Glossary

12b-1 fees

The percent of a mutual fund’s assets used to defray marketing and distribution expenses. This fee is stated in the fund’s prospectus. Funds with 12b-1 expenses greater than 0.25% cannot be called “no-load” funds.

A

Alpha

Return not explained by movements in the market. Alpha is usually measured by return of an investment compared to its benchmark. An investment with a positive alpha is outperforming its benchmark. An investment with a negative alpha is underperforming its benchmark.

Annual Rate of ReturnYearly return of an investment. For periods greater than one year, this represents the yearly return that would produce the equivalent cumulative return.

Asset Allocation Funds

A mutual fund that invests in a number of different asset classes in order to maximize return on investment and minimize risk.

B

Back-end Load Funds

Mutual funds that charge investors a fee to sell (redeem) shares, sometimes up to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a designated length of time, such as one year. In some cases, the back-end fee will decrease the longer the fund is held.

Balanced Fund

A fund that buys both bonds and stock.

Beta

A statistical measurement that measures the risk of an investment compared to its benchmark. If an investment mirrors its benchmark, it is said to have a beta of 1.0. If an investment has higher volatility than its benchmark, then it has a beta of >1.0. If an investment is more stable than its benchmark (i.e. less fluctuation), then it has a beta of <1.0.

C

Closed-end Funds

An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Antonym: Open-end fund.

Cumulative Return

Cumulative return represents total return including reinvestment of dividends during the period.

D

Diversification

Dividing investment funds among a variety of assets with different risk, reward, and correlation statistics so as to minimize unsystematic risk.

Dollar Cost Averaging

Method of purchasing securities by investing a fixed amount of money at set intervals. The goal of the investor is to purchase more shares when the share price of the fund is lower. Twice-monthly contributions into an IRA is just one example of dollar cost averaging.

E

Exchange Traded Funds (ETFs)

Exchange Traded Funds are a relatively new invention, but they have caught on quickly thanks to being backed and sponsored by many of the top names in the investment industry such as Dow Jones, Merrill Lynch, Standard and Poors, and Barclays. The cutesy names appointed to ETFs, including “Spiders”, “Qubes”, “Diamonds”, and “HOLDRS”, do nothing to belie their power. In their simplest form, ETFs are baskets of stocks, which are designed closely track an index, sector, country, or investment style. For a while, index-oriented ETFs dominated the entire ETF realm. Now, as ETFs have become more popular, the ETF landscape has evolved to include new investment types.

Expense Ratio

The percentage of the assets that are spent to run a mutual fund including expenses such as management, overhead, and 12b-1 fees.

F

Fixed-income Fund

A mutual fund that primarily invests in assets that pay a fixed dollar amount, such as bonds and preferred stock.

Front-end Loads

Fees applied to investments at the time of initial purchase. Often utilized by brokers as a commission.

Fund of Funds

A mutual fund composed of other mutual funds.

G

Geographic Rotation

An active management strategy in which assets are shifted to geographic regions in order to overweight, and thus have a higher exposure in the portfolio.

Global Fund

A mutual fund that typically invests anywhere in the world, including the U.S. growth Stocks and equities who are expected to have above average earnings growth.

Growth and Income Fund

A mutual fund that primarily invests both in stocks with a history of capital gains (growth) and consistent dividend payments (income).

Growth Fund

A mutual fund that primarily invests in stocks with a history of and future potential of above average growth of earnings.

I

International Fund

A mutual fund that typically invests all of its assets in foreign countries and not in the U.S.

L

Large Cap

The top 5% largest companies in terms of market capitalization and whose combined capitalization represents approximately 73% of the total market value.

Level Loads

A mutual fund that charges a permanent sales charge, usually at some fixed percentage.

Load Fund

A mutual fund that sells shares with a sales charge.

M

Micro Cap

Roughly the smallest 50% of all publicly traded stocks and whose combined capitalization represents approximately 2% of the total market value.

Mid Cap

Companies whose market valuations rank between the largest 5% and 20% that are publicly traded and whose combined capitalization represents approximately 18% of the total market value.

Momentum Fund

A mutual fund that invests in stocks the fund managers believe have strong upward momentum.

Money Market Fund

A mutual fund that invests only in short term securities, such as bankers’ acceptances, commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at $1.00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities and/or the fund may have private insurance protection.

Mutual Funds

Invented in the 1920s, mutual funds are pools of money managed by an investment company or advisor. Different mutual funds have different goals. For example, funds may seek growth, growth and income, specific market cap sizes, sectors, etc.

N

Net Asset Value (NAV)

The NAV of a mutual fund represents the value of a fund’s investments on a per share basis.

No-load Fund

A mutual fund that is sold without either a front-end or a back-end sales charge and with 12b-1 fees that are 0.25% or less.

O

Open-end Fund

A mutual fund with the ability to create new shares on demand. Shares are bought at NAV. Antonym: closed-end funds.

Option

Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Investors, not companies, issue options. Buyers of call options profit when the underlying stock (stock, index, or other security) is worth more than the price set by the option (the strike price), plus the price they pay for the option itself. Buyers of put options profit when the underlying security’s price drops below the price set by the option.

P

Prospectus

Formal written document that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information.

R

Redemption

Selling shares of a mutual fund.

Risk

Often defined as the standard deviation of the return on total investment. Degree of uncertainty of return on an asset.

Relative Strength Momentum (RSM)

Our proprietary indicator of intermediate-term momentum. The value is an indication of recent strength and indicates what the one-year return of the fund would be if the current intermediate term trend were to remain in place for the next year.

S

Sector

Used to characterize a group of securities that are similar with respect to industry, geographic region, business, style, rating, and/or coupon.

Sector Fund

A mutual fund that invests in a specific sector or sectors.

Sector Rotation
An active management strategy in which assets are shifted to sector, style, or geographic regions in order to overweight, and thus have a higher exposure in the portfolio.

Sharpe Ratio

A measure of a portfolio’s excess return relative to the total variability of the portfolio.

Small Cap

Companies whose market valuations rank between the largest 50% and 80% that are publicly traded and whose combined capitalization represents approximately 7% of the total market value.

Stock

Ownership of a corporation indicated by shares, which represent a piece of the corporation’s assets and earnings.

Style Rotation

An active management strategy in which assets are shifted to styles, such as small-cap growth, in order to overweight, and thus have a higher exposure in the portfolio.

Systematic Risk

Risk that cannot be diversified away. Also known as undiversifiable risk or market risk.

T

Total Return

The actual rate of return, or performance, realized over some evaluation period. For periods greater than one year, the annualized total return is typically used.

U

Unsystematic Risk

The risk that is unique to a company such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification. Also known as diversifiable risk or residual risk.