Term
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Definition
| named for SEC Rule 12b-1, which allows funds to spend up to 1 percent of fund assets annually to cover distribution and marketing costs, these funds generally are not front-end loads (p.111) |
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Term
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Definition
| a sales charge levied when investors redeem shares (also called a back-end load) (p.111) |
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Term
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Definition
| an investment company with fixed number of shares that are bought and sold only in the open stock market (p.108) |
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Term
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Definition
| a sales charge levied on purchases of shares in some mutual funds (p. 111) |
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Term
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Definition
| an investment company not accessible by the general public, free to pursue any investment style they wish, only accept qualified investors-net worth of about $1 million or annual income of more than $200,000, do not offer their securities for sale to the public and generally limit the number of investors in any particular fund to no more than 50-100 institutions or individuals (135) |
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Term
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Definition
| in addition to a general management fee of 1 to 2 % of fund assets, the manager is paid a special performance fee often about 20-40% of profits. Most common fee structure is 2/20 which is an annual 2 percent management fee and also retains 20% of the profit earned in the fund. Performance fee gives managers incentive to earn as much as possible. (135) |
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Term
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Definition
| when a high water mark is included the manager will receive performance reviews only when the fund value is higher than its previous highest value (136) |
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Term
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Definition
| offset risk by holding opposite positions in pairs of securities (long-short funds) makes money regardless of how the overall market performs. Take long positions on underpriced securities than offsets those with short positions in overpriced securities; expected volatility: low (136) |
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Term
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Definition
| identify a mispricing in relationships between securities which theoretically should not exist, look at pricing relationships for securities offered by the same company of for investments across time or countries; expected volatility: low (136) |
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Term
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Definition
| concentrate their investments in securities that are being offered at deep discounts resulting from company-specific or sector-wide distress; expected volatility: low to moderate (136) |
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Term
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Definition
| attempt to profit from changes in global economies brought about by governmental policies that affect interest rates, currencies or commodity prices; expected volatility: high (137) |
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Term
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Definition
| only sells short, use leverage through use of margin; expected volatility: high (137) |
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Term
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Definition
| attempt to identify trends in particular sectors or overall global markets; expected volatility: high (137) |
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Term
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Definition
| an investment company that invests in hedge funds offers a diversification benefit (137) |
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Term
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Definition
| a business that specializes in pooling funds from individual investors and investing them (p. 107) |
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Term
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Definition
| a mutual fund specializing in money market instruments, all are open-end funds, invest in high quality, low risk instruments with maturities of less than 90 days. Relatively little risk (p.115) |
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Term
| Money market fund accounting |
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Definition
| always maintain a NAV of $1 per share. When a fund earns interest on its investment the fund owners are simply given more shares. breaking the buck is used to describe a drop below $1 in net asset value which is a very rare occurrence. (p.115) |
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Term
| Taxes and money market funds |
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Definition
| taxable or tax-exempt (taxable more common) Interest earned on state and local government (municipals) securities is exempt from federal income taxes. Because of their favorable tax treatment tax-exempt money market instruments have much lower interest rates, or yields. (p.116) |
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Term
| Money market deposit accounts (MMDA) |
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Definition
| are much like MMF in that they both have check writing privileges but MMDAs offers FDIC protection whereas a MMF does not (generally protected by SIPC but not a perfect substitute) (p.116) |
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Term
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Definition
| the value of assets less liabilities held by a mutual fund, divided by the number of shares outstanding (p.108) |
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Term
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Definition
| an investment company that stands ready to buy and sell shares at any time (p.107) |
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Term
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Definition
| a measure of how much trading a fund does, calculated as the lesser of total purchases or sales during a year divided by average daily assets. (p.112) |
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Term
| Drawbacks of mutual funds |
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Definition
| (1)risk (2) costs (3) taxes (pg.107) |
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Term
| Advantages of mutual funds |
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Definition
| (1) diversification (2) professional management (3) minimum initial investment |
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Term
| Types of expenses and fees of mutual funds |
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Definition
| (1) sales charges or loads (2) 12b-1 fees (3) management fees (4) trading costs |
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Term
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Definition
| funds that charge loads (p.111) |
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Term
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Definition
| funds that do not charge loads- sold at NAV (p.111) |
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Term
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Definition
| the price in excess of the NAV (p.111) |
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Term
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Definition
| difference between the offering price and the NAV (p.111) |
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Term
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Definition
| front-end load funds with loads in the 2-3 percent range (p.111) |
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Term
| Representation of front-end loads |
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Definition
| expressed as a % of the offering price, not the NAV ex.) offering price= $100 and NAV of $98, front-end load= $2 which as a % = $2/$100= 2% (p.111) |
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Term
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Definition
| investors pay a fee every year they are in the fund, typically 1% (p.111) |
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Term
| Letters of different loads |
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Definition
| a=front-end loads; b=back-end loads and c=level loads |
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Term
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Definition
| mutual funds with no front-end or back-end loads or minimal 12b-1 fees (not-so-pure funds that may have no loads but still charge hefty 12b-1 fees) |
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Term
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Definition
| not reported directly. A funds turnover is a measure of how much trading a fund does. A fund with a turnover of 1 has replaced its portfolio at least once, a .50 would have replaced about half of its holdings. A higher turnover indicates more frequent trading and higher trading costs. (p.112) |
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Term
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Definition
| three parts to an expense report: 1) the statement that shows shareholder transaction expenses, which are generally loads and deferred sales charges 2) annual operating expenses includes management and 12b-1 fees 3) gives a hypothetical example showing the total expense you would incur over time per $10,000 invested (p.113-114) |
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Term
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Definition
| 1) you may simply want a fund run by a particular manager 2) you want a specialized type of fund (p.114) |
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Term
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Definition
| classified as stock, bond or balanced funds (p.117) |
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Term
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Definition
| capital appreciation versus income; company sized-based funds; international funds; sector funds and other fund types and issues- the greater the emphasis on growth the greater the riskat least as a general matter (p.117-118) |
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Term
| Capital appreciation versus income |
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Definition
| tradeoff capital appreciation and dividend income- capital appreciation; growth; growth and income & equity income (117) |
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Term
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Definition
| seek maximum capital appreciation, often invest in unproven companies or companies perceived to be out-of-favor (117) |
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Term
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Definition
| seek capital appreciation but tend to invest in larger, more established companies, less volatile, dividends are not important. (117) |
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Term
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Definition
| main goal is capital appreciation nut at least part of the focus is on dividend-paying companies (117) |
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Term
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Definition
| focus almost exclusively on stocks with relatively high dividend yields, maximizing the current income of the portfolio (117) |
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Term
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Definition
| focus on companies in a particular size range- small company; midcap; large company (117-118) |
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Term
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Definition
| stocks in small companies, since most small companies do not pay dividends emphasizes capital appreciation. (118) |
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Term
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Definition
| specialize in stocks that are too small to be in the S&P 500 but too big to be a small cap stock (118) |
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Term
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Definition
| invest in companies with large market values, usually with a market value in excess of $5 billion (118) |
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Term
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Definition
| diversifying internationally can significantly improve the risk-return trade-off for investors- either global or international (118) |
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Term
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Definition
| substantial international holdings but maintain significant investments in the U.S. stocks (118) |
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Term
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Definition
| like global funds, except they focus on non-U.S. equities (118) |
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Term
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Definition
| international funds that specialize in countries with small or recently established stock markets (118) |
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Term
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Definition
| specialize in specific sectors of the economy and often focus on particular industries or particular commodities, not well diversified, past performance is almost always an unreliable guide to future performance (118) |
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Term
| Other fund types and issues |
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Definition
| index funds; social conscience funds; and tax-managed funds (118) |
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Term
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Definition
| hold the stocks that make up a particular index in the same relative proportions as the index, passively managed low turnover and low operating expenses. (119) |
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Term
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Definition
| invest in only companies whose products, policies or politics are viewed as socially desirable (119) |
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Term
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Definition
| funds that try to hold down turnover to minimize realized capital gains and they try to match realized gains with realized losses (119) |
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Term
| Taxable and municipal bond funds |
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Definition
| five characteristics distinguish bond funds- maturity range; credit quality; taxability; type of bond; and country (119) |
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Term
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Definition
| different bonds hold bonds of different maturities ranging from 2 years to 25-30 years (119) |
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Term
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Definition
| some bonds are much safer than others in terms of the possibility of default. U.S government bonds have no default risk, while junk bonds have relatively high default risks (119) |
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Term
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Definition
| municipal bond funds buy only bonds that are free from federal income tax. Taxable funds buy only taxable issues (119) |
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Term
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Definition
| some funds specialize in particular types of fixed-income instruments such as mortgages (119) |
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Term
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Definition
| most bonds buy only domestic issues, but some buy foreign company and government issues (119) |
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Term
| Short-term and intermediate-term funds |
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Definition
| focus on bonds in a specific maturity range (121) |
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Term
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Definition
| funds in this category simply doesnt specialize in any particular way (121) |
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Term
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Definition
| specialize in low-credit quality issues, have higher yields because of their greater risks can be quite volatile (121) |
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Term
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Definition
| specialize in so-called mortgage-backed securities (121) |
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Term
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Definition
| a relatively limited number of taxable funds invest worldwide, some specialize in only government issues; others buy a variety of non-U.S issues, are all taxable funds (121) |
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Term
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Definition
| type of municipal bond fund. Frequently purchase insurance that guarantees the bonds payments will be made. Such bonds have very little possibility of default, so some funds specialize in them (121) |
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Term
| Single-stated municipal funds |
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Definition
| bond funds that specialize in individual states, refers to only long-term funds short term and intermediate single-state funds are classified with other maturity-based municipal funds (121) |
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Term
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Definition
| dont invest exclusively in just stocks or bonds also called blended or hybrid funds include balanced funds; asset allocation funds; convertible funds; income funds; target date funds(121-122) |
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Term
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Definition
| maintain a relatively fixed split between stocks and bonds, emphasize relatively safe, high-quality investments. (121) |
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Term
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Definition
| two types: 1) an extended version of a balanced fund-holds relatively fixed proportional investments in stocks, bonds, money market instruments and perhaps real estate or some other investment class; 2) flexible portfolio fund- fund manager may hold up to 100% in stocks, bonds or money market instruments, depending on their views about the likely performance of these investments, they essentially try to time the market, guessing which general type of investment will do well (121) |
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Term
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Definition
| swapped for a fixed number of shares of stock at the option of the bondholder (122) |
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Term
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Definition
| emphasizes generating dividend and coupon income on its investments, so it would hold a variety of dividend-paying common stocks as well as preferred stocks and bonds of various maturities (122) |
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Term
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Definition
| also known as life-cycle funds, the asset allocation chosen by target date funds is based on the anticipated retirement date of the investors holding the fund. (122) |
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Term
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Definition
| a way of visually representing a funds investment focus, shows the style(value vs growth) and the size of the company (small, medium, or large) |
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Term
| closed-end funds performance information |
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Definition
| 1) essentially all the closed-end funds have either premiums or discounts 2) the premiums and discounts can be relatively large and 3) the premiums and discounts fluctuate (128) |
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Term
| closed-end fund discount mystery |
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Definition
| discount fluctuates over time, sometimes its by a wide margins sometimes almost none-existent. (130) |
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Term
| exchange-traded funds (ETF) |
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Definition
| basically an index fund that seeks to achieve the same return as a particular market index ex. S&P 500= SPDR (spider); NASDAQ 100 = QQQQ (the cubes); Dow Jones Industries = DIA (diamonds)- trades like a closed-end fund, can be bought or sold during the day, can be sold short and buy options on them. Have very low expenses, lower even then index funds, but you must pay a commission when you buy and sell shares. (132) |
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Term
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Definition
| a portfolio designed to provide a retyrn that tracks the underlying index. But by also using derivative contracts, the managers can magnify, or leverage, the return on the underlying index. Losses are magnified by 2, the longer these investments are held the more volatile the underlying index, the less accurate a leveraged fund will be in tracking their stated objective (133) |
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Term
| exchange-traded notes (ETNs) |
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Definition
| designed to allow investors to achieve the same return as a particular index, can go long or short. Were originally created to provide investors with exposure to the risks and returns of commodities. Difference between ETFs and ETNs: ETN holders face the risk that the issuing bank might default on the promised payment of the ETN also are taxed differently (135) |
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