Term |
Definition |
| Allocated Pension |
An Allocated Pension is a Legal Type through which a retiree invests a lump sum of original capital and then draws down an annual amount as income. If this amount is more than the Allocated Pension's investment earnings, the difference is made up by taking money out of the initial lump sum of original capital. If the return on investments exceeds the rate of drawdown, the account should last until death. Whatever remains in the account accrues to beneficiaries. Unlike a traditional pension or annuity, an Allocated Pension can provide the retiree with continual access to the capital sum invested.
See also Legal status, Annuity; Immediate Annuity. |
| Alpha |
Alpha is a measure of the difference between a portfolio’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the portfolio has performed better than its beta would predict. In contrast, a negative alpha indicates the portfolio has underperformed, given the expectations established by beta.
Benefits
Alpha can be used to directly measure the value added or subtracted by a portfolio manager. Alpha depends on two factors: 1) the assumption that market risk, as measured by beta, is the only risk measure necessary and 2) the strength of the linear relationship between the portfolio and the index, as it has been measured by r-squared. In addition, a negative alpha can sometimes result from the additional expenses that are present in a portfolio’s returns, as compared to the benchmark index.
Origin
Morningstar calculates this figure each month for different time periods.
For The Pros
In computing alpha, Morningstar deducts the risk-free return from the total return of both the portfolio and the benchmark index. Thus, the alpha figures shown by Morningstar may be lower than those published elsewhere. Morningstar believes that the calculation of alpha should represent the fact that every investor has choices about where to place his or her money.
Morningstar calculates a monthly measure of alpha and then annualizes it to put it in a more useful one-year context. |
| Annual Total Return |
The Annual Total Return is the Total Return a Fund has earned for any defined 12-month period. Morningstar calculates annual returns taking into account any ongoing management fees, but excluding any Entry/Exit Fees, which can vary from investor to investor, depending on the route the investor has taken to invest in a Fund.
See also Growth Return, Income Return, Management Expense Ratio/MER, Return |
| Annualised Rate of Return |
The Annualised Rate of Return looks at returns for a period of time longer than one year. Calculations are made to determine what the annual rate of return would be if the returns maintained the same level of performance over a one-year period.
See also Annual Total Return, Return |
| Annuity; Immediate Annuity |
An Annuity is a Legal Type where an investor invests a lump sum, and then receives regular payments, usually for retirement income. Each regular payment is a portion of the lump sum and any interest generated by the lump sum. Immediate Annuities are lower risk and suited to investors, or retirees, who are after a regular, certain amount of income while they and their partner are in retirement.
See also Allocated Pension, Legal Status |
| APIR Code |
APIR stands for Asia Pacific Investment Register.
APIR Codes are standard identifiers for products in the financial services industry. The system has been designed to meet industry and regulatory needs while being understood by, and accessible to, the public. An APIR Code will consist of nine alpha/numeric characters; the last two characters are the ISO 3166-2 country code for the country in which the product offeror is legally domiciled. PRIs are permanent identifiers and remain current for the life of the individual or business structure.
APIR is no longer considered or used as an acronym, prior to 1997 the business organisation responsible for the administration of these codes did use have the following acronym associated with APIR: Asia Pacific Investment Register. The current company administering APIR Codes no longer utilises the term: "Investment Register", and although the four letters APIR are in common use, it is not an acronym.
APIR Systems Pty Limited's identifying codes are most widely used in Australia, however there are a number of financial products on offer in New Zealand that have APIR Codes, and there are a very limited number of APIR Coded products offered from the United States and Ireland. |
| Arbitrage |
Arbitrage is an attempt to take advantage of (or exploit the) differences in prices of financial instruments between different markets or in different forms, trying to buy an asset for a lower price in one market, and sell it for a higher price in another. |
| Asset |
An investment security such as a bond, share or property intended to generate either income or capital gains, or both.
See also Net Assets ($Mil), Fund |
| Asset Allocation |
Asset Allocation is how a Fund's assets are divided up between Asset Classes. The total Asset Allocation should usually add to 100 percent.
See also Asset Class, Strategic Asset Allocation, Tactical Asset Allocation |
| Asset Class |
An Asset Class is a group of like securities. The major Asset Classes in Australia are Cash; Bonds; mortgages; property; and shares (also referred to as equities).
See also Asset Allocation, Cash, Bond/Bondholder, Mortgage Trust, Listed Property Trust, Unlisted Property Trust, Equity |
| Average Return |
A Fund's Average Return is the average of all the Fund's Total Returns to every month-end over the life of the Fund to date, for example, the average of all the Fund's one-year Total Returns, three-year Total Returns, and so forth. Comparing a Fund's Average Return for a time period with the Fund's Total Return for the same time period can show whether the Fund's Total Return is 'typical' of the Fund's performance for that period (as represented by the Average Return).
See also Total Return |
| Balanced Fund |
See also Multisector Fund |
| Base Currency |
The Base Currency is the currency denomination that a Fund operates in. The majority of Funds in Australia have the $A as their base currency, but there are also offshore Funds available which have the $US or the pound sterling as their base currency. |
| Bear Market |
A Bear Market is one in which security prices are in decline, usually by 20 percent or more, against a background of market pessimism.
See also Bull Market |
| Benchmark |
A Benchmark is an Index or another market measurement used by an Investment Manager to assess the risk and performance of a Fund or Portfolio. For example, the S&P/ASX All Ordinaries Accumulation Index is a commonly-used Benchmark for Australian share Portfolios. The Benchmark usually represents the minimum performance objective.
See also Index |
| Beta |
A measure of a fund’s sensitivity to market movements. The beta of the market is 1.00 by definition. Morningstar calculates beta by comparing a fund’s excess return over T-bills to the market's excess return over T-bills, so a beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant. Conversely, a beta of 0.85 indicates that the fund’s excess return is expected to perform 15% worse than the market’s excess return during up markets and 15% better during down markets.
Benefits
Beta can be a useful tool when at least some of a fund’s performance history can be explained by the market as a whole. Beta is particularly appropriate when used to measure the risk of a combined portfolio of mutual funds.
It is important to note that a low beta for a fund does not necessarily imply that the fund has a low level of volatility. A low beta signifies only that the fund’s market-related risk is low. (Standard deviation is a measure of a fund’s absolute volatility.) A specialty fund that invests primarily in gold, for example, will usually have a low beta, as its performance is tied more closely to the price of gold and gold-mining stocks than to the overall stock market. Thus, the specialty fund might fluctuate wildly because of rapid changes in gold prices, but its beta will remain low. R-squared is a necessary statistic to factor into the equation, because it reflects the percentage of a fund’s movements that are explained by movements in its benchmark index.
Origin
All MPT statistics (alpha, beta, and R-squared) are based on a least-squared regression of the fund’s return over T-bills (called excess return) and the excess returns of the fund’s benchmark index. The value of using alpha and beta depends upon the strength of the linear relationship between the fund and the index over the past 36 months. R-squared measures the strength of this relationship. An R-squared of 100, for example, implies a perfect linear relationship, while an R-squared of zero implies that no relationship exists whatsoever. Additionally, the application of MPT statistics (alpha, beta, and R-squared as a group) assumes that beta, which is based on market risk, is the only risk measure necessary.
For the Pros
Investors should keep in mind that beta is a measure of both the upside and downside volatility of a fund relative to its benchmark index, so both greater-than and less-than expected returns are viewed as increased risk.
Also, while beta is a relative (non-absolute) measure, comparisons of beta between different funds can be misleading, because the level of correlation between different funds and the benchmark index (as measured by R-squared) may differ significantly. |
| Blend Fund |
A Blend Fund is invested in both value and growth stocks, with no clear predominance in either.
See also Growth Fund, Value Fund |
| Bond Maturity |
Bond Maturity is the number of years to the date when a bond matures and the principal is due to be repaid to the Bondholder.
See also Bond/Bondholder |
| Bond/Bondholder |
A Bond (also called Fixed Interest) is a debt security issued by a company or government agency in which an investor (known as the Bondholder) lends money to be paid back at the end of a defined period (known as the Bond Maturity date). The issuer of the bond pays interest to the Bondholder until the maturity date. Bonds are categorised according to the risk of the issuer defaulting on repayment of the initial loan. Bonds which have a high risk of default - but which also usually pay higher rates of interest - are known as Junk Bonds. |
| Bull Market |
A Bull Market is one in which security prices are on the increase, generally by 20 percent or more, against a background of market optimism.
See also Bear Market |
| Capital Appreciation |
Capital Appreciation is a rise in the market price of an Asset. |
| Capital Gain |
Capital Gain is the difference between the buy and sell price of an Asset, or the profit gained. |
| Capital Guaranteed Fund |
A Capital Guaranteed Fund is one in which the Fund Manager guarantees that the investor will not lose their initial capital investment in a Fund, generally paying for any shortfall from reserves. (The majority of Funds in Australia are not Capital Guaranteed.) |
| Cash |
Cash is money and other equivalent liquid assets, generally regarded as a short-term security with a typical maximum of 180 days to maturity. Cash is regarded as the most Liquid of the Asset Classes.
Cash is classified as a current asset on the balance sheet, and is comprised of currency, coins, cheques, and balances in bank accounts.
See also Asset Class, Liquidity |
| Cash Distribution |
Cash Distributions are payments a Fund makes to its investors. Most Australian Funds which distribute do so quarterly.
See also Income Return |
| Category, Morningstar |
Morningstar Categories group similar funds together by market-cap and investment style, so that funds in the same Category can be considered reasonable substitutes for the purposes of portfolio construction.
(See also Asset Allocation, Legal Status, Benchmark.) |
| Classifications |
The objective of Morningstar's Classification system is to provide groups of Funds which can be reasonably considered to be close investment alternatives, and for which performance and other statistics such as Fees and Management Expense Ratios can be justifiably compared. Where possible, these classifications are intended to be common to both Australia and New Zealand, and compatible with Morningstar's portfolio construction philosophy.
See also Morningstar Category |
| Closed Fund |
Closed Funds are Funds which are generally no longer open to new investment. Closed Funds are different to Finalised Funds, in that Closed Funds often continue to operate for the existing investors in the fund prior to closure. Many Closed Funds however end up as Finalised Funds.
See also Open Fund, Finalised Fund |
| Compounding |
Compounding is the process by which income is earned on income that has previously been earned. |
| Consumer Price Index (CPI) |
The Consumer Price Index is a measure of the change in the cost of living for consumers. The CPI is generally used to illustrate the extent to which prices have risen - the degree of inflation that has taken place. |
| Correlation |
Correlation is a measurement of the movement between two investments. Correlations are measured in a range from -1 to +1. A Correlation of -1 suggests that the two investments move inversely to one another, while a Correlation of +1 suggests that the two investments move in the same direction. A correlation of 0 suggests that there is no relationship between the movements of the two investments. |
| Country Risk |
See also Diversification |
| Coupon |
A Bond's Coupon is the document that commits the Bond issuer to pay a specified rate of interest to the Bondholder on the money lent.
See also Bond/Bondholder |
| Currency Hedging |
Currency Hedging is a process used to protect against the risks posed by currency fluctuations (changes in the value of the $A/$NZ). If an Investment Manager thinks that the $A/$NZ is going to be stronger when they wish to change the foreign currency back into $A/$NZ, then the Investment Manager can hedge against any currency appreciation (for example, take out a foreign exchange futures contract). The hedge locks in the rate of future exchange prior to the transaction taking place. This strategy protects profits gained from holding devalued foreign currency. A weaker $A/$NZ in the future will increase the returns on an offshore investment without making any hedging necessary. |
| Currency, Base |
The Base Currency is the currency denomination that a Fund operates in. While most Funds in New Zealand have the $NZ as their base currency, there are also many Funds offered from Australia which have the $A as their Base Currency. |
| Data |
Data is a broad term for information about a Fund and its performance, including Asset Allocations; Distributions; Fees; Returns; and so forth. |
| Derivatives |
Derivatives are financial instruments, the value of which is based on the performance of an underlying Asset such as a commodity, a share, a bond, foreign currency, or an Index. Derivatives are often used to attempt to avoid the impact on returns of changes in the value of a currency.
See also Currency Hedging |
| Discretionary Masterfund |
See (Masterfund). |
| Distributions |
See Cash Distribution |
| Diversification |
Diversification, or spreading your risk, is about not putting all your investment eggs in one basket. An investor's Portfolio can be diversified by investing in different types of securities, different Funds offered by different Fund Managers, investing in different countries, and in different sectors and industries. One way of diversifying is to invest in different Asset Classes which are unlikely to have Returns all moving in the same direction at the same time. |
| Dividend |
A Dividend is a payment out of the company's current or retained earnings for each share an investor holds (usually as cash, but it can also take the form of stock), as designated by a company's board of directors to be distributed among shareholders.
(See also Income Return). |
| Dividend Yield |
Dividend Yield is the annual dividend declared by a company, divided by the price of the share.
(See also Dividend) |
| Dollar Cost Averaging |
Dollar Cost Averaging refers to investing amounts of money into a Fund at regular intervals. This enables the investor to build up their number of units in the Fund regardless of whether the units are more or less expensive. When the Entry Price is lower, the regular investment will enable the investor to buy more units for their money, and vice versa. Fund Managers often promote Dollar Cost Averaging as a way of building up an investment in a Fund over time with regular, manageable payments of small amounts of money. |
| Efficient Market Hypothesis |
The Efficient Market Hypothesis broadly states that at any given time and in a liquid market, the prices of securities such as shares fully reflect all the available information about the share. The hypothesis exists in various degrees: weak, semi-strong and strong, which addresses the inclusion of non-public information in market prices. This theory contends that since markets are efficient and current prices reflect all available information, attempts to outperform the market are essentially luck rather than skill. |
| Emerging Market |
An Emerging Market is one in which the economy and financial system is relatively unsophisticated compared to the major economies and regions, but which is becoming increasingly sophisticated. |
| Emerging Markets |
Hedge fund strategy where the fund manager specialises in securities issued by corporations and governments in developing nations. These managers study current events, history, and the investing climate in each country. Most of these securities are exposed to political, economic, currency, and government risks, and the managers seek the best return for any given level of risk. These funds invest in both shares and bonds. Some funds focus on a specific area of the world, while others invest in emerging markets around the world.
See (Hedge Fund). |
| Entry/Exit Fee |
Entry/Exit Fees are charges - usually a percentage of the money involved - which a fund manager levies when an investor enters or leaves a Fund. Entry and Exit Fees can vary from investor to investor, depending on how the investor goes about investing in a Fund. For example, some discount brokers rebate (refund) any Entry Fee back to the investor. Not all Funds levy an Entry or Exit Fee.
(See also Fees, Nil Entry Fee (NEF), Unit Price). |
| Entry/Exit Price |
A fund's Entry Price is the cost of buying a unit in a Fund, generally expressed in dollars and cents. The fund's Exit Price is the price a unitholder would receive when selling their units in a Fund.
(See also Unit Price, Price Date). |
| Fees |
A fund's Fees are the charges associated with investing in the Fund. Expressed either as a dollar amount or a percentage of the amount invested, these can include Entry/Exit Fees; a Management Fee; a Reinvestment Fee; a Switching Fee (charged when switching money between Funds); and/or a Trustee Fee (a charge to contribute to the costs of paying for the services of an external Trustee for the fund).
(See also Entry/Exit Fee, Management Expense Ratio/MER, Nil Entry Fee (NEF)). |
| Finalised Fund |
Finalised Funds are those which have been shut down by the Fund Manager, and the Fund's Net Assets distributed to the Unitholders or transferred to another Fund.
(See also Open Fund, Closed Fund). |
| Financial Year Total Return |
The Financial Year Total Return is a Fund's return for the calendar year to 30 June (the Australian tax year) in the year shown.
(See also Return). |
| Fixed Interest |
See (Bond/Bondholder). |
| Fund |
A Fund is any investment product in which investors' monies are pooled together to buy Assets and produce Returns.
(See also Fund Manager, Asset, Net Assets ($Mil)). |
| Fund Code |
The Fund Code - or Morningstar Ticker - is a unique number Morningstar assigns to help identify and track a specific Fund. Each Fund has its own Morningstar Ticker/Fund Code. In addition, many Fund Managers also use an industry standard code called APIR for the same reasons, and these are shown on the Morningstar Fund Quicktake and Investment Detail reports where available.
(See also APIR Code). |
| Fund Inception |
The Fund Inception date is the date the Fund was first opened to new investment. This is sometimes also referred to as the Fund's Commencement Date. |
| Fund Manager |
The Fund Manager (sometimes also referred to as the Manager) is the company or entity responsible for managing and promoting a Fund on behalf of investors in the Fund.
(See also Investment Manager, Portfolio Manager, Fund). |
| Fund-of-Funds |
Hedge fund strategy where the fund manager samples other hedge funds. The fund-of-funds hedge fund strategy offers investors exposure to several different investment tactics, which the hedge fund manager outsources to different hedge fund managers. The role of the hedge fund manager is to undertake due diligence, select, and package multiple appropriate underlying hedge fund strategies.
See (Hedge Fund). |
| Gearing |
Gearing or leveraging is borrowing against the equity an investor holds in an Asset. Gearing is also the ratio of a company's long-term funds with fixed interest to its total capital. A high Gearing is generally considered very speculative. |
| Group Investment Fund |
A Group Investment Fund is a kind of Fund offered by New Zealand trustee companies, under Acts of Parliament specific to each trustee company. |
| Growth |
Growth is used to describe an investment style that looks for equity securities with high rates of potential revenue growth.
(See also Value). |
| Growth Fund |
A Growth Fund is invested predominantly in growth stocks - stocks with higher prices relative to the stock's earnings and sales than those of other stocks in the region.
(See also Blend Fund, Value Fund). |
| Growth of $10,000 Graph |
The Growth of $10,000 Graph shown in the Morningstar Fund Quicktakes shows a Fund's performance, based on how a hypothetical $10,000 invested in the Fund would have grown (or declined) over time. The growth of $10,000 begins at the Fund Inception date, or the first year shown on the graph, whichever is most appropriate. The Growth of $10,000 Graph also shows the performance of the Fund's Market Index, and the Fund's Morningstar Index, which represents the average return from all the other Funds in the same Morningstar Category. |
| Growth Return |
The Growth Return is the part of a fund's Total Return which is capital growth.
(See also Income Return, Return, Total Return). |
| Hedge Fund |
A Hedge Fund is an investment vehicle managed using higher risk or unorthodox investment strategies, often promoted as providing Returns at a certain level regardless of the performance of investment markets. Hedge Funds are sometimes also referred to as Absolute Return funds. |
| Hedging |
See (Currency Hedging). |
| High Yield Strategy |
A High Yield investment strategy is one in which an investor or fund manager invests in sub-investment-grade debt securities. High Yield strategies are riskier than traditional bond investment strategies, because of the higher risk of default on return of the initial capital invested and/or the ongoing income payments.
(See also Junk Bond.) |
| Hurdle Rate |
A Hurdle Rate is the minimum return a fund manager has to achieve to earn a performance-related fee attached to an investment.
(See also Performance Fee.) |
| Inception Date |
The date on which the fund began its operations. The inception year is followed by the month. A fund with an inception date of February 1986, for example, would be listed as 1986-02. Funds with long track records offer more history by which investors can assess overall fund performance. However, another important factor to consider is the fund manager and his or her tenure with the fund. Often times a change in fund performance can indicate a change in management.
Benefits
The commencement date indicates when a fund began investing in the market. Many investors prefer funds with longer operating histories. Funds with longer histories have longer track records and can thereby provide investors with a more long-standing picture of their performance. Because of the explosion in the mutual fund industry over the past decade, the fund universe now consists of thousands of investment offerings. Many of these new contenders have very little history by which an investor can hope to gauge their possible performance in various market climates.
Origin
This information is taken directly from the fund’s annual report.
For the Pros
Funds with long track records offer more history by which investors can assess overall fund performance. However, another important factor to consider is the fund manager and his or her tenure with the fund. Often times a change in fund performance can indicate a change in management. Also, some funds may have a very recent commencement date, but are spin-offs from existing portfolios in the form of a new share class. Although the expenses between classes usually differ, it may be useful to consider the track record of the oldest share class (and adjust for expenses). |
| Income Return |
The Income Return is the proportion of a fund's Total Return distributed to the unitholder.
(See also Growth Return, Cash Distribution, Total Return, Dividend). |
| Index |
An Index is a numerical measure of the movement of the price or value of an Asset Class or group of Funds. Indices (plural) are generally used as a way of tracking the performance of a Fund, market, or group of Funds. A Market Index measures the movement in the value of a specific market, or group of Assets within a market. For example, the S&P/ASX300 Index is the broadest measure of the Australian sharemarket.
(See also Growth of $10,000 Graph, Morningstar Index, Benchmark). |
| Index Fund |
An Index Fund is a Fund designed to replicate as closely as possible the performance of the market in which the Fund invests, as represented by the Market Index.
(See also Index). |
| Information Ratio |
The Information Ratio is a measure of the average return a fund has gained (or lost) by the fund manager taking on active risk. The Information Ratio is often regarded as an indicator of whether the fund manager's decisions have added or subtracted value. |
| Insurance Bond |
An Insurance Bond is an investment product issued by a life insurance company. |
| Investment Manager |
The Investment Manager is the entity directly responsible for managing the Assets held by a Fund. (The Investment Manager is often - but not necessarily - the same entity as the Fund Manager.)
(See also Fund Manager, Portfolio Manager). |
| Investment Objective |
A Fund's Investment Objective defines what the Fund's goals are - what it is intended to achieve - and therefore determines what kinds of Assets the Investment Manager will invest in to achieve those goals. The Investment Objective is a good way for investors to assess whether the Fund is suitable to meet their investment needs and goals. |
| Junk Bond |
Junk Bonds are non-investment-grade bonds with low credit ratings, usually BB or lower, but consequentially Junk Bonds usually have higher yields.
(See also Bond/Bondholder). |
| Large Blend Fund |
Large Blend Funds own a mixture of larger-sized growth and value companies, or companies which exhibit both characteristics. Large Blend companies in Australia include those in resources, publishing and media, and some banks. |
| Large Growth Fund |
Large Growth Funds own mostly larger-sized companies the fund manager believes will grow more quickly than the sharemarket overall. Large Growth companies in Australia include those in retailing, consumer staples, and distribution. |
| Large Value Fund |
Large Value Funds own mostly larger-sized companies the fund manager believes are overlooked by the market and trading relatively cheaply. Large Value companies in Australia include some of the banks, insurance companies, and telecoms. |
| Legal Name |
The Legal Name is the full name of a Fund according to the Prospectus, often abbreviated. |
| Legal Status |
Legal Status identifies each Fund according to its structure and governing legislation and regulation. Morningstar classifies Australian Funds into the following Legal Types: Allocated Pensions; Annuities; Friendly Society Bonds; Investment or Unit Trusts; Insurance Bonds; Superannuation Funds; Superannuation Funds - [TEST:Tax] Exempt; Wholesale Funds; and Non-Tax-Paying (NTP) Wholesale Funds. |
| Legal Type |
Legal Type identifies a Fund according to its structure and governing legislation and regulation. Morningstar classifies New Zealand Funds into the following Legal Types: Investment Trusts; Superannuation Trusts; Insurance Bonds; and Group Investment Funds. |
| Liquidity |
Liquidity is the ease and ability with which an investment security can be converted into cash without any price discount. Property assets are generally regarded as the most illiquid, in other words, the asset class which takes the most time and effort to convert into cash.
(See also Cash). |
| Listed Property Trust |
An investment vehicle which owns a portfolio of real property. However different to Unlisted Property Trusts, in the sense that Listed Property Trusts (LPTs) are quoted on the stock exchange, with price movements resulting from fluctuations in supply and demand for the listed security.
(See also Asset Class). |
| Long Position |
A Long Position is where an investor or fund manager owns a debt or equity security with the intention of holding the security for income or longer-term capital appreciation.
(See also Short Position.) |
| Managed Fund |
See (Fund). |
| Management Expense Ratio/MER |
The Management Expense Ratio (or 'MER'), usually expressed as an annual percentage figure as a proportion of the Net Asset Value of the Fund, is the amount of an investor's money invested the Fund Manager takes each year to pay for the costs of operating and marketing the Fund.
(See also Fees). |
| Manager |
See (Fund Manager). |
| Market Index |
See (Index). |
| Masterfund |
A masterfund (sometimes also called a mastertrust) is an investment vehicle through which investors can access other underlying Funds - sometimes managed by other Fund Managers. Masterfunds can therefore provide a greater choice of investment options and styles than conventional Funds. Discretionary Masterfunds enable the investor to select from an underlying menu of Funds and Fund Managers. |
| Medium Blend Fund |
Medium Blend Funds own a mixture of medium-sized growth and value companies, or companies which exhibit both characteristics. Medium Blend companies in Australia include those in energy, utilities, and property development. |
| Medium Growth Fund |
Medium Growth Funds own mostly medium-sized companies the fund manager believes will grow more quickly than the sharemarket overall. Medium Growth companies in Australia include those in travel, financial services, and retailing. |
| Medium Value Fund |
Medium Value Funds own mostly medium-sized companies the fund manager believes are overlooked by the market and trading relatively cheaply. Medium Value companies in Australia include those in healthcare and listed property trusts. |
| Minimum Investment |
The Minimum Investment (also called the Minimum Initial Investment) is the minimum amount of money required to invest in a fund. Wholesale funds generally have larger minimum investment requirements than Retail funds.
(See also Retail, Wholesale). |
| Modern Portfolio Theory (MPT) |
Modern Portfolio Theory ('MPT') is a method for assessing the risk and return characteristics of a Fund, seeking to construct an optimal portfolio by considering the relationship between these characteristics and their relationship with the market, especially as measured by Alpha, Beta, and R-Squared.
(See also Alpha, Beta, R-Squared). |
| Morningstar |
Morningstar is a leading global provider of investment research, offering an extensive line of print, software, and web-based products and services. |
| Morningstar Category |
Morningstar Categories group similar funds together by market-cap and investment style, so that funds in the same Category can be considered reasonable substitutes for the purposes of portfolio construction.
(See also Asset Allocation, Legal Status, Benchmark). |
| Morningstar Index |
The Morningstar Index is a measure of the average performance of all the Funds in a Morningstar Category. By comparing the performance of a Fund against the relevant Morningstar Index, investors can see whether their Fund's performance has been above or below the peer group average.
(See also Index). |
| Morningstar Rating |
Morningstar Ratings are a quantitative measure of performance based on a fund's Morningstar Risk-Adjusted Return (MRAR). The Morningstar Rating is calculated within fundamentally-based fund categories, enabling more robust peer comparisons.
(See also Not Applicable (NAp), Morningstar Risk Adjusted Return) |
| Morningstar Recommendation |
The Morningstar Recommendation, from 'Highly Recommended' to 'Avoid', provides a clear, actionable distillation of our fund analysts' views about an investment strategy. The Morningstar Recommendation signals the extent to which Morningstar recommends the investment strategy for advisers to consider using in client portfolios. |
| Morningstar Risk Adjusted Return (MRAR) |
The Morningstar Risk Adjusted Return (MRAR) is motivated by expected utility theory, according to which an investor ranks alternative portfolios using the mathematical expectation of a function - called the utility function. Hence risk adjusted returns are based on assumed investor preferences, in which higher return is 'good' and higher risk is 'bad' under all circumstances. |
| Morningstar Stock Sector |
Morningstar has introduced a sector classification structure for Australian managed funds' stockholdings. The structure is modelled on our established, well-regarded global stock sector classifications, customised to take account of Australian investment market conditions.
The classification structure divides companies listed on the Australian sharemarket into three 'Super Sectors': the Service Economy, the Information Economy, and the Manufacturing Economy.
- The Service Economy sector has four industry subsectors: Healthcare Services, Consumer Services, Business Services, and Financial Services.
- The Information Economy sector has four industry subsectors: Software, Hardware, Media and Telecommunications.
- The Manufacturing Economy sector also has four industry subsectors: Consumer Goods, Industrial Materials, Energy, and Utilities.
|
| Morningstar Style Box |
The Morningstar Style Box is a unique graphical tool showing a fund's true investment style and market capitalisation. Style Box shows you at a glance exactly what a fund's investing in, and its predominant style characteristics, which you can use to build and manage more diversified and style-controlled portfolios.
Style Box is a nine-square grid which, using a fund's underlying securities holdings, plots both the fund's predominant investment style characteristics - either value, growth, or a blend of the two - and market capitalisation - primarily small-, mid-, or large-cap stocks. The darkened square shows the fund's 'centre of gravity' in style and market-cap characteristics. |
| Morningstar Ticker |
See (Fund Code). |
| Mortgage Trust |
Mortgage Trusts provide an investment vehicle where securities backed by mortgages are pooled together to form an income stream to the underlying investors. Mortgage securities are a relatively recent innovation designed to facilitate a secondary market and to provide liquidity to otherwise relatively illiquid investments in mortgages by financial institutions.
(See also Liquidity). |
| Multisector Aggressive |
Subcategories for Multisector Funds with exposure of over 80 percent in growth Assets. |
| Multisector Balanced |
Subcategories for Multisector Funds with exposure over 40 percent and up to and including 60 percent in growth Assets. |
| Multisector Conservative |
Subcategories for Multisector Funds with exposure of up to and including 20 percent in growth Assets. |
| Multisector Fund |
Multisector Funds, also called Balanced, are Funds which invest in more than one Asset Class. Morningstar classifies Funds in a Multisector category if, apart from cash, the Fund is exposed to at least one growth sector and one other sector (except in cases where there is exposure to only one growth asset class apart from cash in the two instances described below), or if the Fund is exposed to one growth sector and Australian cash, and the cash exposure is 20 percent or greater. This definition is, like all other classification exercises, subject to the application of discretion by Morningstar. |
| Multisector Growth |
Subcategories for Multisector Funds with exposure of over 60 percent and up to and including 80 percent in growth Assets. (However, if there are insufficient Funds to create an Aggressive Subcategory, then the definition of the Growth Subcategory is over 60 percent in growth Assets.) |
| Multisector Misc |
This is for all Multisector Funds which cannot be classified into any of the Morningstar Multisector Subcategories. |
| Multisector Moderate |
Subcategories for Multisector Funds with exposure over 20 percent and up to and including 40 percent in growth Assets. |
| Multi-Strategy |
Hedge fund strategy where the fund manager offers investors exposure to several different hedge fund investment tactics. In most of these cases, all the assets are managed in-house at the hedge fund, but the assets may be divided between multiple portfolio managers, each of whom focuses on a different strategy. An investor's exposure to different tactics may change slightly over time in response to market movements.
See (Hedge Fund). |
| Net Assets |
The net assets of the mutual fund, recorded in millions of dollars. Net-asset figures are useful in gauging a fund's size, agility, and popularity. They help determine whether a small company fund, for example, can remain in its investment-objective category if its asset base reaches an ungainly size.
Note: The total assets of a fund are the combined net assets of all the share classes for that fund. |
| Net Assets ($Mil) |
A Fund's Net Assets is the total current value of money invested in the Fund, generally expressed in millions of dollars. |
| Nil Entry Fee (NEF) |
Nil Entry Fee Funds do not charge an Entry Fee to invest in the Fund.
(See also Entry/Exit Fee, Fees) |
| Non-Tax-Paying Funds (NTP) |
Non-Tax-Paying Funds, as their name suggests, are Funds which do not make provision for taxation. |
| Not Applicable (NAp) |
Not Applicable means that a piece of information does not apply to the Fund in question. For example, if a Fund was only launched two years ago, then the Fund would not have a long enough history for a three-year return, so the column for three-year return would show 'NAp'. |
| Objective, Investment |
A Fund's Investment Objective defines what the Fund's goals are - what it is intended to achieve - and therefore determines what kinds of Assets the Investment Manager will invest in to achieve those goals. The Investment Objective is a good way for investors to assess whether the Fund is suitable to meet their investment needs and goals. |
| Open Fund |
Open Funds are Funds which are open to new investment.
(See also Closed Fund, Finalised Fund). |
| Opportunistic Strategy |
An Opportunistic investment strategy is one in which an investor or fund manager moves investments between different asset classes and investments on the basis of assessment of which have the greater potential to deliver superior returns at a particular point in time. |
| Ownership Zone |
Traditionally, Morningstar has used the Equity Style Box to classify funds based on their underlying holdings. However, to offer a more complete picture of how the fund’s holdings are distributed, Morningstar has developed Ownership Zones.
Ownership Zones are the shaded area of the Style Box, intended to be a visual measure of a fund's style scope - that is, the primary area of ownership on the Style Box. Some key points:
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Ownership Zones for Funds
The style and size scores for stocks and funds are the building blocks for the Morningstar Ownership ZoneSM. A fund's Ownership Zone is derived by plotting each stock in the fund's portfolio within the proprietary Morningstar Style Box. The shaded area represents the center 75% of the fund's assets, and it provides an intuitive visual representation of the area of the market in which the fund invests. A "centroid" plot in the middle of the Ownership Zone represents the weighted average of all the fund's holdings.
Calculating the Centroid
The fund centroid, appearing in the center of the Ownership Zone, represents the weighted average of all the fund’s holdings. The centroid’s position is used to assign a fund to one of the nine Style Box categories.
A fund's size (its y or vertical placement) is determined by calculating the asset-weighted size score of the size scores. Likewise, a fund's style (x or horizontal placement) is determined by calculating the asset-weighted average of the stocks’ net value/growth scores.
The plot of the resulting style and size score on the Style Box grid is called the centroid. Here's the calculation for x and y (same for both):
y = sum(yi*wi)
Where:
yi= size score for ith stock
wi = style score for ith stock.
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Using the Ownership Zone
Observing where the Ownership Zone falls within the Equity Style box is useful because many funds which appear similar in size and style may actually include quite different security types. For example, it’s expected that a fund holding mainly large-cap growth stocks would behave differently than one containing both large-and mid-cap value stocks, yet both funds might be classified as large-cap growth.
Over a period of time, the shape and location of a fund’s or portfolio's Ownership Zone varies. This movement is a good indicator of how consistent a fund’s style is.
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| Performance Fee |
A Performance Fee is a fee which a fund manager earns by achieving predetermined conditions such as producing returns greater than a certain amount above a market benchmark index.
(See also Hurdle Rate.) |
| Pool Net Assets $mil |
Pool size represents the asset size in dollars of a pool of funds. For example, a Fund Manager may have more than one funds assets invested in the same stocks, therefore the entire value for all funds in the pool is added to show the pool size. The Net Assets $mil is a breakdown of the pool size per fund. |
| Portfolio |
A Portfolio is a group of Assets or Funds owned by an individual or organisation. |
| Portfolio Manager |
The Portfolio Manager is the individual responsible for managing the Assets of a Fund, primarily the buying and selling decisions intended to generate Returns. In most cases the Portfolio Manager is an employee of the Investment Manager.
(See also Investment Manager, Fund Manager). |
| Price Date |
The Price Date is the date of the latest Entry/Exit Prices for a Fund recorded on Morningstar's database.
(See also Entry/Exit Price). |
| Price/Earnings (P/E) Ratio |
The P/E Ratio is a valuation measure that divides the company’s share price by its pre-abnormals earnings per share. On the Main View for each company and also in the Price Sensitive Measures section, we calculate the P/E Ratio as the closing share price at the last trading day divided by the pre-abnormals earnings per share for the last full financial year. In the Annual Financials Ratio Analysis section, the P/E Ratio is calculated as the closing share price on the last day of the company's financial year divided by the pre-abnormals earnings per share. In the Interim Financials Ratio Analysis section, the P/E Ratio is calculated as the closing share price at balance date divided by two times the pre-abnormals earnings per share for the half year period.
Generally speaking, the higher the P/E Ratio, the more investors are paying and the greater the expectations for earnings. The P/E Ratio is a shorthand way of saying that a share is selling at so many times its actual or anticipated earnings. |
| Product Disclosure Statement |
The Product Disclosure Statement is the legal document lodged with the Australian Securities and Investments Commission which defines the status of a Fund. A Product Disclosure Statement must be issued when Funds are offered to the public. |
| Product Size |
Product Size represents the asset size in dollars of individual fund. |
| Property Trusts, Listed |
An investment vehicle which owns a portfolio of real property. However different to Unlisted Property Trusts, in the sense that Listed Property Trusts (LPTs) are quoted on the stock exchange, with price movements resulting from fluctuations in supply and demand for the listed security.
(See also Asset Class). |
| Property Trusts, Unlisted |
An investment vehicle which owns a portfolio of real property. Unlisted property trusts are transacted directly with the trust's manager who fixes the prices in relation to the established value of the property holdings, with adjustments for expenses.
(See also Asset Class). |
| Prospectus |
The Prospectus is the legal document which defines the status of a Fund. A Prospectus must be issued and lodged with the New Zealand Securities Commission when Funds are offered to the public. |
| Quartile |
A Quartile is the division of a sample into four numerically equal groups. If a Fund's Return is described as being 'first' or 'top quartile', this means the Fund's Return has been in the highest 25 percent of the sample; second quartile means in the second 25 percent; and so on. |
| R Squared |
Reflects the percentage of a fund’s movements that can be explained by movements in its benchmark index. An R-squared of 100 indicates that all movements of a fund can be explained by movements in the index. Thus, index funds that invest only in S&P 500 stocks will have an R-squared very close to 100. Conversely, a low R-squared indicates that very few of the fund’s movements can be explained by movements in its benchmark index. An R-squared measure of 35, for example, means that only 35% of the fund’s movements can be explained by movements in the benchmark index.
Benefits
R-squared can be used to ascertain the significance of a particular beta. Generally, a higher R-squared will indicate a more reliable beta figure. If the R-squared is lower, then the beta is less relevant to the fund’s performance.
Origin
All MPT statistics (alpha, beta, and R-squared) are recalculated on a monthly basis based on a least-squares regression of the fund’s returns compared with the returns of the fund’s benchmark index. Morningstar deducts the current return of T-bills from the total return of both the fund and the benchmark index. |
| Regular Savings Plan |
Regular Savings Plan is where a Fund has the option available of investing amounts of money on a regular basis. |
| Reinvestment Fee |
See (Fees). |
| Relative Value Strategy |
A Relative Value investment strategy is one in which an investor or fund manager attempts to take advantage of relative pricing discrepancies between different assets such as equities, debt securities, options, and futures. |
| Retail |
Retail funds are those Funds generally designed for individual investor access, without requiring large Minimum Investments.
(See also Minimum Investment, Wholesale). |
| Return |
The Return is the amount - usually expressed as a percentage figure - earned by a Fund over a specific time period. Morningstar calculates Returns for Funds as net (minus) ongoing Fund expenses (including the Management Expense Ratio), but excluding any Entry/Exit Fees.
(See also Average Return, Financial Year Total Return, Growth Return, Income Return, Total Return). |
| Risk |
Risk measures the possibility that an investment may lose or gain value as compared to an expected rate of return. Often called Volatility and commonly measured by the monthly standard deviation of Returns.
(See also Volatility). |
| Risk Meter |
The Risk Meter is calculated per peer group. The graph start and end points are determined dynamically by retrieving the lowest and highest 3 year standard deviation out of all funds assigned to that peer group. The low, moderate, and high breakpoints are determined by breaking the absolute value between the highest and lowest peer group standard deviations into three equal sections. The Category Average (i.e. Peer Group mean standard deviation) and individual fund standard deviation are then plotted on the scale. |
| Risk Relative Category |
The Risk Relative to Category compares the standard deviation of the fund to the mean standard deviation of all the funds in its peer group. The resulting score reveals whether the fund's risk, as defined by its standard deviation, is the approximately the same, higher or lower than the average risk of its peers. |
| Rolling Return |
See (Average Return). |
| Sector-Based Strategy |
A Sector-Based investment strategy is one in which an investor or fund manager invests solely in a particular sector of the economy or group of related industries, such as technology, healthcare, or financial services companies. |
| Self-Managed Superannuation Fund |
A Self-Managed Superannuation Fund is a Fund for which investment decisions are taken by the retiree. |
| Short Position |
A Short Position is where a fund manager or investor has sold a borrowed security in anticipation of being able to repurchase the security at a later date at a more favourable price.
(See also Long Position.) |
| Small Blend Fund |
Small Blend Funds own a mixture of smaller-sized growth and value companies, or companies which exhibit both characteristics. Small Blend companies in Australia include smaller mining and exploration, financial services, and industrials companies. |
| Small Growth Fund |
Small Growth Funds own mostly smaller-sized companies the fund manager believes will grow more quickly than the sharemarket overall. Small Growth companies in Australia include smaller consumer staples, consumer discretionary, and information technology companies. |
| Small Value Fund |
Small Value Funds own mostly smaller-sized companies the fund manager believes are overlooked by the market and trading relatively cheaply. Small Value companies in Australia include smaller industrials, materials, and resources companies. |
| Spread |
Spread is the gap between bid and ask prices of a stock or other security. |
| Standard Deviation |
Standard deviation is the statistical measurement of dispersion about an average, which depicts how widely a stock or portfolio’s returns varied over a certain period of time. Investors use the standard deviation of historical performance to try to predict the range of returns that is most likely for a given investment. When a stock or portfolio has a high standard deviation, the predicted range of performance is wide, implying greater volatility.
Benefits
If the returns for a stock or portfolio follow a normal distribution, then approximately 68 percent of the time they will fall within one standard deviation of the mean return, and 95 percent of the time within two standard deviations. For example, if the mean annual return is 10 percent and the standard deviation is 2 percent, you would expect the return to be between 8 and 12 percent about 68 percent of the time, and between 6 and 14 percent about 95 percent of the time.
Origin
Morningstar calculates standard deviation for stocks and portfolios using the trailing monthly total returns for the appropriate time period. All of the monthly standard deviations are then annualized.
For the Pros
Morningstar first calculates the monthly standard deviation and then annualizes it to put it in a more useful one-year context. |
| Status |
A Fund's Status denotes whether the Fund is open or closed to new investment. (A Fund's status may also be Finalised, Suppressed, Suspended, or Private.) |
| Strategic Asset Allocation |
Strategic Asset Allocation is the mixture of Asset Classes within a Portfolio, designed to meet longer-term investment objectives. Morningstar's Strategic Asset Allocation is determined annually.
(See also Asset Allocation, Tactical Asset Allocation). |
| Style Box, Morningstar |
The Morningstar Style Box is a unique graphical tool showing a fund's true investment style and market capitalisation. Style Box shows you at a glance exactly what a fund's investing in, and its predominant style characteristics, which you can use to build and manage more diversified and style-controlled portfolios.
Style Box is a nine-square grid which, using a fund's underlying securities holdings, plots both the fund's predominant investment style characteristics - either value, growth, or a blend of the two - and market capitalisation - primarily small-, mid-, or large-cap stocks. The darkened square shows the fund's 'centre of gravity' in style and market-cap characteristics.
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| Superannuation Fund |
A Superannuation Fund is a Fund generally designed to produce retirement income. |
| Superannuation Trust |
A Superannuation Trust is a Fund generally designed to produce retirement income. Unlike Australia, investing in Superannuation Trusts to provide retirement income is not mandatory. |
| Switching Fee |
See (Fees). |
| Tactical Asset Allocation |
Tactical Asset Allocation is the process by which a Portfolio's Asset Classes are readjusted to take advantage of short-term variations in the potential Returns from different Asset Classes, in light of expected market circumstances. Tactical Asset Allocation is often used to switch a Fund or investor's money away from one Asset Class to another over the short-term, in the belief that one Asset Class will outperform the other. Morningstar's Tactical Asset Allocation is readjusted quarterly.
(See also Asset Allocation, Strategic Asset Allocation). |
| Term Allocated Pension |
A Term Allocated Pension is a Legal Type through which a retiree invests a lump sum of original capital and then draws down an annual amount as income. If this amount is more than the investment earnings, the difference is made up by taking money out of the initial lump sum of original capital. Unlike a traditional Allocated Pension, a Term Allocated Pension offers a greater degree of flexibility to retirees who can gain access to a partially asset test-exempt income stream.
(See also Allocated Pension). |
| Top Down Investing |
The 'top down' approach to investing is to begin the process of choosing Assets with an analysis of the economy and the equity markets. This analysis would result in the selection of certain markets or industries which it is believed will fare better than others. 'Top down' investing is often combined with 'bottom up' investing at the level of selecting actual Assets, i.e. having established which sector or industry they want to invest in, detailed research will be conducted on individual securities.
(See also Bottom Up Investing). |
| Total Return - Managed Funds |
The Total Return is a Fund's Income Return plus the Growth Return.
(See also Average Return, Growth Return, Income Return, Return, Cash Distribution). |
| Tracking Error |
Tracking Error is the measure of the extent to which a Fund follows its Market Index.
(See also Index). |
| Trail |
A Trail is a regular payment made by a Fund Manager to an investment adviser whose clients are invested in the Fund Manager's Funds. The Trail is designed to encourage the adviser to stay in contact with the client, and to encourage the client to remain invested in the Fund Manager's Funds. |
| Trailing Total Return |
See (Total Return). |
| Trustee Fee |
See (Fees). |
| Unit Price |
Unit Price is another word for Entry or Exit Price.
(See also Entry/Exit Price). |
| Unit Trust |
A Unit Trust is a Fund (pooled investment) which offers and redeems units under a trust deed.
(See also Entry/Exit Price, Unitholder). |
| Unitholder |
A Unitholder is someone who owns units in a Fund. |
| Unlisted Property Trust |
An investment vehicle which owns a portfolio of real property. Unlisted property trusts are transacted directly with the trust's manager who fixes the prices in relation to the established value of the property holdings, with adjustments for expenses.
(See also Asset Class). |
| Value |
Value is an investment style which seeks to invest in companies at a price which is low relative to the intrinsic value of the company, and to the valuation the market has placed on similar companies. The approach generally aims to acquire Assets at bargain prices and sell them when the valuation level rises.
(See also Growth). |
| Value Fund |
A Value Fund is predominantly invested in value stocks - stocks the market is currently undervaluing in price relative to the stock's earnings and sales compared to those of other stocks in the region.
(See also Blend Fund, Growth Fund). |
| Volatility |
A Volatile Fund is one whose Returns have varied significantly over time.
(See also Standard Deviation, Risk). |
| Wholesale |
Wholesale Funds usually require relatively large Minimum Investments, and often have correspondingly lower Fees and charges, depending on the amount of money being invested.
(See also Retail). |
| Wrap Account |
A Wrap Account is a type of investment service by which investors hold Assets through a custodian. These can include Masterfunds, Funds, and direct Assets such as Bonds and Equities. |
| Yield |
The Yield is the annual rate of return received on an Asset, usually expressed as a percentage of the market price of the security. |
