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Alpha
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A measure of performance in percentage above or below what would have been
predicted by risk as suggested by its Beta. Positive alpha means a fund
performed greater than its risk would suggest, while negative Alpha means
the fund under performed. An ETF of Alpha 1.5 outperformed its index by
1.5% as predicted by its Beta.
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Annual turnover
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Percentage of value of stocks in a portfolio that are sold and replaced
with new stocks each year. Turnover in index based products, such as ETFs,
should be low.
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Ask price
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Lowest price any seller is willing to accept for a security at a given
time.
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Asset class breakdown
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Percentage of holdings in different types of investments, i.e. large
stocks, international, bond, etc.
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Balanced funds
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Funds that invest in stocks, cash and other asset classes.
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Benchmark index
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An index that correlates with a fund, used to measure a fund manager's
performance.
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Beta
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A measure of volatility. Beta is a fund's volatility measured against the
benchmark index, which has a set beta of 1. Therefore, if a fund has a Beta
higher than 1, it is moving up and down more than the rest of the market. A
fund with a Beta of 2 will move up 20 percent when the market rises 10
percent.
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Bid price
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Highest price that any buyer is willing to pay for a security at any given
time.
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Capital gains
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Profits on the sale of stocks determined at time of sale. Such capital
gains are taxed in South Africa, but only at the time of sale of the
security.
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Closet index fund
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An active fund with higher fees that actually tracks an index fairly
closely.
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Collective Investment Schemes (CIS)
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A portfolio of securities or other investment assets and registered with
the Financial Sector Conduct Authority (FSCA) under the Collective Investment Schemes
Act (2002). Participatory units in the CIS portfolio are offered to
investors by the manager of the CIS. ETFs are Collective Investment Schemes
listed and traded on the Stock Exchange (JSE).
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Dividend yield
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A company's declared dividends per share as a percentage of its current
share price.
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Enhanced
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A fund designed around an index but not tracking it verbatim. Often
enhanced funds bet extra heavily on an index or bet against an index by
selling it short.
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Exchange-traded fund (ETF)
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An index fund which is listed and traded on the stock market.
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Float
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The number of company shares actually available for purchase by public on
open markets.
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Front load
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Percentage of investor's assets that fund may charge as a fee at time of
investment. Common in traditional mutual funds, rare in ETFs.
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FICA Financial Intelligence Centre Act (2001)
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Governs the information that must be submitted to the providers of
financial products and services by the users of such services. In effect
meets the need for the providers of financial services and products to “know
their client”.
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FAIS Financial Advisory and Intermediary Services Act (2002)
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Governs the conditions, responsibilities and reporting requirements for
financial intermediaries to register as Financial Service Providers (FSPs)
in South Africa.
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Growth
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Describes stocks in a market which have relatively high Price-to-Earnings
or other valuation ratio. Typically high growth, low-dividend companies.
Can quickly outpace value stocks, but typically more risky.
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Index fund
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An index fund is a mutual fund that mirrors as closely as possible the
performance of a stock market index. By purchasing all the index
constituent stocks in the same percentages as the index.
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Indexing
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Indexing is a strategy to match the average performance of a market or
group of stocks. A set formula is used to represent the index's value at
any given time. ETFs track indexes.
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Large Cap
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Short for large capitalization, which describes companies whose market
capitalization (total value) is among the largest in a market.
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Management Investment Company (Manco)
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Company registered with the Financial Services Board to operate Collective
Investment Schemes in South Africa. ETFs are Collective Investment Schemes
listed on the Stock Exchange (JSE).
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Market capitalization
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Total value of a company. Total number of shares multiplied by the price of
a share.
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Market Makers
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Stockbroking firms that provide liquidity to ETFs by quoting representative
bid and offer prices on the market for such securities
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Median market capitalization
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Market value (capitalization) of the middle stock in a portfolio of stocks
if sorted by capitalization.
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Net Asset Value (NAV)
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Measures the present market value of assets, including cash and income to
be distributed to shareholders. ETF issuers report on a daily basis the NAV
of their individual portfolios.
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Price to Book Ratio (P/B ratio)
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Average ratio of price to book value of stock in an ETF, weighted by their
representation.
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Price Earnings Ratio (P/E ratio)
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Average ratio of price to annualized earnings of stocks in an ETF, weighted
by their representation.
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Price spread
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The difference between the "bid" and "ask" price on a
stock or ETF.
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R squared
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A measurement of how closely a fund's performance correlates with an index.
It can range between 0.00 and 1.00. An R squared of 1.00 indicates perfect
correlation, while an R squared of 0.00 indicates no correlation. Used to
assess tracking error or closet index funds.
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Rand cost averaging
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Investment strategy of making steady fixed investments (monthly for
example) to an ETF. Helpful to maintain savings discipline and smooth out
market swings from investor's perspective.
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REIT
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Real Estate Investment Trust, a type of mutual fund that owns portfolios of
commercial real estate. There are indexes for this asset class, and REIT
ETFs follow these indexes
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Returns
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Indicates the total percentage gain of a fund over that time period.
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Sector breakdown
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Percentage of a fund's equity holdings in various industries.
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Sharpe ratio
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A risk-adjusted measurement of fund performance. Sharpe ratio is calculated
by dividing the excess return of a fund over the risk-free rate (Treasury
bonds) by its standard deviation. The higher the Sharpe ratio, the better a
fund's risk-adjusted performance.
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Standard deviation
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Measure of fund volatility in percentages. Standard deviation measures the
average variability of the fund's returns over a time period. Stable
investments like money market funds have standard deviations near zero,
while high-risk equity funds often have a much higher one. A standard
deviation of 10 means approximately 68% of the time a fund will be within
10% of its mean (average) price.
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Style drift
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When a fund moves away from its stated investment objective or the nature
of its targeted asset class change over time.
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TER
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Total Expense Ratio, the measure of the total costs associated with
managing and operating a Collective Investment Scheme portfolio.
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Ticker (JSE share code)
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Abbreviation used by brokerage firms to identify funds easily. Every ETF
has one.
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Total net assets
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Indicates the total amount of assets, including cash, that a fund holds as
of a certain date.
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Tracking error
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Percentage amount a fund's assets deviate from its benchmark index. This
should be quite small.
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Value
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Describes stocks in a market which have relatively low Price-to-Earnings or
other valuation ratio. Typically slow growth, high dividend companies.
Typically safer than growth stocks with high valuations.
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YTD
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The calendar Year-To-Date return from January 1 to the present.
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