Glossary

Investment Terms

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 Return: Yearly 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.

Ranking Categories

B

Bond ETFs: This category includes bond ETFs (and ETNs) including U.S. Treasury, municipal, corporate, high-yield, and international bond ETFs.

This category does not include any inverse or leveraged funds. Any ETF less than six months old is located in the IPO (New ETFs) category. ETFs at least six months old but deemed to have trading liquidity concerns are located in the Do Not Trade ETFs category.

C

Commodity ETFs: This category include ETFs (and ETNs) designed to track the performance of a commodity or commodity-based index.  It does not include commodity-oriented equity funds, which are in the Sector ETFs category.

This category does not include any inverse or leveraged funds. Any ETF less than six months old is located in the IPO (New ETFs) category. ETFs at least six months old but deemed to have trading liquidity concerns are located in the Do Not Trade ETFs category.

Currency ETFs: This category contains all of the currency-related ETFs (and ETNs), including leveraged and inverse currency ETFs.

Any ETF less than six months old is located in the IPO (New ETFs) category. ETFs at least six months old but deemed to have trading liquidity concerns are located in the Do Not Trade ETFs category.

D

Do Not Trade ETFs: These ETFs (and ETNs) are rated “Do Not Trade.”  In general, most of the securities on this list have limited liquidity and have gone one or more days without any trades sometime in the past three months.  Most performance statistics are meaningless for these ETFs since they do not trade every day, which is why we do not display any statistics here.

ETFs less than six months old are not included.  They can be found in the ETF IPO section.  If you own any of these and want to sell them, be sure to use a limit order.

F

Fidelity Non-Select Funds: This category contains all equity open-end mutual funds sponsored by Fidelity Investments that are not part of the Fidelity Select Portfolios.  Most Fidelity asset allocation funds are included in this category, while just a few representative bond funds are included.  These funds often have short-term redemptions.  We list the redemption fee amount and the time required to hold the fund to avoid the fee.  However, these are subject to change at any time and investors should consult Fidelity prior to purchasing any of these.  Fidelity also has restrictions affecting all funds (except money market) held for less than 31 days.

Fidelity Select Funds: This category contains all open-end Select Portfolio (sector) mutual funds sponsored by Fidelity Investments.  With the exception of Select Money Market, these funds all have a 0.75% short-term redemption fee for shares held less than 30 days.  Fidelity also has trading restrictions affecting all funds (except money market) held for less than 31 days.

 

I

International ETFs: Includes international and global stock market ETFs (and ETNs) that invest in specific non-U.S. countries, geographies, regions, and continents. It does not include international sector ETFs, which are in the Sector ETFs category.  Global ETFs with extremely large (> 80%) allocations to U.S. stocks will typically be in the Style ETFs category.

This category does not include any inverse or leveraged international funds. Any ETF less than six months old is located in the IPO (New ETFs) category. ETFs at least six months old but deemed to have trading liquidity concerns are located in the Do Not Trade ETFs category.

IPOs (New ETFs): This category is for ETFs (and ETNs) that have had their Initial Public Offering (IPO), or first trade date, in the past six months.  Once they reach six months of age, they are moved to one of the other categories. Many new ETFs may have severe liquidity concerns for several months after their initial launch. Some of them may go numerous days without any trades. We advise you to investigate the daily volume of any ETF on this list prior to using them in your trading activities.

L

Leveraged and Inverse ETFs: This category includes ETFs (and ETNs) seeking magnified and/or inverse returns vis-à-vis a particular sector, style, or international benchmark.  Inverse ETFs included here give exposure to negative or downward price movement of particular investment categories.  Inverse and leveraged currency ETFs are not included.

Any ETF less than six months old is located in the IPO (New ETFs) category. ETFs at least six months old but deemed to have trading liquidity concerns are located in the Do Not Trade ETFs category.

S

Sector ETFs: This category includes stock market ETFs (and ETNs) that invest in a single industry, sector, or super-sector.  It includes domestic, global, and international sector ETFs.  It does not include pure commodity ETFs (which are located in the Commodity ETF category) such as crude oil, but does include equity-based ETFs involved in oil and energy.

This category does not include any inverse or leveraged sector funds. Any ETF less than six months old is located in the IPO (New ETFs) category. ETFs at least six months old but deemed to have trading liquidity concerns are located in the Do Not Trade ETFs category.

Style ETFs: This category includes U.S. stock market ETFs (and ETNs) that pursue a specific style, strategy, or theme including broad markets.  It includes capitalization segmentations, value and growth strategies, dividend strategies, and asset allocation funds.  These ETFs typically have 80% or more allocation to U.S. based stocks.  Style-based ETFs with less than 80% U.S. exposure are in the International ETF category.

This category does not include any inverse or leveraged funds. Any ETF less than six months old is located in the IPO (New ETFs) category. ETFs at least six months old but deemed to have trading liquidity concerns are located in the Do Not Trade ETFs category.