Glossary
Contents:
Arbitrage
Taking advantage of different rates, prices or conditions between different markets or maturities. This typically involves buying an asset in one market at a lower price and simultaneously selling it in another market for a higher price.
Asset allocation
Selecting and weighting assets in an investment portfolio.
Allotment
The issue of units to unitholders.
Basket
A mixture or selection of goods or services. For ETFs, a basket means a selection of securities. Redemptions and allotment of fund units are often done per basket which represents a number of units. For example the basket size of SmartTENZ is 500,000 units.
Bid-ask spread
The bid is the price offered; the ask price is the price requested. The bid
ask spread is the difference between the buying and selling price.
Binding ruling
A ruling granted by the Inland Revenue Department, which gives an interpretation
on how tax law applies to taxpayers and arrangements.
For passive funds this usually means that unitholders will not be taxed on
gains from a subsequent sale (or redemption) of the constituent companies unless the unitholders are in the
business of dealing in such investments.
Buy on margin
Use money borrowed from broker or bank to purchase securities.
Share price gains
A tax on income (gain) arising from changes in the market value of assets.
Cash Application
A mechanism whereby investors can apply for Smartshares Units by completing an Application form and forwarding to the registry along with a cheque.
Closed-end fund
A closed-end fund is a fund with a fixed number of units outstanding. After an initial public offering of units is completed, a new investor buys shares from another shareholder rather than from the fund.
In contrast to shares in an open-end managed fund, which can usually be redeemed
at net asset value, a closed-end fund's shares can trade in the market at a
premium or discount to their net asset value.
Constituent company
A company whose securities are included in an index.
Diversification
Spreading investment over multiple products or securities. Diversification usually reduces portfolio risk because the returns on various asset classes are not perfectly correlated.
Dividend
Part of a company’s profits paid to shareholders as a reward for their investment in the company.
Dividend rate
The dividend rate at which a fund is distributing dividends and interest earned on the fund’s investment portfolio, usually expressed in cents per share.
Distribution reinvestment plan
Where investors elect to use their dividend and/or capital gain distributions
to purchase additional units in the fund rather than receive the money.
Exchange traded fund
An exchange traded fund (ETF) is a fund that trades like a single security. It is a fund comprised of baskets of securities that reflect the composition of a sharemarket index. The ETF's value is based on the net asset value of the underlying stocks that it represents.
GIF
Group investment fund.
Index
A statistical construction that measures relative or absolute price changes and/or returns for a given group of securities.
The purpose of an index calculation is usually to provide a single number which represents the movements of a variety of prices or rates and is indicative of the behaviour in a market.
Index fund
A fund designed to track the performance of a market index.
Indexed shares
The number of shares each constituent company has within an index.
Index tracking
A reference to the correlation between a portfolio's return and the return on a benchmark index, or, alternatively, to the portfolio's tracking error relative to the index.
Indexation
A relatively passive investment strategy that attempts to replicate the return of a benchmark index in a fund.
Initial Public Offering - IPO
The first sale of stock by a company to the public.
Management company
The firm that organises, manages, and administers a fund.
Management fee
The amount unitholders pay the manager running the fund.
Market capitalisation
The value placed on a company by the market. It is the number of shares on issue multiplied by market share price.
Market risk
All investments involve some degree of risk: the possibility that an investor will not recover all of their original investment if the security price falls, a company goes into liquidation, or a number of other reasons.
Net asset value
The total assets (securities, cash, and accrued earnings) of a fund minus any liabilities, divided by the number of units outstanding.
Passive management
Investing in a fund or other pooled investment vehicle that attempts to match the risk/return pattern of a market index.
Portfolio
A collection of securities and/or other financial instruments under common ownership and management.
Re-balancing
Periodic revisions to a portfolio. These are necessary because of the effect of time on the make-up of a portfolio, changes to the constitution of an index, portfolio cash flows or market-driven departures from a target allocation.
Redeem
To cash in or exchange funds for liquid assets.
Redemption
The process of turning or exchanging fund units for cash or a basket of the fund's securities.
Tracking error
Net asset value tracking error is the difference between the net asset value of the fund or trust and the return of the index on which the fund is based.
Price to index tracking error is the difference between the returns based on closing market prices for a fund or trust and the returns based on the closing market prices of the underlying index.
Yield
The return on an investment compared to either the original investment amount or, more commonly, the current market value of the investment. Yield is quoted on an annualised basis.
