Glossary

Absolute return

Measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital.

 

Active management

An investment approach that seeks to exceed the average returns of the financial markets.

 

Alpha

Measure of the so-called active return on an investment. It is the return in excess of the compensation for the risk borne, and thus commonly used to assess active managers' performances.

 

AUM (Assets Under Management)

The total market value of a mutual fund's assets, minus their liabilities.

 

Benchmark

Index to which the fund measures its performance.

 

Beta

Sensitivity to market movements. Describes the relation of a stock’s or portfolio’s return with that of the financial market as a whole.

 

Compound return

The annual rate of return that represents the cumulative effect, averaged over a specified time frame.

 

Confidence level

A statement that the true value of a parameter for a population lies within a specified range of values with a certain level of probability.

 

Consistency

Number of time periods when the fund’s performance has outperformed the benchmark index.

 

Correlation

A statistic representing how closely two variables co-vary; it can vary from -1 (perfect negative correlation) through 0 (no correlation) to +1 (perfect positive correlation). A value of 0 shows that there is no linear correlation between the variables.

 

DrawDown

Measure of the decline from a historical peak, expressed as a percentage.

 

Fund of Funds

An investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities.

 

Gross exposure

The sum of the long and the short positions in a portfolio, expressed as a percentage of AUM.

 

High-water mark

A requirement that the fund must recoup any prior losses before the investment manager may take a performance fee.

 

Index

A comparative measure stating the performance in relation to a given starting point.

 

Information ratio

The ratio of the excess annualised return against the Tracking Error, over a fixed period of time. The higher the ratio, the better, as it reflects the extent to which a fund outperformed its benchmark per unit of active risk over the investment period.

 

Long-only fund

A fund that can only take long positions.

 

Long position

The holder of the position owns the security and will profit if the price of the security increases.

 

MTD (Month-To-Date)

Return from the beginning of the month to date.

 

NAV (Net Asset Value)

The total market value of a mutual fund's assets, minus their liabilities, divided by the number of shares outstanding.

 

Net exposure

The long positions minus the short positions in a portfolio, expressed as a percentage of AUM.

 

Risk

Commonly expressed as standard deviation (see below).

 

Sharpe Ratio

Measurement of a portfolio's risk-adjusted return, i.e. the efficiency of the portfolio. Calculated as portfolio return minus risk-free interest divided by the standard deviation of portfolio return. The higher the Sharpe ratio, the more favorable the relationship between return and risk.

 

Standard deviation

A measurement commonly used to reflect an investments risk level. Refers to the variation, or expected variation, of the performance over time. A high standard deviation entails large variations and thus high risk and vice versa.

 

Tracking Error

A ratio expressed as a percentage which measures the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. The more passively the investment fund is managed, the smaller the tracking error.

 

Value at Risk (VaR)

Measures the potential future losses which will not be exceeded within a specified period and with a specified probability. The measurement is expressed as a percentage of AUM.

 

YTD (Year-To-Date)

Return from the beginning of the year to date.