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Fund terms glossary

Throughout this website we use certain words that you may not be familiar with, so here are some definitions to help you out.

Absolute return
With an absolute return strategy, the source of return is not connected to traditional investments. The aim is to offer positive returns, whether share or bond markets rise or fall.

Accumulation units
Type of unit in a collective investment scheme where the income is reinvested automatically, thereby increasing the unit price.

A positive alpha is a measure of how much a fund has outperformed its benchmark, and a negative alpha is a measure of how much a fund has underperformed its benchmark. As the benchmark is assumed to have a return of zero any returns over this are often seen as a key measure of the ‘added value’ of an active fund manager.

The ‘alternatives’ class covers a range of investments. The main parts are commodities such as oil, infrastructure such as communication and transport, hedge funds and absolute return funds (an absolute return fund aims to make positive returns by using investment management techniques and classes of asset that differ from traditional funds).

Annual management charge (AMC)
A charge taken from the fund. The charge is expressed as a percentage per annum but is normally taken daily from the fund and is calculated based on the value of funds under management. Normally the fund manager reserves the right to review the level of charge.

Annualised volatility
The annualised standard deviation of the monthly returns of a fund over a given period – a measure of risk. Please see Volatility.

Asset allocation
The process of spreading investments among different kinds of asset classes such as equities, bonds, property and money market assets.

Asset backed securities (ABS)
An asset-backed security (ABS) is an investment backed by a loan, lease or mortgage payments. The owner of the ABS receives a share of the interest and principal payments made to the loan holder. Assets held in these vehicles can include payments from credit cards, auto loans, and mortgage loans, to cash flows from aircraft leases, royalty payments and movie revenues.

Asset class
This refers to the different types of investments that funds or individuals may invest in, such as equities, bonds, property or money market assets.

Asset leasing
An asset leasing fund uses its capital to buy goods that are then leased to companies that operate them as part of their core business. Examples include aircraft to airlines or ships to freight companies. In return for providing the asset, the fund receives a predetermined fee over the course of the lease and receives the asset back at the end of the lease, at which point it can be leased again or sold.

A measure against which the performance of a fund is compared. The benchmark could be an index, for example the FTSE 100, or a sector average. The benchmark is disclosed in the fund documentation.

Beta is a measure of how closely the performance of the fund has mirrored its chosen benchmark. If the Beta is one then it is exactly the same, beta of 1.5 implies that a fund has risen/fallen by 50% more than the market. Passively managed funds aim for a beta of one.

Bid price
The price at which you can sell units of a fund. This term is usually used when a fund has different prices for buying and selling. All AXA IM Select funds are single priced. Please see Offer Price.

Blue chip
A security from a large, well-established reputable company.

Also referred to as Fixed Interest Securities. A bond can be issued by either a company or a government and is a way of raising capital. Investors buying a bond are effectively loaning money to the issuer. Most bonds promise to pay a fixed rate of interest for a given period of time, at the end of which the holders are, in most cases, repaid the capital sum. It is important to remember that these securities can be traded in the market, so their value can go down as well as up.

An investment approach. A bottom-up investment manager will concentrate on stock selection rather than asset allocation or sector selection. Economic issues and asset allocation guidelines are considered, but are not of primary importance in the construction of the portfolio.

Total market value of a company, calculated by multiplying the number of shares by the price per share. Companies are usually classified as either large cap, medium cap or small cap.

Catastrophe reinsurance
Catastrophe reinsurance is the money provided to cover the insurance claims arising from catastrophic natural disasters. Regulators require insurance companies to ensure they have enough capital to pay-out all policyholders without going bankrupt in this scenario. In exchange for providing this capital, the catastrophe reinsurance company receives an insurance premium, which is the return that the investor receives. The returns are largely uncorrelated with factors that affect financial markets, making them a useful diversifier in an investment portfolio and holds particular appeal in uncertain market conditions.

Collective investment schemes
A generic term for investment funds with more than one investor, for example unit trusts, open-ended fund companies, offshore funds and investment trusts, which are managed by professional managers. By pooling their investments, investors can gain exposure to a wide number of underlying investments (e.g. bonds or equities).

A commodities fund invests in a range of commodities including industrial metals, precious metals, energy, livestock and grains.

Convertible bonds
Bonds that can be converted to shares of the same issuing company.

Corporate bond
Corporate bonds are issued by companies to raise money as an alternative to issuing equities. Similar to government bonds but subject to commercial risk, corporate bonds will pay a regular rate of interest and will generally be redeemed at their issue price on a set date.

The interest payment made from a bond.

Derivatives are financial contracts, or financial instruments, whose values are based on, or ‘derived’ from, the value of something else, such as a bond, equity or currency. Derivatives offer investors exposure to the performance or risk characteristics of an underlying investment instrument, without actually owning the instrument.

Diversification or not “putting all your eggs in one basket”. By spreading out our funds, we aim to spread the investment risk across a range of assets, geographic regions, investment styles and managers such as corporate bonds, US shares and UK property. By doing this, we aim to reduce the risk the portfolio would be exposed to if the assets were all in one area or class of asset. Bringing together funds that tend to behave differently in varying market conditions may help to prepare a portfolio for a range of market conditions.

The distribution of part of a company’s earnings to shareholders.

Emerging markets
Countries that are progressing toward becoming advanced, usually shown by some development in financial markets, the existence of some form of stock exchange and a regulatory body.

Environmental, Social, Governance (ESG) integration
The systematic and explicit inclusion of ESG information in investment processes, with the objective of enhancing investment decision-making. ESG integrated investors take into account the effect that ESG issues may have on the performance of individual investments or on whole portfolios.

Also referred to as shares. An instrument that signifies an ownership position, or equity, in a corporation.

Exchange traded funds (ETF)
Exchange traded funds (ETFs) are open-ended, this means that you can buy or sell in and out of them at any time that the market is open, and they can track almost any stock market index all over the world. Their price directly reflects the underlying value of the investments they hold.

Fixed interest securities
Also referred to as Bonds.

Focus fund
A fund that holds large positions in a small number of stocks. The fund concentrates investments in fewer companies, commonly no more than 20-30, selected for their future growth potential. Such concentration increases the overall risk profile of the fund as the price movement of a single stock in a concentrated portfolio may have a greater positive or negative effect on overall portfolio performance.

Foreign Exchange hedging
Foreign exchange hedging is the act of entering into a financial contract to protect against changes in currency exchange rates. Currency hedging is used by financial investors and businesses to reduce the possible risks around international investment. Hedging can be likened to an insurance policy that limits the impact of foreign exchange risk.

Fund of funds
A fund which holds a portfolio of other funds rather than investing directly in shares, bonds or other securities.

Geographic region
It is possible to invest in bonds, property and shares from different countries and regions across the world.

Government bond arbitrage
Government bond arbitrage involves the simultaneous buying of a government bond in one market and selling it in another to capture a disparity in value.

Gross income yield
The annual gross dividends as a percentage of the current share price. It is a way of indicating the level of income an investor will receive.

Ground rents
A ground rent is created when a freehold piece of land or a building is sold on a long lease. The individual leases provide an annual payment, known as ground rent, to the freeholder. These payments represent a very small amount, relative to the lease value, but failure to pay results in the leaseholder losing the property to the freehold owner; therefore there is a strong incentive to pay and a very low default rate. Ground rents have pre-defined payment terms that often include a periodic increase in-line with inflation.

Hedging is a way of protecting against unforeseen events and reducing risk. For example if a share or portfolio take an unforeseen turn, holding an alternative option to your position will reduce the risk and help limit losses.

Hedge funds
You will have heard the term ‘hedge your bets’ used in a way of taking one action to counteract the result of another action and there is a similar process in investments. The term “hedge” in investments is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses/gains suffered by an individual or an organisation. A hedge fund is an investment vehicle that uses a number of different ‘hedging’ and ‘leveraging' techniques to manage and grow the value of the fund.

A hybrid fund aims to combine a Fund of Funds investment approach with a Manager of Managers investment approach.

Impact investing
Impact investing, as defined by the Global Impact Investing Network (GIIN), is the process of making investments with the intention of generating a measurable social and environmental impact alongside a financial return. (The GIIN is a non-profit organization dedicated to increasing the scale and effectiveness of impact investing around the world). The United Nations Development Programme (UNDP) has provided three guiding principles which help to define and differentiate impact investments: the expectation of a financial return; the intention to tackle social or environmental challenges and a commitment to measuring and reporting against the intended social or environmental impact.

The dividend payment from equities or interest paid on bonds.

Income units
Type of unit in a collective investment scheme where the income is distributed to the unit holders.

Investment grade bond
A term used to describe bonds that meet a certain satisfactory credit quality as deemed by credit rating agencies such as Standard & Poor’s and Moody’s Investors Service. An investment grade bond has a high bond rating such as BBB or above.

Leveraged loans
Leveraged loans are loans made to companies with a lower than ‘A’ credit rating signifying that it is below investment grade. Leveraged loans are typically secured on the company’s assets and are generally senior to the company’s other debt. Leveraged loans have interest terms that can vary according to interest rates and rise in-line with base rates. This differs to bonds that usually carry a fixed level of interest.

Manager of Managers
A Manager of Managers fund is run by an overall Fund Manager, who sets the fund’s investment mandate and objectives. The Manager then selects several Fund Managers to invest the fund’s capital, who he believes have the relevant levels of expertise to achieve the fund’s aims.

Money market instruments
These are investments such as bank deposits, certificates of deposit, commercial paper, treasury bills, and floating rate notes. Money markets are global markets dealing in lending and borrowing on a short-term basis.

Morgan Stanley Capital International Inc. (‘MSCI’) is a provider of equity (international and US), fixed income and hedge fund indices.

Open Ended Investment Company. An OEIC is a pooled investment fund of variable size set up as a company in the United Kingdom. It owns investment assets, for example stocks and shares, gilts, bonds and other financial instruments. The size of an OEIC varies reflecting the market value of its underlying investments. The term ‘Open Ended’ refers to the fact that the number of shares in issue increases or decreases in line with demand from investors. OEICs are similar to unit trusts, however OEIC investors own shares in the company rather than units in a unit trust.

Offer price
The price at which you can buy units of a fund. This term is used when a fund has different prices for buying and selling. Please see Bid price.

Positive/best-in-class screening
Investment in sectors, companies or projects selected for positive ESG performance relative to industry peers.

Preference share
Preference shares are shares issued by companies in a similar way to ordinary shares. Preference shares are different to ordinary shares because they pay a predetermined dividend and preference shareholders receive priority over ordinary shareholders when receiving their dividends and in the distribution of assets.

Private equity
Private equity investments are equity investments in private companies, which is an alternative to investments in public listed companies (PLCs) whose shares are listed on stock exchanges. Typical investors in private companies are wealthy individuals and pension funds. The capital raised from these investors is often used to facilitate a turnaround of a distressed company or the expansion of a business, including raising additional investment through launching the company on the stock market.

Property debt
A property debt fund specialises in providing mortgage finance to real estate management and development companies. Mortgages rank senior to equity within a property’s capital structure and are usually secured on buildings as company assets.

We can invest in companies which own and manage a range of properties. The value of property is a matter of the valuer’s opinion and not fact. Property will not contribute to diversifying your portfolio if you already hold a substantial percentage of your investments in property. There could be delays involved with property (disinvestments and switches) due to the fact that property can take time to sell.

Twenty five percent of a ranked list. A fund whose performance is 1st quartile in its sector is among the top 25% performers of all similar funds. A fund whose performance is 4th quartile is among the lowest 25% of performers within their sector.

The percentage of a portfolio’s total return explained by market movements. The maximum value is one – indicating that the fund exactly followed the movement of the benchmark. Progressively lower values indicate that the fund under or outperformed the benchmark.

This is where the fund ranks in comparison with its peers. For example, a ranking of 16/144 means that the fund is in 16th position out of a total of 144 funds within its sector.

Renewable energy infrastructure
A renewable energy infrastructure fund specialises in the development and operation of renewable infrastructure projects, such as wind or solar farms. The fund’s cashflows are a combination of government subsidies and revenue from selling electricity to utilities companies.

Retail Price Index (RPI)
An inflation indicator that measures the change in the cost of a basket of retail goods.

The chance that an investment's actual return will be different than expected. All investments contain some element of risk.

An investment instrument, other than an insurance policy or fixed annuity, issued by a corporation, government or other organisation which issues debt or equity.

Also referred to as equities. Instruments that signify an ownership position, or equity, in a corporation.

Single priced fund
A fund that has the same price for buying and selling units on any day.

Social infrastructure
A social infrastructure fund specialises in the development and operation of social infrastructure projects, such as schools or hospitals. The fund receives inflation-linked cashflows from local governments for ensuring these projects are available.

Specialist credit
A specialist credit manager will invest in a range of corporate debt securities that are non-rated, less liquid or non-traditional, and may not necessarily be found in traditional credit managers’ portfolios.

Specialist property
Different to traditional commercial, retail and industrial property funds, these funds focus on the building, operation and management of real estate that has been developed and customised for the provision of a specific service to private or public end users. Examples include student accommodation and doctors surgeries.

Also referred to as equities, shares, equity securities or corporate stock. Instruments that signify an ownership position, or equity, in a corporation.

Stock lending
The process whereby those holding investments (such as a fund) lend them to other parties who pay a fee for borrowing.

Stock picking
A systematic form of analysis used by an investor or stock analyst to decide whether a particular stock represents a good investment and should be added to their portfolio.

Sub-investment grade bond
A term used to describe bonds that fail to meet a certain satisfactory credit quality as deemed by credit rating agencies such as Standard & Poor’s and Moody’s Investors Service. Bonds rated BB down to D are known as ‘sub-investment grade’ or ‘junk’ bonds.

Sustainability themed investing
Sustainability themed investing involves the selection of assets that contribute to addressing sustainability challenges such as climate change or water scarcity. Funds can either be single-themed or multi-themed.

Synthetic Risk and Reward Indicator (SRRI)
The Synthetic Risk and Reward Indicator (SRRI) was defined in 2009 by the Committee of European Securities Regulators (CESR) with the aim of providing investors with a method of assessing a fund’s risk. The SRRI measures the volatility of the fund over a year and returns a score of between 1 and 7. The greater the volatility the higher the SRRI score will be.

A timber fund owns and manages timberland. Unlike many other commodities, timberland grows over time instead of wasting or depleting. When the timber price is low, the timberland owner can wait until the price improves before harvesting. If the decision is made not to harvest then the value of the timber can increase over time. As a tree ages and increases in breadth and density, its usefulness and value increases as it can be used for a greater range of purposes.

An investment approach. A top-down investment manager will construct a portfolio by focusing on the country’s economy before deciding which sector/stocks to invest in. Economic conditions determine which industries or sectors will produce a good return, and then attractive stocks are sought within those industries/sectors.

Underlying funds
The individual investment funds that AXA IM Select investment managers select to make up their fund of funds portfolio; each individual fund can be spread across a range of classes of assets.

A collective investment is divided into equal parts called units. These units are then bought and sold by investors in a fund. The number of units held is multiplied by the unit price to determine the value of the investors’ holding in the fund.

Unit price
The unit price is calculated by taking the value of the total fund, minus any charges, divided by the total number of units held in the fund. If the fund is not a single priced fund, the buying (or offer) price will differ from the selling (or bid) price.

Unit trust
A collective investment. Investors’ monies are pooled together and invested according to set investment guidelines. Investors purchase units, which represent their interest in the underlying assets of the fund. The changing price of the units held reflects the rise and fall in the value of underlying assets of the fund. Unit Trusts are ‘Open Ended’ in that the number of units in issue increases or decreases in line with demand from investors.

Standard deviation is used to represent volatility, and demonstrates a fund’s tendency to rise/fall in value over a specified period of time. Standard deviation measures how far actual fund returns have deviated from the sector average. The more a fund’s returns have varied from the sector average, the higher the volatility. The volatility of a fund is partly attributable to the assets in which it invests, for example a fund that invests totally in equities is likely to have a higher volatility than a fund solely invested in money market assets.

Volatility strategies
Volatility strategies aim to generate positive returns during periods when there is an increase in stock market volatility. These periods are usually associated with falling stock markets. The investment managers of volatility strategies will use a number of different investment vehicles to generate returns.

A derivative security that gives the holder the right, but not the obligation, to buy investment trust, or company shares at a pre-determined price within a set period. Buying the shares is called ‘exercising’ the warrant. Warrant holders don’t have any of the rights that ordinary shareholders enjoy.

Weighted average maturity (WAM)
The average time it takes for securities held in a fund to mature. If a fund has a longer WAM, the securities are held in the fund for a longer period and therefore they are exposed to interest rate changes for longer which may affect the performance of the fund.

The amount of income generated by a fund’s investment in relation to the price.

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