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ETF GlossaryMost important terms and phrases
Learn more about relevant terms concerning ETFs in our glossary.
A style of investment management where the fund manager aims to outperform a benchmark by superior asset allocation, market timing or stock selection (or a combination of these). Compare with passive management.
A fund's alpha is its outperformance relative to a benchmark. It is often used loosely to describe the amount of investment return an active manager adds from their management of the fund. If a fund has a consistently high alpha this can indicate skilful management. For example if the benchmark returns 12% and the portfolio returns 14%, the outperformance (alpha) is equal to 14% - 12% = 2%. Compare with beta.
Annual report/semi-annual report
For each fund it manages, the management company publishes an audited annual report within four months of the close of the financial year and an unaudited semi-annual report within two months of the end of the first half of the financial year. The annual report contains e.g. the annual financial statements, the statement of changes in the fund's net assets, the structure of the portfolio and the auditor's report. The semi-annual report contains the most important half-year results.
Exploiting price differences in the same securities or related assets - be it locally or internationally - whereby the securities are bought on the market offering a lower price and sold on the market offering a higher price.
The strategic investment of the available assets in different asset classes, such as money market instruments, bonds, equities, real estate, etc. The portfolio is also broken down by sector and according to geographic and currency criteria.
A collective term for investments of a similar type with a unique combination of investment characteristics. The main asset classes are equities (shares), bonds, cash and real estate.
See portfolio manager.
The net assets of a fund divided by the number of units in circulation.
An organisation independent of the fund management company and the custodian bank which regularly monitors compliance with the legal regulations. Auditors must be recognised by the supervisory authorities, which in Switzerland is the Federal Banking Commission.
Weighted average time in years for which each a unit of unpaid principal on an investment remains outstanding. The longer capital from the original investment is held (longer average life), the longer it is exposed to risks like inflation, interest rate risk or credit risk.
Average residual term to maturity
The residual term to maturity is the remaining life of a bond up to its final due date. In a fund, the average residual term to maturity is calculated from the weighted residual maturities (weighted according to capital invested) of all bonds held in the fund
One hundredth of 1% (i.e. 0.01%). Also referred to as bps.
A market where prices decline against a background of widespread pessimism. Compare with bull market.
Index against which an investment fund's performance is measured. Also called a reference index.
The person or persons who have ultimate rights to the value of an investment or property, as distinct from the registered owner who may be a nominee.
In addition to traditional financial analysis, SRI company analysis also looks for the companies in selected industries that best meet environmental and social criteria (the best-in-class principle).
The duty of an investment firm to take all reasonable steps to obtain, when executing orders on behalf of clients or decisions to deal, the best possible result for those clients taking into account factors such as price, costs, speed, likelihood of execution and settlement, size, nature and any other consideration relevant to the execution of the order.
A measure of risk which indicates the sensitivity of an investment, such as an investment fund, to fluctuations in the market, as represented by the relevant benchmark. For example, a beta of 1.2 tells us that the value of an investment fund can be expected to change by 12% if the market is forecast to move by 10%. The relation is based on historical data and is only an approximation. However, the closer the correlation between the benchmark and the investment fund, the better this approximation. Compare with alpha.
The difference between the price at which financial securities and units in a pooled fund can be sold (bid price) and bought (offer price). Compare with single price.
Term used to describe equities of leading companies with top-class credit ratings, high market capitalisation, strong earnings power and sound financial structure.
Debt instruments with a fixed coupon, at times also with a variable rate of interest and generally with a fixed maturity and redemption date. The most common issuers are major companies, government bodies such as the federal government and the cantons, public institutions and international organisations such as the World Bank or the International Monetary Fund.
Investment funds which invest in bonds and other fixed or variable interest securities. Bond funds generally have a specific reference and investment currency.
Bonds in default
Bonds which do not make their interest payments or redemption on the scheduled due dates.
Book profit /loss
The theoretical profit or loss on an investment due to its rise or fall in value, as long as the investment is not actually sold.
This refers to the liabilities of the fund before liquidation taxes as a percentage of the total fund assets.
A firm that provides investment research and execution services.
A market where prices increase against a background of widespread optimism. Compare with bear market.
See financial year.
An option that gives the buyer the right (but not the obligation) to buy a specified quantity of the underlying instrument at a fixed price, on or before a specified date. Compare with put option.
Cash flow represents the net income earned in a financial year before write-offs and provisions.
The document evidencing ownership of stocks, shares or unit trusts confirming relevant registration details. See also Crest.
A class action arises when a group of investors initiates a legal action against a company or ist directors in respect of alleged negligence or illegal behaviour. The majority of class actions are initiated in the US. The case usually involves a claim for compensation in respect of share price losses in a specified period.
An investment fund in the form of a company (normally a stock company) with fixed capital. A closed-end fund is not obliged to redeem issued units at the request of the unitholder. Units of this type of investment fund may not be sold publicly under Swiss law. As opposed to an open-end fund.
Assets put up as a security that a future financial obligation will not be met. Security for a credit or other liability, usually in the form of something readily convertible into cash, e.g. bonds and shares. UBS ETFs engage in securities lending for select physically replicated ETFs. Before borrowers receive the securities from the ETF (securities lending) they must provide the lender – the ETF – with collateral. The collateral assets serve to secure the borrower's obligations to the lender. The collateral is transferred to a completely separate custody account or collateral account that is ring-fenced from the lender's balance sheet.
Collateral security margin
The margin or difference between the market value of collateral and the credit granted or securities lent. This margin is demanded by the bank or fund to cover itself against any possible decline in the value of the collateral. See also haircut
Collective investment contract
The collective investment contract is the legal basis for the investment fund business in Switzerland. This agreement is concluded between the management company, the custodian bank and the investor. It is the legal basis for the management of the investment fund by the management company on the one hand and for the participation of the investors in the assets of the investment fund on the other. The collective investment contract is embodied by the fund regulations.
Collective investment scheme
A fund in which several investors hold units.The assets are not held directly by each client, but as part of a ''pool''. Unit trusts and OEICs are types of pooled funds.
Amounts paid to brokers for undertaking transations.
Commission de Surveillance du Secteur Financier
The "Commission de Surveillance du Secteur Financier" (CSSF) is the state supervisory authority which monitors the investment fund business in Luxembourg.
A tradeable item that can be further processed and sold. Industrial (metals), agricultural (wool, wheat, sugar) and bulk commodities (coal, iron ore) are examples. It is possible to invest in physical commodities or in derivatives based on commodity prices.
Investment funds which invest the assets primarily in tradable commodities or futures, via a swap.
An investment fund which has no legal personality. By purchasing units, the investor concludes a collective investment contract with the management company and the custodian bank. The unit holder does not have any rights of ownership to the fund assets, but rather a claim to participate in the assets and income of the fund. As opposed to a corporate form.
Bonds which feature a conversion right entitling the holder to convert the bond into shares of the company in question at a certain point in time and at a conversion ratio set in advance. Following the conversion, the bond expires.
In a core/satellite strategy approach, invested capital is divided into a core and smaller individual investments (satellites). The bulk of the capital, the core investment, is invested in broadly diversified investments designed to achieve a stable market return with low risk and with the least possible deviation from the benchmark. That is why standard or blue chip indices are particularly suitable for a core investment. UBS ETFs offer a very straightforward and inexpensive way to implement this approach. The smaller portion of the capital is invested in a flexible manner in multiple satellite investments. The most suitable investments using this approach are those that have the potential to achieve above-average returns, complementing the core investment. They include investments in specific regions (e.g. emerging markets), sectors (e.g. infrastructure), strategies (e.g. mid-caps) and asset classes (e.g. commodities). Because they can be traded both on the stock exchange and over the counter in a quick and cost-effective manner and are available on a wide range of indices, UBS ETFs are suitable for both the core and the satellite component of a core/satellite portfolio.
Strictly speaking, corporate bonds are those issued by companies. Generally, however, the term is used to cover all bonds other than those issued by governments in their own currencies. Therefore the ‘credit’ sector, as it is often known, includes issues by companies, supranational organisations and government agencies. The key feature that distinguishes corporate bonds from government bonds is the risk of default – see credit risk.
An investment fund which has its own legal personality, usually a joint-stock company. The units are issued in the form of equities. The investors are shareholders and have both proprietary and membership rights.
According to an OECD study, corporate governance describes the ways in which mutual responsibilities are distributed between a company's management and its shareholders.
Corporate social responsibility
Corporate social responsibility may be defined as transparent corporate conduct, which is based on ethical values and takes into account the interests of employees, society and the environment, thereby seeking to create sustainable value for the company and its shareholders (Definition: Prince of Wales Business Leader Forum).
A measure of the degree to which the price trends of various investment categories or instruments move in the same direction. The correlation quantifies the strength of the relationship as a figure between -1 and +1. The closer the coefficient is to 1, the stronger the correlation. If the coefficient is -1, the investments and the benchmark move in opposite directions. If the value is 0 there is no correlation.
The other party with whom a transaction is made.
An investment fund which invests primarily in equities of a specific country.
The regular interest payment due on a bond. Expressed as a percentage of the nominal value of the stock.
Annual interest paid out on a coupon
Using creation and redemption procedures, new ETF units are issued and existing units are dissolved. This mechanism allows professional market participants to trade baskets of stocks with the same composition in exchange for ETFs - and vice versa - with the fund company. This makes the ETF units more liquid.
Measurement of the quality of a borrower, particularly in respect of solvency and willingness to pay. The credit rating makes it possible to draw conclusions regarding the quality of bonds and the probability that interest payments will be made regularly and that the principal amount will be repaid at maturity.
The risk of default or downgrade (in terms if credit rating) of the issuer.
Incremental yield over the benchmark risk free government issue.
A service which enables the securities of UK registered companies to be held and transferred between members of Crest without the need for paper-based certificates and transfer forms.
See Commission de Surveillance du Secteur Financier.
Currency risk can be mitigated by hedging using derivatives.
Currency of account
Currency in which the fund's accounts are kept and in which the net asset value and the issue and redemption prices are calculated. Not to be confused with the investment currency or the reference currency.
(1) Also referred to as a swap. An arrangement in which a currency is sold at the spot rate and then immediately repurchased forward or the other way round. Currency swaps are used to hedge currency risks on export credits. See also
Custody is the administration of securities by a financial institution; known as the custodian. The custodian is the primary record keeper of a client’s investments and collects income, processes tax reclaims and provides other services, according to client instructions.
The custodian bank is responsible for keeping the entire assets of the fund in its custody and for the issue and redemption of fund units.
A benchmark specifically constructed by a client rather than using an industry standard.
See credit risk.
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.
The distribution of income generated by the fund to the unit holders.
An investment fund which distributes the income generated to its unit holders. As opposed to a reinvestment fund.
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.
weights selected stocks according to their dividend yields, i.e. higher yielders receive a higher allocation, with the intention of harvesting dividends
The share of a company's net profit distributed on equities, participation certificates, cooperative shares or dividend-right certificates.
Dividend indices follow strict rules in order to safeguard exposure to higher-than-average yielding dividend stocks
The return that the annual dividend of a share represents in relation to the current share price. Calculated by dividing the annual dividend per share by the current market price.
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.
Double taxation relief
Companies or individuals with profits or income arising abroad may suffer withholding tax on amounts remitted to the UK. The profits or income may also be subject to UK tax. A double taxation agreement aims to prevent or give relief for double taxation. It provides that income will be taxed in one country only or, if taxed in both, that one country will allow credit for tax paid in the other.
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%.
Earnings per share (EPS)
A common way of expressing company profits – dividing the profits after tax by the number of shares in issue. Earnings per share is the basis for the calculation of the PE ratio (price/earnings ratio).
Emerging markets or developing markets - mainly in Asia, Eastern Europe and Latin America - that are growing quickly, but whose economies and stock markets have not yet reached Western standards.
Emerging markets fund
An investment fund which invests in emerging markets, such as Asia or Latin America. See also emerging markets.
Economic and Monetary Union. One stage of this was the introduction of the euro.
Investment funds that employ environmental criteria in their decisions.
Securities which evidence an equity interest in a company. As a joint owner, the shareholder has rights of participation (voting right, right to information) and rights to assets (right to a share of profits, subscription rights).
Investment funds which invest their assets primarily in equities. The main categories are country and regional funds, emerging market funds, small and mid cap funds, sector and theme funds, index funds.
Exchange traded fund – a relatively new technique evolved from passive investment. Instead of buying a unit in a tracker fund, investors can “buy” an index in the form of units which are traded on a stock exchange. The price of these units depends on the prevailing market price.
Bonds issued on the Euromarket which are exempt from withholding tax. Eurobond trading is centered in London for tax reasons. See also foreign bonds.
Term used to refer to money markets and capital markets where currencies and securities are traded outside their respective country of origin.
A collective term for the countries participating in the euro.
Literally means ‘before the event’. A forward-looking measure or estimate. Compare with ex-post.
The risk that investors are exposed to due to changes in exchange rates potentially affecting the value of investments. This is applicable when investing in non-domestic investments, i.e. when buying foreign currency denominated shares or bonds. See currency risk.
To clarify who receives the dividend on a share that is sold around the time the dividend is due, a date is fixed when a share goes ex-dividend. Anyone buying after this date will not receive the dividend. A share price will normally fall by the amount of the dividend on the day that it goes ex-dividend. Compare with cum dividend.
The buying or selling of an investment.
A broker who simply executes his client’ orders, without giving any advice. This is the cheapest form of stockbroking and is often done by telephone.
The price at which an option holder has the right to buy or sell the underlying asset. Also known as strike price.
The last date on which an option can be exercised. Also known as maturity date.
Literally means ‘after the event’. A backward-looking measure using historical data. Compare with ex-ante.
Underlying securities. When an investor exposes assets to the influence of uncertain variable (risk factors), the assets are exposed to these factors.
Fonds commun de placement.
The duty imposed by law on the management company and custodian bank as well as on their representatives to act solely in the interests of their investors.
Financial conduct authority (FCA)
The FCA regulates the financial services industry in the UK, with a focus on protecting consumers and promoting effective competition. The two regulatory bodies FCA and the PRA replaced the FSA (Financial Services Authority) on 1 April 2013. See PRA.
Period between one year-end closing and the next. A fund's financial year need not necessarily coincide with the calendar year. Also known as business year.
Debt securities such as bonds, debentures and mortgages. With fixed income assets, you are lending your money to a borrower in return for a steady payment of interest and a promise to repay the amount owing at a future date (also called “maturity date”).
Fixed income securities
Together with money market instruments, bonds are referred to as fixed-income securities because they make regular, fixed-interest payments and repay the principal amount in full at maturity.
Floating rate notes
Securities with variable interest rates.
Bonds issued by a borrower outside its home country and denominated in the currency of the market where the issue is made. See also Eurobonds.
A transaction in which two parties agree to the purchase and sale of a commodity or asset at some future time under such conditions as the two agree.
Under this system, the fund assets are valued on the basis of the previous day's closing prices. As opposed to historic pricing.
In the investment fund business, a fraction of a fund unit.
Full physical replication
The ETF invests in the securities represented in the index in accordance with their index weighting.
Normally at least 95% of a sub-fund's total assets will be invested in component securities of its index and/or exposed to its index by entering into derivatives replicating its index and/or its component securities.
"Fund assets" (also called "net fund assets") is the term used to denote fund assets based on their market values after deduction of liabilities. With real estate funds, mortgage loans and other debts must be deducted, as must the taxes that have to be paid when properties are liquidated.
A fund is domiciled in the country in which the fund is established or registered with the local supervisory authority.
Fund management company
The fund management company administers investment funds for the account of the investors. It may delegate investment decisions and other tasks, but it is liable for actions of its appointed agents as if they were its own actions.
See portfolio manager
In the case of futures, the contracting party is obliged to buy or sell a standardised amount of an underlying instrument at an agreed price on a stipulated future date.
An obligation to make or take delivery of a specified quantity of an underlying asset at a particular time in the future and at a price agreed upon when the contract was made. Exchange-traded futures contracts have standard terms, and are subject to daily margining.
Global Investment Performance Standards set out a voluntary code which aims to achieve fair representation and full disclosure of performance records. This code provides a number of key ethical principles when quoting figures.
Gilt-edged securities; the familiar name given to sterling-denominated marketable bonds issued by the British government.
Gold is potentially attractive as an investment due to its high liquidity, its status as an asset held by central banks, and because it is seen as a good source of diversification for funds and an inflation hedge.
Bonds issued by governments to finance their national budgets.
Appeal to their desire for high earnings potential.
A haircut is applied in order that capital is preserved whilst the asset is sold.
Despite the name, hedging transactions are not the primary purpose of such funds. Since these funds are aimed at generating absolute income, they make investments which conventional funds are not allowed to make (speculation on market declines, short sales, use of derivatives, financing investments by borrowing). This enables hedge funds to record positive returns irrespective of the market situation.
Protecting investments against losses. Hedged UBS ETFs specifically hedge against exchange-rate risks.
Number of the underlyings securities
Illiquid assets are those assets that cannot be easily bought, sold or converted into cash. It may often be impossible to convert the asset to cash until the end of the life of the asset. Illiquid funds are those that take time for investors to trade.
iNAV (indicative net asset value)
The iNAV (indicative net asset value) is an indication of the intraday price of an ETF. It is calculated by taking the last available price of the securities that deliver the performance of the ETF; the price of these securities are then summed, where appropriate cash components are added, and liabilities are subtracted. This then represents the "Total Value" of the ETF, which is subsequently converted into a “per share” value by dividing the "Total Value" by the number of ETF shares issued. It is important to note that the iNAV is not the price at which you can purchase the ETF; however, it does provide a reference point from which to compare the trading price of the ETF offered on exchange.
Interest and dividends.
The distribution of income to unit holders of pooled funds in strict proportion to the number of units held at the ex dividend date.
Property which is built or bought not for the owner's use but as a capital investment.
Indicator of performance on one or more markets. The oldest and best-known stock market index is the Dow Jones. Indexes make it possible to compare the performance of a fund which is invested in a specific market with the development of this market. See also benchmark.
A style of fund management that aims to construct a portfolio to provide the same return as that of a chosen market index. This can be achieved on a full replication or sampling basis or via synthetic replication. Full replication involves buying all the stocks in the index in the same proportions in which they make up the index. Sampling means using statistical methods to choose an appropriate portfolio to best match index performance. Indexation is also known as passive management.
An investment fund which replicates a chosen stock market index in its stock selection and weightings as exactly as possible.
A measure of the increase in prices of goods and services over time. Inflation erodes the real value of an investment’s return.
The information ratio is a measure used to assess an investment fund, and refers to the excess return relative to the tracking error. It is calculated by dividing the fund's return (expressed as alpha) by the fund's risk (expressed as tracking error). The alpha measures the fund's outperformance relative to its benchmark. The tracking error shows the volatility in deviations between the fund's return and that of the benchmark, and is thus a measure of the fund's risk. The higher the information ratio, the more rewarding this makes a strategy that deviates from the benchmark for investors.
A direct transfer of a parcel of stocks from one manager to another. Avoids the need to make sales and purchases and thus saves transaction costs.
An interest rate is a fee paid on capital borrowed. It indicates the price at which you can borrow. For example, when you get a bank loan, the interest rate is the rate you pay and will often depend on how much you want loaned to you.
See net asset value.
Currency in which an investment fund makes its investments. Not to be confused with reference currency or currency of account.
Investment funds are assets solicited through public advertising, pooled by a great number of independent investors for the purpose of collective investment and managed by the fund management for the account of investors and in accordance with the principles of risk diversification.
Term used to denote securities with ratings of between BBB and AAA, indicating that their credit quality is satisfactory or good.
Investment grade bond
Bond of satisfactory to very good quality, for example a government bond or bond issued by a company with a high credit rating (BBB or above). Opposite: high yield bond
Investment grade corporate
A bond issuer is considered investment grade if its credit rating is BBB- or higher by Standard & Poor's or Baa3 or higher by Moody's. These issuers are judged by the rating agencies as likely enough to meet payment obligations due time.
The period of time for which investors want to commit a part of their assets.
The various investment categories such as equities, bonds and money market instruments.
Investment management agreement (IMA)
A document setting out the investment management contract between the fund manager and the client. Contains appropriate legal details and details of investment objectives and benchmarks agreed.
The investment policy describes the approach taken to achieve the investment objective (stock selection, timing, cash holdings, etc.).
The investment principles characterise and define the fund. The investor receives information about the securities held in the portfolio, the investment currency, the geographic mix of the investments and the risk diversification of the investment fund.
Holder of fund units. By purchasing units, the investor acquires the right to participate proportionately in the assets and earnings of the fund.
International Securities Identification Numbering system. The ISIN code is a unique code given to a security and is used worldwide.
Issue of new securities.
Price at which investors can subscribe fund units. It corresponds to the net asset value per unit plus the issuing commission.
Legal entity or public entity which issues securities in order to raise borrowed capital.
The commission charged by the distribution unit to the investor upon subscription of units.
Junk bond fund
See high-yield funds.
Companies with very large stock market capitalisation in relation to the market on which they are traded.
Leading company which is the best in its sector in terms of environmental and social performance.
With derivative instruments, greater returns can be earned with a comparatively low capital investment than with an investment in the actual underlying instrument. This effect is called leverage.
London Interbank Offered Rate. Interest rate at which prime banks will offer to lend money in the London Interbank market.
Units of investment funds enable the unit holders to remain liquid, i.e. they can redeem their units as a rule at any time. The management company is obliged to redeem the units at the current redemption price without any notice of termination.
The admission of a security to official trading on a stock exchange, which is usually subject to the fulfilment of certain criteria.
Rule book for listed companies.
London stock exchange (LSE)
The UK’s main exchange for trading in shares and ETFs
Long and short maturities
Number of years for which a financial instrument remains outstanding. Upon maturity of a fixed income investment, the bond issuer has to pay back the full amount of the outstanding principal, plus any applicable interest to the bond holder. Short maturity is usually thought of as less than 3-5 years, whilst long maturity is usually thought of as longer than 7-10 years.
An investment fund which invests in bonds with a (term to) maturity of at least 5 years.
An investment fund established under Luxembourg law and managed by a management company domiciled in Luxembourg.
In macroeconomics, the development of the economy as a whole is studied. Sectors and regional economic systems are looked at rather than individual economic units.
The charge levied by the management company for the administration of an investment fund. The amount of the fee is expressed in percentage or tenth of a percentage of the fund assets or in basis points. L
Manner in which the investment decisions are made to achieve the investment objective.
The market value of a listed company, corresponding to the current market price of its shares multiplied by the number of all the equity securities in circulation.
Market impact is a measure of each trade’s average execution price versus the volumeweighted average price of the stock for that trading day. It is thus a measure of how the size of the order affects the price at which it is executed.
Someone who offers to buy and sell securities acting as a principal. This contrasts with the operations of a broker who acts as an agent for the investor.
Risk that depends on factors which influence the whole market and which cannot be reduced or excluded by diversifying the portfolio.
Valuing stocks or other financial instruments held against the current market price to determine the paper profit or loss to date.
The current value of a property, assessed by independent experts, which would be obtained were the property to be sold in a conscientious manner at the time of the valuation. Valuations are generally carried out once a year in accordance with the valuation method used by the fund management company.
Period of time from the issue of a bond to its due date or to the premature repayment of the bond. Not to be confused with duration.
At UBS, investment funds which invest in bonds with a (term to) maturity of 3-5 years.
Fixed-income investment instruments issued by banks, with maturities between two and eight years. Bond funds cannot invest in medium-term notes as they are not permitted for official stock exchange trading.
Companies with medium-sized market capitalisation. Also called secondary stocks.
Markets in Financial Instruments Directive. MiFID is an EU Directive that came into force on 1 November 2007 across the European Economic Area (EEA). It aims to harmonise financial markets across the EU to create a consistent approach to the regulation of financial markets. MiFID brought about changes in scope, details and evidential requirements. Some of the key changes MiFID brought in are in the areas of client classification, best execution, suitability, inducements and conflicts of interest.
Weighted average measurable change in the value of a bond portfolio in response to a one-percent change in reference interest rate. Bonds with higher duration have a greater price sensitivity to changes in interest rates.
A general term for the banks and other institutions that accept cash deposits.
Money market funds
Investment funds which invest in short-term fixed-interest paper (less than a year to maturity) in specific currencies.
Money market instruments
Securities with maturities of no more than one year which are traded on the money market. The classic money market instruments in Switzerland are domestic bills of exchange, treasury bills and treasury notes. Key foreign investments include commercial paper and certificates of deposit.
Net Asset Value. Used to describe the value of a company’s assets less the value of their liabilities.
Net asset value
The net asset value of a unit is equal to the net fund assets divided by the number of units in circulation. In the case of securities and money market funds, the net asset value, which is generally calculated daily, is the basis for calculating the issue price and the redemption price. Also called intrinsic value.
Net asset value per share
The market value of the securities and assets held by the fund, less its current liabilities divided by the number of total shares.
The net (fund) assets are the sum of the market values, minus liabilities and the anticipated liquidation taxes (property gains taxes).
Net fund assets
The fund assets calculated at market values less all liabilities.
An investment fund which does not charge any commission on the subscription or redemption of units.
Securities privately placed
See bid-offer spread.
An investment fund with variable capital which can continually issue new units but which must also redeem the units issued upon request at their net asset value.
Optimized physical replication
The ETF invests only in those securities represented in the index that are needed to achieve a performance very close to that of the index.
The buyer of an option acquires the right - but not the obligation - to buy (call option) or sell (put option) a specified amount of a certain underlying instrument at a predetermined price on or by a specified future date. The buyer pays the seller of the option a premium (option price) for this right.
Measure of the price sensitivity of a fixed-income security with an embedded call or put option. The embedded option changes the pay-out profile of the security and usually shortens the duration compared to a fixed-income security without option.
Weighted average incremental yield earned over the similar duration 'risk-free' sovereign bonds, measured in basis points. It measures a premium to compensate an investor for the credit risk associated with a bond portfolio. The metric takes into account the likelihood that the underlying bond will be called (if callable) or prepaid bevore the maturity.
An over the counter (OTC) financial contract is one that is not traded on an exchange but is ‘tailor-made’ for a client by a financial institution.
Investment funds which are neither securities funds nor real estate funds. They may contain investments which have limited marketability, are subject to greater price swings, have a limited diversification of risk or which are difficult to value (e.g. investments in precious metals, commodities, options, forward contracts, units of other investment funds and other rights).
A collateralisation level of more than 100%
A style of investment management that seeks to attain performance equal to market or index returns. Compare with active management.
The agent or bank which is explicitly appointed by the issuer and which is responsible for all ongoing transactions that arise for the owner of the securities concerned, such as the collection of dividends and coupons as they fall due.
Expresses the ratio of cash flow to distributed income, which indicates how much of the funds earned during a business year has actually been distributed.
Total return of an investment expressed as a percentage of its market value at the beginning of the period measured. Performance is composed of price changes plus reinvested income (i.e. dividend distributions in the case of shares and coupon payments in the case of bonds). Performance is always reported in the currency of the fund. For distribution funds, the performance calculation is predicated on a reinvestment of distribution payments.
For non-classical investment funds such as hedge funds, the investor often has to pay, in addition to the conventional management fee, a supplementary performance fee in the form of a percentage (e.g. 20%) of the fund’s annual increase in value. A high watermark is usually set for this amount.
In physical replication, an ETF invests directly in securities held in the benchmark it is tracking. To do so, the ETF can buy all the securities that make up the replicated index - this method is called full replication and is suitable for liquid indices. Alternatively, instead of buying all the securities, it can buy just some of the corresponding underlying instruments. Called "sampling," this can be a useful option if an index is made up of many securities that are not easily traded or are illiquid. Synthetic replication differs from physical replication.
In the investment fund business, the composition of a fund's assets.
Investment specialists who manage the assets of an investment fund. They decide which securities to buy and sell within the defined investment principles. Also called asset managers.
The relationship between risk and return is a key tenet of modern portfolio theory. In principle, a higher return can only be "purchased" for a higher risk. However, the relationship between risk and return may be optimised via a broad spread of investments (diversification). By doing so, a higher return can be generated with the same level of risk, and a lower return can be achieved with a lower level of risk.
The premium is the percentage difference between the current stock exchange price and the net asset value adjusted for the distribution plus the last distribution (proportionate).
P/E ratio. A ratio used to value a company's shares. It is calculated by dividing the current market price by the earnings per share.
The price-to-book ratio is measured as the market value of equity divided by the book-value of equity (common shareholders' equity).
The market on which new securities are launched and enter into circulation.
A start-up company or a young company already in business requires capital, which it seeks from investors and private equity funds. Since these companies are usually ones that are not yet listed on the stock exchange, so-called private markets that receive investment are referred to here.
Prospectus/ fund regulations
The rights and obligations of the contracting parties are defined in the prospectus and fund regulations. In particular, these documents contain guidelines governing investment policy, the use of earnings and the costs the fund and/or the investor have to bear.
A written authorisation given by a shareholder to someone else to vote on his behalf at a company’s annual general meeting (AGM) or special meeting (EGM).
An option that gives the buyer the right (but not the obligation) to sell a specified quantity of the underlying instrument at a fixed price, on or before a specified date. The writer (seller) of the option has the obligation to take delivery of the underlying instrument if the option is exercised by the buyer. Compare with call option.
The measure of the creditworthiness of a borrower by special rating agencies such as Standard & Poor?s or Moody’s. As a rule, UBS bond funds principally invest in bonds issued by prime borrowers.
Real estate funds
Investment funds investing in residential and business properties. UBS real estate funds invest exclusively in Switzerland. These funds enable investors to participate in the real estate sector with just small sums of money without incurring the administrative expenses associated with direct investments.
Post facto calculation of the actual asset value of a property, i.e. the cost of reconstructing a building of the same standard, taking into account the depreciation due to age that has occurred in the meantime and the value of the land.
The commission charged by the distribution unit to the investor upon redemption of units.
Redemption of units / stock-exchange trading
Real estate fund units may be traded daily on the stock exchange or presented to the fund management company for redemption at the end of a financial year subject to a 12-month notice period. The repayment is made two months after expiry of the notice period.
The price at which the fund management is obligated to buy back units, subject to the period of notice prescribed by law (net asset value minus any commission in accordance with the fund regulations).
An investment fund which invests in a specific geographic region (e.g. Scandinavia) or a particular economic area (e.g. Euroland).
An investment fund that continuously reinvests its income in the fund rather than distributing it to unit holders, as opposed to distribution fund. See also tranche.
The continuous reinvestment of the income generated by a fund in the same fund.
Real Estate Investment Trust. An efficient, fully-tradable tax-transparent vehicle for property investment. Originated in the US but now used in other countries.
This investment strategy aims to exploit market inefficiencies. Accordingly, simultaneous investments in long and short positions in strongly correlating portfolios are generally entered into.
In the case of investment funds established under foreign law that can be sold publicly in Switzerland, the representative is the individual or legal entity domiciled in Switzerland that represents the fund vis-à-vis investors and the supervisory authority in Switzerland.
The process of gathering information about economies, markets and individual investments to support investment decisions.
Resource-efficient production uses fewer and/or more environmentally friendly resources. This helps protects the environment and offers financial savings.
Return on equity (ROE)
A method of valuation of company accounts which can determine how a company is spending its money, calculated by dividing a company’s net income by its stockholder equity.
Return on investment
Change in the net asset value of units, assuming that distributions are reinvested at net asset value.
When existing shareholders are given rights to purchase the new shares in proportion to their existing holding. Compare with bonus issue.
In a financial context, the possibility of financial loss, or of returns less than those expected. Such losses could come from market movements (market risk), counterparty or bond issuer default (credit risk), or errors, legal problems or fraud (operational risk). Generally investors deliberately take market risk through investments in risk assets such as equities and bonds. In return for the risk, investors expect higher returns than they would get from a riskless investment such as treasury bills in their home currency.
An investor’s capacity to tie up his money (capital) for a specified period of time without getting into financial difficulties.
An investment with no chance of default, and a known or certain rate of return.
Identifying and quantifying risk, then taking appropriate action to make sure risk remains within acceptable levels. Sophisticated systems and statistical models are required to measure and manage risk, and appropriate expertise to interpret and use the results. With good risk management, an effective balance between risk and returns can be achieved.
The degree of possible price fluctuations that an investor is willing to accept in order to attain a specific investment goal. Risk tolerance and an investor?s need for security are important factors when selecting an investment fund. The higher the risk tolerance, the greater the component of equities and foreign currencies.
Partner of a fund provider who sells the provider’s products to clients and redeems the products from clients.
This form of investment involves the regular payment of a specified amount to accumulate fund assets.
An investment fund which invests its assets solely in securities of companies in a specific sector of the economy.
An investment fund that invests in securities and loan-stock rights that are traded on a stock exchange or on another regulated market open to the public.
The lending of securities against remuneration and on provision of collateral. The lending of a security by the registered owner, to an authorised third party, for a fixed or open period of time, for an agreed consideration secured by collateral. The demand to borrow securities comes mainly from market makers and hedge funds to cover short positions or take arbitrage opportunities. Also referred to as securities lending.
Identification number of securities used in Switzerland to facilitate their trading and transfer. International equivalent ISIN number.
Securities purchase fee
There are certain funds which, owing to their special structure, may charge so-called securities purchase fees in addition to the issuing commission. This commission accrues to the fund and is used to cover the costs arising in the acquisition of securities. The fee is charged for UBS's capital preservation funds.
Securities turnover tax
See stamp duty.
The process of taking a set of underlying assets and repackaging them as a new security.
A generic term for a financial asset such as a bond or equity (share).
Risk of fluctuations in the price of a security.
See annual report.
The completion of a purchase or sale of bonds or shares. The moment when the cash is delivered to the seller and the stock is delivered to the buyer.
Swiss Funds & Asset Management Association
A stake in a company which confers ownership rights on the holder. Shares are also known as equities.
The Sharpe ratio expresses how much higher (or lower) a return an investor can expect compared to the risk-free rate of interest (e.g. interest rates on savings accounts) per unit of risk (volatility). The risk-free rate of interest varies from currency to currency.
The forward selling of financial instruments which the seller does not yet possess, whereby the investment objective is to be able to cover the missing securities at cheaper prices before the delivery date. The risk involved in short selling is that the price of the underlying may rise.
A fund which invests in bonds with a (term to) maturity of 1 to 3 years.
Société d’investissement à capital variable. An investment fund in the form of a joint-stock company with variable capital. The fund’s units are issued in the form of equities. See corporation form.
Shares of companies with a market capitalisation of generally less than CHF 500 million. Also called secondary stocks.
Small/mid cap funds
Funds which invest in shares of companies with relatively small market capitalisation. See also small caps and mid caps.
Socially responsible investing (SRI)
Socially Responsible Investing (SRI) takes into account social aspects of an investment. In general, socially responsible investors encourage corporate practices which explicitly deliberate what are often referred to as ESG factors: environment, social justice, and corporate governance. The SRI investment approach may either focus on the inclusion of certain companies which promote ESG rules, or exclude a set of companies from the broad investment portfolio involved in particular industries deemed as non-compliant-with ESG criteria, such as tobacco, nuclear power or GMOs. Whereas the first approach is typically executed by an SRI fund manager who may provide an individually customized portfolio, the latter investment approach may be achieved by getting exposure to a portfolio of securities filtered from a broad universe, after running through pre-defined ESG compliance filters.
The ability of an organisation to cover its liabilities. Solvency can be determined by using the ‘current ratio’, which divides total current liabilities by total current assets.
A fund which differs from conventional investment funds in that it adopts a special investment approach or focuses specifically on certain countries, industries or investment instruments.
The difference in yield between different types of bonds, for example between government bonds and corporate bonds. Also referred to as yield spread.
For non-Treasury credit securities, the yield is equal to the Treasury yield plus a spread to the Treasury yield curve to compensate for additional credit risk. The price of a bond with credit risk can change even though Treasury yields are unchanged because the spread required by the market changes. The measure of how a non-Treasury issue`s price will change if the spread sought by the market changes is referred to as spread duration. It estimates the price sensitivity of a non-Treasury issue to a 100 basispoints movement (widening/narrowing) in its spread relative to Treasuries. For a Treasury bond portfolio the spread duration is 0. The spread duration for fixed-rate credit bonds equals normal duration.
Subscriptions to investment funds domiciled abroad are subject to stamp duty in Switzerland. Redemptions are exempt from stamp duty. The issue and redemption of units of Swiss-based investment funds are not subject to stamp duty.
Standard deviation is a statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. The greater the degree of dispersion the greater the risk.
Stock exchange price
The price of units of an ETF which are listed on the stock exchange or traded over the counter. The price is governed by supply and demand in the market.
Bonds with a fixed coupon and fixed redemption date.
Strategic asset allocation
The long-term benchmark asset allocation, designed to meet the fund’s risk and return objectives.
Part of an umbrella fund. For investment funds with different subfunds, investors are only entitled to the assets and income of the subfund in which they hold units. Subfunds are also called compartments or segments.
In the fund business, subscription means the acquisition of fund units. As opposed to redemption.
The state body which supervises the activities of management companies. In Luxembourg it is the “Commission de Surveillance du Secteur Financier (CSSF).
Development which meets the needs of the present without compromising the ability of future generations to meet their own needs. (Report of the Brundtland Commission 1987).
A swap is a type of derivative where two parties agree to exchange assets or cashflows over an agreed period. Swaps can be based on equity indices, bonds of different maturities, baskets of securities, individual securities, or interest rates. As with other derivatives, swaps can be used to gain a desired exposure without trading in the underlying assets. Swap-based strategies are offered by some investment banks as potential solutions for reducing pension schemes’ risk relative to their liabilities.
The costs of buying and selling investments in order to implement a change in investment strategy.
In contrast to physical replication, with synthetic replication an ETF does not invest directly in the securities held in the benchmark. Instead it enters into a swap agreement with a counterparty, which promises to pay the return on the replicated index to the ETF. The ETF in turn pays the counterparty with the return from an asset portfolio that it holds, any counterparty risk is typically mitigated through collateralisation, and via the physical payment of the amount owed to the ETF by the counterparty. TIn this manner virtually all counterparty risk that could arise from a swap agreement. In accordance with UCITS regulations, counterparty risk cannot exceed 10 percent.
Tax at source
Tax levied directly at source, for example withholding tax in Switzerland.
Total Expense Ratio
The ratio of total expense to a funds average size over an annualised accounting period. Expenses are taken to include all expenses shown in the income account, including management, administration, custody, audit, legal and professional fees.Total Expense Ratio (TER): this ratio is calculated in accordance with the Swiss Funds & Asset Management Association (SFAMA) "Guidelines on the calculation and disclosure of the TER and PTR" in the current version and expresses the sum of all costs and commissions charged on an ongoing basis to the net assets (operating expenses) taken retrospectively as a percentage of the net assets. If "n.a." is shown instead of the TER, the fund has been launched recently and will show a TER when the first reporting period for the fund has been published.
Term to maturity
Remaining life of a bond from the current date to the final due date or the premature repayment of the bond. Not to be confused with duration.
In the investment fund business, withdrawal of an investor from the collective investment contract. The redemption price is in principle to be paid immediately. Special regulations apply to real estate funds, see redemption of units/stock-exchange trading.
An investment fund which invests in securities which meet a specific criterion (environmentally friendly, ethical commitment, etc.) or which all have the same characteristic (e.g. companies which are undergoing restructuring programmes).
Total cost of ownership (TCO)
The total cost of ownership means the overall charges that arise from buying and using a product. A comparative figure for investment funds and specifically for ETFs is calculated by adding the total expense ratio (TER) and the cost of buying and selling, i.e. stock exchange fees and bid/ask spreads.
Essentially, a combination of capital return and income return. To be precise, the aggregate increase (or decrease) in the value of the portfolio resulting from the net appreciation (or depreciation) of the principal of the fund, plus the net income during the period. This is expressed as a percentage of the value of the fund at the start of the period.
Total return index
Measures the performance of a stated index and assumes reinvestment of all dividends and distributions over a period of time.
Difference between fund and index performance
Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment fund is managed, the smaller the tracking error.The tracking error (TE) is calculated using the annualized standard deviation of a portfolio's excess return over the corresponding index return. The tracking error for a defined period expressed in months is calculated as follows: = STANDARD DEVIATION (monthly excess calculated each month over period expressed in months) * SQUARE ROOT(12 DIVIDED BY period expressed in months).
A fund or subfund may be divided up into several tranches, i.e. with separate securities numbers, which differ from one another in one or a number of factors such as distribution practice, conditions, or fund currency. However, all tranches of a fund/subfund are always invested in the same portfolio.
A measure of the percentage of a fund switched within and into or out of a market sector. To be precise it is defined as the sum of purchases and sales divided by the mean value of the sector or market.
UBS Fund Management (Switzerland) AG
This company serves as the management company of all UBS Investment Funds amd UBS ETFs established under Swiss law and also acts as the representative of UBS foreign-based funds and UBS ETFs in Switzerland vis-à-vis the investors and the supervisory authority.
Undertakings for Collective Investments in Transferable Securities. A UCITS fund is an authorised fund that may be sold across all countries in the EU.
An investment fund which comprises several subfunds. Together the subfunds form one single legal entity, meaning that only the umbrella fund needs to be submitted for authorisation. The subfunds are governed by the same fund regulations and prospectus. Once the umbrella fund has been approved, other subfunds can be created.
A financial instrument (security, currency, index, commodity, etc.), which forms the basis for an option or future.
A unit is a security which evidences the investor's right to participate in the assets and income of the fund in proportion to the units acquired.
Physical certificate which evidences a unit of an investment fund. In general, however, units exist as a book entries only.
A pooled fund established under trust in which investors can buy and sell units on an ongoing basis.
Value stocks (High yield stocks)
Featuring above-average dividend yields and low price-to-book ratios.
Bonds whose coupons change every quarter or every six months in line with the development of the respective reference interest rates. A commonly used reference interest rate is the Libor (London Interbank Offered Rate).
Bonds with a warrant attached. The warrant enhances the holder to buy a specific number of shares of the company in question during the exercise period at a price fixed in advance. Once the warrant is exercised, the bond continues to run until its maturity date.
A certificate giving the holder the right to purchase shares or stock at a stipulated price within a specified time span, or in some cases, forever.
In the case of Switzerland, a 35% federal tax on domestic capital income levied on the distributions of income made by Swiss investment funds. These deductions can be wholly or partly reclaimed depending on the source of the income and the domicile of the investor.
A measure of the income return earned on an investment. In the case of a share the yield expresses the annual dividend payment as a percentage of the market price of the share. For real estate, the yield is the annual rental income as a percentage of the capital value of the asset. For bonds the running yield (or flat or current yield) is the annual interest payable as a percentage of the current market price. The redemption yield (or yield to maturity) allows for any gain or loss of capital which will be realised at the maturity date.
The yield curve represents the relationship between the maturities of bonds traded on the market and their yield to maturity. The yield curve is basically divided into three segments: a short end, a long end and a middle segment (for UBS bond funds, this corresponds to maturities of 1 to 3 years for Short-Term Bond Funds, over 5 years for Bond Funds and 3 to 5 years for Medium-Term Bond Funds). The shape of this curve allows conclusions to be drawn regarding the current state of the bond market. Normally, the curve rises for longer maturities: the investor enjoys higher returns as a result of investing his money over the longer term. If the yields in the shorter-dated segment are higher than at the long end, this is called an inverse yield curve.The fund manager controls the interest-rate risk of the fund according to the positioning of his portfolio on the yield curve. See duration.
Yield on distribution
The yield on distribution is the ratio of distributed income to the current market price.
The difference in yield between different types of bonds, for example between government bonds and corporate bonds.
Yield to maturity
Weighted average rate earned by an investor who buys the bond portfolio today at the market price and holds the bond portfolio until maturity, and assuming that all coupon and principal payments will be made on schedule.
Yield to worst
Weighted average potential rate that can be received on a bond portfolio without the bond issuers actually defaulting.The yield to worst is estimated by making a worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, are used by the bond issuer. Yield to worst may be the same as yield to maturity but never higher.
Bonds that make no interest payments. Instead of interest payments, the buyer of a zero-coupon bond purchases the security at a discount. Redemption is made at 100%.