Glossary


Debtor risk	See credit risk.
Delta of an option	The delta of an option is a measure of sensitivity which indicates the extent to which an option participates in the movement of the underlying instrument (e.g. the SMI). If an option on a Swiss equity has a delta of 0.4 (or 40%), it gains CHF 0.40 for each Swiss franc that the share price rises and loses CHF 0.40 for each Swiss franc that the share price falls. The delta of an option only remains constant when there are very small movements in the underlying instrument and can in any case only be indicative as its value is largely dependent on the underlying and the option’s term to maturity.
Delta-adjusted exposure	The delta-adjusted exposure to an underlying instrument (e.g. the SMI) is equal to the sum of the weighted deltas (see delta of an option) of all individual options which are held in the portfolio plus all equity investments. This figure indicates the extent to which the portfolio as a whole will participate in stock market movements. If, for instance, a portfolio has a delta-adjusted equity exposure of 30%, this means that the portfolio as a whole will change by 30% of any movement made by the equity market. If the stock market goes up by 2%, the value of the portfolio as a whole will rise by 0.6% (30%*0.2% = 0.6%). Like the delta, the delta-adjusted exposure only remains constant when there are very small movements in the underlying instrument and is in any case only indicative since its value is largely dependent on the underlying and the option’s term to maturity.
Derivatives	Financial instruments, such as options or futures, which are derived from underlying instruments, frequently equities or foreign exchange. In portfolio management, derivatives can be used to reduce the risk of capital losses.
Direct yield	Distribution per unit as a percentage of the market price.
Discount	For real estate funds, the difference between the market price and the (higher) net asset value of a unit expressed as a percentage. As opposed to premium.
Discount rate (DCF method)	The discount rate consists of various general and property-specific components: 1. Basic interest rate (basis, low-risk investment opportunity) 2. Risk premium for real estate in general 3. Premium for building type (residential building, business premises, etc.) 4. Discount or premium for macro location 5. Discount or premium for micro location
Discounted cash flow (DCF)	The dynamic valuation method recognised in Switzerland - based on the discounted cash flow (DCF) - is also used for UBS Real Estate Funds. For this purpose the potential yield of the property to be valued is determined on the basis of future income and expenditure. The basis for the forecasts is formed among other things by property statements for recent years, the current rental situation and anticipated inflation. The net cash flows calculated in this way are discounted, and the sum of the discounted net cash flows and the residual value equals the fair market value (corresponds to the value in accordance with DCF). This figure is determined once a year for all fund properties by independent appraisal experts.
Distribution	The annual distribution of income generated by the fund to the unit holders. See also reinvestment, continuous.
Distribution fund	An investment fund which distributes the income generated to its unit holders. As opposed to a reinvestment fund.
Diversification	The distribution or spread of investments across a variety of different individual stocks, sectors, countries and currencies. Diversification, or the spreading of risk - a characteristic common to all investment funds - is regarded in modern portfolio theory as the key factor in reducing risk. Systematically distributing investments over a number of securities spreads risk so that the total risk of a portfolio is significantly lower than that of the individual securities. Should investments also be diversified across various investment instruments, equities, bonds, money market paper, risk is reduced once again compared to a pure equity portfolio. Finally, spreading investments across a wide geographical area leads to a further reduction in risk. Interestingly, a portfolio’s return potential increases with geographical diversification, e.g. adding foreign equities to a Swiss equity portfolio. Hence, security-conscious investing always requires systematic international diversification. A broad diversification with dozens or hundreds of individual stocks is only possible with substantial assets or investment funds.
Dividends	The share of a company’s net profit distributed on equities, participation certificates, cooperative shares or dividend-right certificates.
Domestic bonds	Bonds issued by domestic borrowers in their own currency on their home market.
Double taxation agreement (DTA)	International treaties which Switzerland has concluded with other countries to ease or prevent double taxation. Double taxation occurs when a taxpayer is taxed for the same taxable object or tax process by two different governments. A DTA may make it possible for the withholding tax deducted in Switzerland to be reclaimed, in whole or in part, by foreign investors (investors who are not tax residents in Switzerland) on their tax returns.
Duration	The duration represents the length of time for which capital is “tied-up” in a bond investment. In contrast to residual maturity calculations, the concept of duration takes account of the time structure of returning cash flows (such as coupon repayments). The average duration of the portfolio is derived from the weighted average duration of the individual securities. The “modified duration” is derived from the duration and provides a measure of the risk with which the sensitivity of bonds or bond portfolios to interest-rate changes can be estimated. A 1% increase (decrease) in the interest level accordingly produces a percentage fall (rise) in the price in proportion to the modified duration. For example: the modified duration of a bond fund is 4.5, the theoretical yield to maturity is 5.3%. If the yield drops by 1% to 4.3%, the fund price increases by around 4.5%.
Dynamic floor funds	See capital preservation funds.

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