MUTUAL FUND ASSOCIATION OF TRINIDAD AND TOBAGO
"STRENGTHENING THE ENVIRONMENT FOR INVESTOR CONFIDENCE"

Useful Investment Terms

Asset Category – The type of asset that the fund invests in according to its investment objective. These may include equity, fixed income, real estate or balanced.

Assets Under Management (AUM) – This is a fund’s total assets less it’s total liabilities. This term is synonymous with Net Asset Value (NAV).

AUM - See “Assets Under Management”

Balanced Fund – A fund with a diversified portfolio. This will include holdings in equity, fixed-income instruments and real estate. It may also include investments in alternative assets.

Benchmark – A comparative return against which a fund’s performance can be judged.

Benchmark Peer Group Average – The arithmetic average benchmark with respect to a specific characteristic of a Peer Group.

Benchmark Strategy – The strategy of the respective benchmark.

Bid-Bid Return – The holding period return calculated using the ending bid price and the opening bid price

Bond Equivalent Yield (BEY) – This is effectively the holding period return annualized. It however doesn’t recognize the impact of compounding.

Closed-End – A fund which is listed on an exchange such that there is a fixed number of units outstanding so that investors must purchase units from other investors via a market. 

Correlation - See “Pearson Correlation Coefficient”

Direct Fees – These are fees extracted directly from the fund’s assets under management. They include management fees, administration fees and distribution fees.

Distribution – A payment made by the fund to unit holders at the discretion of management.

Domicile – This is the location where the fund is registered. It usually refers to the country.

Effective Annual Return (EAR) – This is effectively the holding period return annualized. It recognizes the impact of compounding.

Equity Fund – A fund which invests primarily in shares listed on a recognized stock exchange. Investments may also be made in equity derivatives.

Excess Return – The holding period return less the risk free rate for the equivalent time period.

Fixed Income Fund – A fund which invests primarily in fixed-income instruments. These include, but are not limited to, bonds, notes, bills, commercial paper and reverse repos. Investments may also be made in fixed-income derivatives.

Fixed NAV Fund – A fund with a Fixed NAV returns a shareholder initial subscription on redemption. The NAV is quoted frequently, but does not change from day to day. Returns to the investor are generally derived entirely from distributions.

Floating NAV Fund – A fund with a Floating NAV fluctuates in value and in the event of redemption, returns the unit-holders proportional share of the market value of the fund.

Fund Class – The units within a fund may have different rights attached to them. Each specific set of rights attached to a respective set of units is called the Fund Class.

Holding Period Return (HPR) – This is the rate of return over any period of time. It is usually calculated as the Bid-Bid Return with the Reinvestment of Distributions. See the methodology for further details on the calculation of this figure.

Inception Date – The date on which a fund begins operations. Also known as the Launch Date.

Indirect Fees – These are fees deducted when an investor purchases or redeems shares in the fund. They may also take the form of a bid-offer price spread.

Investment Manager – The party responsible for the allocation of the assets of a fund. The Investment Manager operates within the guidelines of the Prospectus.

Launch Date - See “Inception Date”

Long-term – Any length of time equal to or greater than thirty six (36) months.

Net Asset Value (NAV) – The total value of assets of a fund less its total liabilities. It can also be viewed as the value of the fund owned by unit-holders.

Bid-Offer Return – The holding period return calculated using the ending bid price and the opening offer price

Open-End – A fund where there is no restriction for entry and exit. However, a holder may still face penalties. For example, they may pay an early exit fee.

Pearson Correlation Coefficient - A measure of the relationship of connection between two securities. It is a number ranging between -1 and +1. Perfect correlation (+1) implies that the two securities move in lockstep in the same direction. Perfect negative correlation (-1), implies that the two securities move in lockstep in opposite directions.

Peer Group – A collection of funds which operate according to a similar mandate/objective. Usually they are funds with the same asset class and currency.

Population Standard Deviation - A measure of volatility or variation computed as the average square deviation from the mean divided by the number of observations.

Primary Class – The main class within a fund. This is usually determined by the class within the most assets/which has the most subscriptions.

Primary Currency – The dominant currency of a fund. This is the currency which the fund uses to receive subscriptions and pay redemptions and/or distributions.

Property Fund – A fund which invests mainly in real estate and/or real estate investment trusts. These funds usually seek gains through rental income and appreciation in market value.

Prospectus – A document which states the overall policies and restrictions of a fund.

Rate Type Distribution – A distribution based on a percentage. This rate is usually annualized.

Redemption - The process by which an investor sells units in a particular open-end fund.

Reinvestment of Distributions – The process of reinvesting distributions paid. This is based on the prevailing Net Asset Value the day the distribution is made.

Risk Free Rate (RFR) – The return on an instrument whose issuer is considered to be default-free. This will generally be a short-term government security, such as a Treasury Bill.

Sample Standard Deviation - A measure of volatility or variation computed as the average square deviation from the mean divided by the number of observations less one

Sharpe Ratio – The ratio of the arithmetic average of the monthly holding period returns to the volatility of monthly excess returns. In
general, the trailing 36 months are used.

Short-term - Any length of time equal to or less than twelve (12) months.

Sponsor – The underwriting company that sells and redeems shares in the mutual fund. The term Sponsor is synonymous with a Distributor. The role of the Sponsor/Distributor is outlined in a Sponsor/Distributor Agreement.

Sub-Peer Group – A subset of a fund’s peer group.

 

Source: Useful Investment Terms taken from Valuehorizon; Caribbean Mutual Fund Journal; December 2013.