bears a maturity date, a specified fixed interest rate and can be issued in any denomination. They are generally issued by commercial banks.
Refers to China and India together in general, and their economies in particular.
Collective Investment Scheme
An arrangement that enables a number of investors to 'pool' their assets and have these professionally managed by an independent manager.
An unsecured obligation issued by a corporation or bank to finance its short-term credit needs.
Commercial property is a collective term for leisure, industrial and office buildings, in other words, property which is not classed as residential property. Commercial property funds will invest in bricks and mortar, so actual buildings, and/ or in the shares issued by property companies.
Contract for Differences
An arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than the delivery of physical goods or securities.
A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.
Security which can be exchanged for a specified amount of another, related security, at the option of the issuer and/or the holder.
A corporate security (usually bonds or preferred stock) that can be exchanged for another form of security (usually common stock).
A corporate bond is an IOU issued by a company in order to raise finance. Corporate bonds are classified into two categories depending on the credit worthiness of the issuer. For example, investment grade bonds are issued by companies with a good credit rating, while high yield or sub-investment grade bonds are issued by companies with a poor credit rating, namely where there is a greater risk that the business might default on its debt.
Coupons are interest payments paid to the holder of a bond every six months. Coupons are paid throughout the lifetime of the bond from issuance to maturity.
Covered Short Position
Purchasing securities in order to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise. In order to make a profit, a short seller must cover the shorts by purchasing the security below the original selling price.
Credit is a generic term used to describe the debt issued by companies.
Credit Default Swap (CDS)
A swap designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan. A CDS is considered insurance against non-payment. A buyer of a CDS might be speculating on the possibility that the third party will indeed default.
Credit Linked Note/Security
A security with an embedded credit default swap allowing the issuer to transfer a specific credit risk to credit investors. Under this structure, the coupon or price of the note is linked to the performance of a reference asset. It offers borrowers a hedge against credit risk, and gives investors a higher yield on the note for accepting exposure to a specified credit event.
A rating used to measure the quality of a bond, in particular the bond issuer’s ability to meet its debt obligations. The highest rating is usually AAA, and the lowest is D. Investment grade bonds are those that are rated BBB above or equivalent and sub- investment grade bonds are those rated below BBB or equivalent.
|Upper medium quality||A||A|
|Low grade, speculative||B||B|
|Low grade, default possible||CCC||Caa|
|Low grade, partial recovery possible||CC||Ca|
|Default, recovery unlikely||C||C|
Credit Ratings Agency
An agency that provides credit ratings.
A forward contract in the foreign exchange market that locks in the price at which an entity can buy or sell a currency on a future date
This is the process by which investors, who own international, and therefore non-domestic assets, protect themselves from fluctuations in foreign exchange rates. These fluctuations can occur as a result of changing economic fundamentals within each country, which affects how a currency is valued, relative to another currency.
A loan raised by a company, paying a fixed rate of interest and secured on the assets of the company.
A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower.
This is a general term for bonds, mortgages, and other kinds of loans.
A debt investment, with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate. The indebted entity issues investors a certificate, or bond, that states the interest rate (coupon rate) that will be paid and when the loaned funds are to be returned (maturity date).
A negotiable financial instrument issued by a bank to represent a foreign company’s publicly traded securities. The depositary receipt trades on a local stock exchange.
Also known as Financial Derivative Instruments (FDI). Financial contracts whose value is tied to an underlying asset. Derivatives include futures and options.
The UK, the US, Europe and Japan are all examples of developed markets. They are thought to be the most developed countries economically and politically. As a result, the UK, the US and Europe are regarded as less risky than their emerging market counterparts.
A general term referring to the strategy used by investors that open positions, either long or short, on the belief that they are able to correctly predict the movement of price in a security.
An investment strategy that involves buying a variety of investment instruments that are not highly correlated to each other in order to reduce the risk of an overall portfolio.
A dividend is an income payment made by a company to its shareholders. Dividends - especially if a business is growing its dividends - are regarded as a sign that the management team is using its capital in a sensible and disciplined manner and wants to reward the loyalty of the investors who have shares in the business.
The place where funds are registered.
The process of evaluating the soundness of an investment.
Efficient Portfolio Management (EPM)
EPM is a set of standards for prudent management of investment funds. The standards call for economically appropriate transactions that reduce risk, reduce cost or generate additional capital or income. For example, a currency overlay strategy using derivative instruments could be used to reduce volatility in asset returns resulting from currency fluctuations or be used to take advantage of these fluctuations to gain extra return.
Emerging Market Equities
The fund manager of an emerging market equity fund will invest in the shares of companies that are located in emerging market countries, or in companies which carry out a large share of their business in emerging market countries. Emerging market equities are regarded as riskier investments than shares issued by companies which are based in major industrialised nations such as the US and Japan since their economies are less developed and their governments are traditionally considered to be less stable. Please see emerging markets.
Typically includes markets within countries that have an underdeveloped or developing infrastructure with significant potential for economic growth and increased capital market participation for foreign investors. These countries generally possess some of the following characteristics; recent economic liberalisation, debt ratings below investment grade, recent liberalisation of the political system and non membership of the Organisation of Economic Cooperation and Development. Because many emerging countries do not allow short selling or offer viable futures or other derivatives products with which to hedge, emerging market investing entails investing in geographic regions that have underdeveloped capital markets and exhibit high growth rates and high rates of inflation. Investing in emerging markets can be very volatile and may also involve currency risk, political risk and liquidity risk.
Ownership positions in companies that can be traded in public markets. Often produce current income which may be paid in the form of dividends. In the event of the company going bankrupt equity holders’ claims are subordinate to the claims of preferred stockholders and bondholders.
Equity Linked Note
An instrument whose return is determined by the performance of a single equity security, a basket of equity securities, or an equity index.
Choosing to invest in companies that operate ethically, provide social benefits, and are sensitive to the environment. Also called socially conscious investing.
European Economic Area
The European Economic Area (EEA) consists of countries within the European Union, together with Norway, Iceland and Liechtenstein.
Comprises of 12 countries that have adopted the Euro as their national currency as a part of the process towards ‘Economic and Monetary Union’ (EMU) under the Maastricht treaty. They are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and Greece.
Exchange Traded Fund (ETF)
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.
Exchange Traded Future
A futures contract that is traded through an exchange, such as the Chicago Board of Trade or the Chicago Mercantile Exchange.
The expense ratio provides customers with an indication of the overall costs of investing in a particular fund.
The expense ratio as calculated in accordance with the Investment Management Association of Singapore’s guidelines on the disclosure of expense ratios. Different methods of calculation of Expense Ratio can be used, including Total Expense Ratio (TER) and Ongoing Charges Figure (OCF) but these are broadly the same.
The condition of being subjected to a source of risk.
The risk of a security's expected maturity lengthening in duration due to the deceleration of prepayments. Extension risk is mainly the result of rising interest rates, and is generally associated with mortgage-related securities. The opposite of extension risk is prepayment risk, which generally occurs in a declining interest rate environment, and is associated with people paying off their loans too quickly.
A fund which invests only in another fund. The feeder fund may be a different currency to the main fund and may be used to channel cash into the main fund for a different currency class.
Financial Derivative Instruments (FDI)
Also known as Derivatives. Financial contracts whose value is tied to an underlying asset. Derivatives include futures and options.
Floating Rate Bond
A bond whose interest amount fluctuates in step with the market interest rates, or some other external measure. The price of floating rate bonds remains relatively stable because neither a capital gain nor a capital loss occurs as market interest rates go up or down.
Floating Rate Note or Floating Rate Security
A bond with a variable interest rate. For example, a note may have an interest rate of "EURIBOR + 1%" and pay whatever the EURIBOR rate happens to be at the time plus 1%.
A contract between two parties to buy or sell an asset at a specified future date at a price agreed today.
Forward Currency Contract
See Forward Exchange Contract.
Forward Exchange Contract
A special type of foreign currency transaction. Forward contracts are agreements between two parties to exchange two designated currencies at a specific time in the future. These contracts always take place on a date after the date that the spot contract settles, and are used to protect the buyer from fluctuations in currency prices.
An investor’s money is pooled with those of other investors and then looked after by a fund manager on his/her behalf. A fund can be country or sector based i.e. it will only invest in the shares of companies in a particular country or industry. Funds can also be global and so the fund manager has the freedom to invest in companies from all around the world regardless of where the business is located. A fund can also be multi-asset, i.e. invest in equities, bonds and property, depending on which assets the fund manager believes offer the best opportunities.
Fund Manager / Portfolio Manager
A fund manager or a portfolio manager is responsible for the management of a fund. He/ she will be in charge of making any decisions regarding which stocks to buy and sell, and for ensuring that the investment strategy is employed properly and within the fund’s investment objective. He/ she works within a wider team and liaises with a team of equity or credit analysts in order to decide which companies’ shares or bonds to buy or sell.
Fund of Funds
An investment vehicle, that invests in more than one fund. Portfolios will typically diversify across a variety of investment managers, investment strategies and subcategories.
Funds Under Management (FUM)
Total amount of funds managed by an entity, excluding leverage.
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price.
Commodity exchanges where futures contracts are traded. Different exchanges specialise in particular kinds of contracts. Major exchanges include the Commodity Exchange, the New York Mercantile Exchange, the Chicago Board of Trade and the Chicago Mercantile Exchange.
The effect that borrowing has on the equity capital of a company or the asset value of a fund. If the assets bought with funds borrowed appreciate in value, the excess of value over funds borrowed will accrue to the shareholder, thus augmenting, or gearing up the value of their investment.
An instrument that can trade on a margin without having to tie up large amounts of capital. Geared or leveraged instruments can be more volatile than unleveraged instruments, as a result this may lead to greater losses or conversely enhanced profits.
The distribution in a fund’s portfolio over different parts of the world, either by countries or larger areas.
Government or Sovereign Bond
Governments all over the world issue debt in order to raise finance for public services such as education, prisons and social welfare. As with corporate bonds, a government or sovereign bond rating depends on the credit quality of the government issuing the bond. For example, bonds issued by western governments have historically been rated AAA by ratings agency Standard & Poor’s. This denotes a very high credit quality and means that the government is in a stable and sound financial position. On the other hand, bonds issued by emerging market governments have traditionally been lowly rated by the ratings agencies mainly because of the instability and therefore political risk of their governments. Bonds issued by emerging market governments tend to pay a much higher rate of interest than bonds issued by the UK government, for example, in order to compensate investors for the higher risks involved with investing in such assets.
Any transaction with the objective of limiting exposure to risk such as changes in exchange rates or prices.
High Water Mark
High Water Mark is the initial net asset value per Share or, if higher, the net asset value per Share as at the end of any previous performance period in which a performance fee was payable to the Management Company. An underlying funds ‘performance fee is accrued on each Dealing Day (as defined in the underlying fund’s Luxembourg Prospectus).
Often called junk bonds, these are low grade fixed income securities of companies that show significant upside potential. The bond has to pay a high yield due to significant credit risk.
The minimum rate of return required on an investment by a fund manager before specific fees can be taken.
Investment-linked policy sub-fund refers to each separate sub-fund within an ILP to which a policyholder can choose to allocate his or her premiums under the ILP.
Investable Market Indices cover all investable large, mid and small capitalisation securities across the Developed, Emerging and Frontier Markets.
An arithmetic mean of selected stocks intended to represent the behaviour of the market or some component of it. One example is the MSCI who provide indices covering a wide range of countries, asset types and sectors.
A type of investment that allows the fund manager to make investments based on an equity/ bond index or based on a basket of selected securities.
Index-linked Government Bonds
Index-linked government bonds are issued by governments and they are intended to protect investors against inflation. Their semi-annual coupons and principal payment are adjusted in line with movements in a country’s price index.
The measure of the amount paid to the lender by the borrower in return for the initial loan. For example, if the interest rate is 7% and the borrower has borrowed $100 they will pay interest of $7 per year. (The average of interest rate offered by financial institutions to one another over the short term is known as LIBOR (the London Inter Bank Offered Rate).
Interest Rate Swap
An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR).
A component of the market value of an option. If the strike price of a call option is cheaper than the prevailing market price, then the option has a positive intrinsic value, and is “in the money”.
Investment Company with Variable Capital
This is a type of open-ended collective investment.
A rating that indicates that a municipal or corporate bond has a relatively low risk of default.
Irish Variable Capital Company (VCC)
An investment company with variable capital constituted as an umbrella fund with segregated liability between sub-funds. Irish VCCs are constituted under the laws of Ireland and are authorised and regulated by the Irish Financial Services Regulatory Authority.
London Inter-Bank Offer Rate. The interest rate that the banks charge each other for loans (usually in Eurodollars). This rate is applicable to the short-term international interbank market, and applies to very large loans borrowed for anywhere from one day to five years. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.
The use of financial instruments to increase the potential return of an investment.
1) The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity.
2) The ability to convert an asset to cash quickly.
Investing in illiquid assets is riskier because there might not be a way for you to get your money out of the investment. Examples of assets with good liquidity include equity stock and those assets in the money market. A fund with good liquidity would be characterised by having enough units outstanding to allow large transactions without a substantial change in price.
Stock or bond that has been accepted for trading by an organised and registered securities exchange. Advantages of being listed are an orderly market place, more liquidity, fair price determination, accurate and continuous reporting on sales and quotations, information on listed companies and strict regulations for the protection of securities holders.
The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.
Morgan Stanley Capital International, a company that constructs a variety of indices covering many different asset classes, countries and regions.
This is the total value of a company and it is calculated by multiplying the firm’s share price by the total number of its shares in circulation. So, if a company’s share costs US $30 and it has issued a million shares, the business has a market capitalisation of US $30 million.
Monetary Authority of Singapore (MAS)
MAS is the central bank of Singapore. Its functions include to act as the central bank of Singapore, including the conduct of monetary policy, the issuance of currency, the oversight of payment systems and serving as banker to and financial agent of the Government. It also conducts integrated supervision of financial services and financial stability surveillance.
Money Market Funds
Mutual funds that invest in short term highly liquid money market instruments. These funds are used when preservation of capital is paramount. They may be used to place money between investments, especially during periods of market uncertainty.
Money Market Instruments
Money market instruments are highly liquid, fixed income securities issued by governments and corporations with high credit ratings. Because of the high quality of the issuers and because of the short-term maturities, money market instruments are considered to be relatively secure investments.
Mortgage Backed Securities
A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by an accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments.
An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
Net Asset Value (NAV)
Net Asset Value is the value of the net assets of the Fund after deduction of all expenses.
A cash-settled, short-term forward contract on a thinly traded or non-convertible foreign currency, where the profit or loss at the time at the settlement date is calculated by taking the difference between the agreed upon exchange rate and the spot rate at the time of settlement, for an agreed upon notional amount of funds
Non-OECD Countries as at 1 January 1994
All other countries as at 1 January 1994 not listed in the definition of OECD countries.
Organisation for Economic Co-operation and Development.
OECD countries as at 1 January 1994
Member countries of the Organisation for Economic Co-operation and Development (“OECD”) as at 1 January 1994, i.e. Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States.
Ongoing Charges Figure (OCF)
A type of expense ratio. The ongoing charges figure is based on expenses for the previous year and is a ratio of the total ongoing charges to the fund’s average net asset value over its last reporting period. This figure may vary from year to year. The charges you pay are used to pay the costs of the underlying ILP sub-fund, including the costs of marketing and distributing it. These charges reduce the potential growth of your investment.
Open-Ended Collective Investment Scheme
An open ended arrangement that enables a number of investors to 'pool' their assets and have these professionally managed by an independent manager.
Open-Ended Investment Company
An open-ended collective investment vehicle, structured as an investment company, where new shares are created or redeemed, depending on demand from investors.
Open-Ended Umbrella Fund
An open-ended investment company which has a group of sub-funds (pools) each having its own investment portfolio. The purpose of this structure is to provide investment flexibility and widen investor choice.
A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.
If 5% of a global equity fund’s assets are invested in Google, but the fund’s benchmark, the MSCI World Index does not have any exposure to Google, we can say that the fund is overweight Google compared with its benchmark.
The term overweight can also be applied to a fixed interest portfolio. For example, a corporate bond fund might invest 5% of its assets in a five-year US dollar-denominated bond issued by Google. However, the fund’s index, the Markit iBoxx £ Corporate Bond Index, might not have any exposure to this particular bond. We could therefore say that the fund has an overweight position in the bond issued by Google.
The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in.
Participatory Receipts / Participatory Certificates
A participatory receipt, certificate or note is an instrument representing an interest in an underlying security or asset. Examples of the underlying include an equity, a bond or a loan. A participatory receipt, certificate or note can give exposure to the total return of the underlying, income/interest, revenue or profits. A participatory receipt, certificate or note may be held where it is not possible to invest directly in the underlying or where it is more efficient than investing directly (for example due to tax or cost considerations).
Passive Fund Management
Unlike an active fund manager, the fund manager of a passive fund does not attempt to outperform the index against which its performance is measured. Instead, his objective will be to perform in line with an index, i.e. generate returns that are the same as those produced by the index, hence why such a fund is called an ‘index’ fund. A passive fund manager will therefore buy shares in a company, such as GlaxoSmithKline, to ensure his fund’s holding in the business is the same size as that held by the benchmark index.
This term refers to investment holdings, either within a particular fund or the range of investments held by an individual investor.
This expression refers to the amount of activity – purchases and sales – that the fund manager of a portfolio has carried out during a given period of time. This will be given in percentage terms. For example, if portfolio turnover on the ABC Global Equity Fund was 10% during the first quarter of 2013, 10% of the portfolio was bought and/or sold during this period.
The risk associated with the early unscheduled return of principal on a fixed-income security. Some fixed-income securities, such as mortgage-backed securities, have embedded call options which may be exercised by the issuer, or in the case of a mortgage-backed security, the borrower.
Product Highlight Sheet (PHS)
The Product Highlights Sheet (PHS) is an important document which insurers operating in Singapore are required to produce by the Singapore regulator for each ILP sub-fund available through their insurance products. The PHS highlights the key terms and risks of an ILP sub-fund and complements the Product Summary. You should not invest into any ILP sub-fund if you do not understand it or are not comfortable with the accompanying risks.
In the case of mutual funds, a prospectus describes the fund's objectives, history, manager background, and financial statements. A prospectus makes investors aware of the risks of an investment and in most jurisdictions is required to be published by law. For underlying funds authorised for sale in Singapore, there is a separate Singapore Prospectus, alongside the Full Prospectus referred to above.
RQFII is the renminbi qualified foreign institutional investor scheme. Launched in December 2011 it allowed a small number Chinese financial firms to establish renminbi-denominated funds in Hong Kong for investment in the mainland. The aim being to allow overseas investors to use offshore renminbi deposits to invest in mainland securities markets.
The word rally is used to describe a period of sustained increases in the prices of shares, bonds or indices.
Debt instruments that have been rated on their credit quality by a credit rating agency.
Received on a regular and defined frequency under the terms of a policy. This includes premiums that are received on a monthly, quarterly, half-yearly or annual basis but excludes any one-off or single premiums.
This term is used to describe the performance of a fund during a defined period of time that is compared with that of its peers or its benchmark, i.e. the S&P 500 Index.
This term could also be used to describe the performance of a company’s share price or a sector compared with others during a given period of time.
A financial transaction in which one party sells a security to the other party, with an obligation to buy it back at a certain later date. As the repurchase price is usually greater than the original sale price, the difference effectively represents interest.
This is the amount of income, capital growth or both that is generated by a fund. It is usually quoted as a percentage. Any income earned by a Friends Provident International fund is automatically reinvested back into the fund and this will be reflected in the fund’s unit price. See unit price.
Within fund management, risk is used to describe the probability that you might lose some money if you invest in a particular asset. For example, there is a greater risk and therefore greater probability that you will lose some, or all, of your money if you invest in equities rather than government bonds. The upside of investing in riskier assets, such as equities and high yield bonds, and therefore of taking a greater amount of risk is that you could earn a better return over the long term.
This term is used when the return of a fund is calculated to reflect the amount of risk that has been taken on by the fund’s manager to achieve the return during a given period of time.
General name for all stocks and shares of all types.
The act of loaning a stock, derivative, other security to an investor or firm. Securities lending requires the borrower to put up collateral, whether cash, security or a letter of credit. When a security is loaned, the title and the ownership is also transferred to the borrower.
Shares, also known as equities, are issued by a company to raise money to develop the business. Investors buy shares, which can be traded on a stock market. Considered one of the best investments to achieve good long-term returns, however, shares can be quite volatile in the short term, meaning their value is likely to fluctuate.
Shari’a or Sharia’h
Shari’a refers to the body of Islamic law. The term means "way" or "path"; it is the legal framework within which public and some private aspects of life are regulated for those living in a legal system based on Muslim principles.
Net liability position created by the excess of what is owed over what is owned.
One-off premiums that are paid into a policy.
Societe d’Investissement a Capital Variable (SICAV)
A Luxembourg incorporated company that is responsible for the management of a mutual fund and manages a portfolio of securities.
A sophisticated fund is a fund for the purpose of Luxembourg UCITS regulations that may make use of advanced techniques utilising derivative instruments and strategies as a means of achieving a fund’s investment objective and policies.
A failure on the repayment of a county's government debts.
Specified Investment Product (SIP)
SIP is a class of investment products defined by the Monetary Authority of Singapore (MAS). Generally, (although not in all instances), financial advisers have to carry out more due diligence, including customer knowledge assessment, when advising about a SIP.
Securities including equities, bonds and other financial instruments such as derivatives are traded on a stock exchange. For example, 3,000 companies from over 70 countries worldwide trade their securities on the London Stock Exchange, which is situated in the City of London.
Shares issued by companies are bought and sold by investors through exchanges such as the New York Stock Exchange. The stock market plays an important role in the smooth functioning of the economy since it is a key source of finance for businesses whose shares are listed on an exchange, i.e. publicly listed businesses.
A debt obligation that also contains an embedded derivative component with characteristics that adjust the security's risk/return profile. The return performance of a structured note will track that of the underlying debt obligation and the derivative embedded within it.
Structured products are designed to facilitate highly customized risk-return objectives. This is accomplished by taking a traditional security, such as a conventional investment-grade bond, and replacing the usual payment features (e.g. periodic coupons and final principal) with non-traditional payoffs derived not from the issuer's own cash flow, but from the performance of one or more underlying assets.
A derivative in which counterparties exchange certain benefits of one party’s financial instrument for those of another party’s financial instrument.
Primarily reported for fund of funds, it comprises a fund’s total operating costs including the costs of funds which form part of the investment portfolio.
Total Expense Ratio (TER)
A type of Expense Ratio. The Total Expense Ratio (TER) expresses the sum of all operating expenses on an ongoing basis to the Fund’s assets as a percentage of the Fund’s average net asset value, and is in principle calculated using the following formula:
TER (%) = Total Operating Expenses/Average Net Asset Value x 100
Total Return Swap
A swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. In total return swaps, the underlying asset, referred to as the reference asset, is usually an equity index, loans, or bonds. This is owned by the party receiving the set rate payment.
Total return swaps allow the party receiving the total return to gain exposure and benefit from a reference asset without actually having to own it. These swaps are popular with hedge funds because they get the benefit of a large exposure with a minimal cash outlay.
A fund’s tracking error tells an investor how much a portfolio has deviated from the index against which its performance is benchmarked. An index fund is expected to have a minimal tracking error since the fund manager is tasked with performing in line with the benchmark’s performance, instead of beating it.
On the other hand, an actively managed fund is expected to have a higher tracking error than a passively managed fund given that the fund manager of an actively managed fund has a mandate to outperform the benchmark. A fund manager of an active fund is able to take higher or lower weightings in stocks in relation to its comparative benchmark in order to achieve this objective.
Includes equities, bonds, high yield bonds, emerging markets debt, cash, cash equivalents.
A short-term debt obligation backed by the U.S. government with a maturity of less than one year.
The trust deed forms the legal constitution of the unit trust. It is drawn up by the manager and the trustee and states the name of the trust, the category of fund(s) and specify the types of investment that may be held within the trust.
Turnover ratio is a measure of the fund manager's trading activity. This is calculated by (absolute value of purchases + absolute value of sales) – (absolute value of inflows + absolute value of outflows) all divided by the average net assets. The resulting percentage loosely represents the percentage of the portfolio's holdings that have changed over the past year.
Undertaking(s) for Collective Investments. See UCITS, below.
Undertaking for Collective Investment in Transferable Securities. A type of collective investment (or fund) that allows financial institutions to operate freely throughout the European Union on the basis of a single authorisation from one member state.
An investment company which has a group of sub-funds (pools) each having its own investment portfolio. The purpose of this structure is to provide investment flexibility and widen investor choice.
Uncertificated Equity Instruments
Uncertificated equity instruments are certificates such as participation and dividend-right certificates. Participation and dividend-right certificates are securities that can be traded on an exchange and which lie somewhere between equities and bonds due to their construction. They securitise a participation right in the form of an annual distribution based on the net profit of the issuer. They generally do not confer any ownership rights (e.g., voting rights) but grant the holder the right to participate in the net profit and liquidation proceeds and the right to subscribe to new shares in the case of a rights issue.
Unit Linked Fund
A group of assets, such as a collection of shares, looked after by a fund manager in which many individual investors pool their money.
This is the price paid for units purchased in a fund.
An open-ended collective investment vehicle where units can be created or redeemed, depending on demand from investors.
Whenever you make a contribution to a fund you buy units in the fund. Units are essentially your stake in a fund.
The value of the policy net of all charges owing to us.
Value at Risk (VAR)
A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over a specific time frame.
A type of volatility swap where the payout is linear to variance rather than volatility. Therefore, the payout will rise at a higher rate than volatility.
The relative rate at which the price of a security or fund moves up and down. Volatility is found by calculating the annualised standard deviation of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes, it has low volatility.
A security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date.
The estimated rate of income that will be paid by a share. A share’s yield is calculated by dividing the dividend that a share pays by the share’s current price. Yields are expressed as a percentage of the current price. For example, a share with a current price of 300p and an annual dividend of 12p has a current yield of 4% (i.e. 12 / 300 = 4%).
A graph plotting the relationship between the interest rate and the time to maturity of a debt instrument. Yield curves are usually upward sloping: the longer the maturity, the higher the yield as longer maturities typically entail greater risk for the investor.