Glossary

The actual expense ratio is the actual expenses incurred by the portfolio. The AER is the TER plus scrip lending income less brokerage expenses.

A measure of performance in percentage above or below what would have been predicted by risk as suggested by its Beta. Positive alpha means a fund performed greater than its risk would suggest, while negative Alpha means the fund under performed. An ETF of Alpha 1.5 outperformed its index by 1.5% as predicted by its Beta.

Percentage of value of stocks in a portfolio that are sold and replaced with new stocks each year. Turnover in index based products, such as ETFs, should be low.

Lowest price any seller is willing to accept for a security at a given time.

Percentage of holdings in different types of investments, i.e. large stocks, international, bond, etc.

A portfolio of securities comprising all the component securities of the relevant index in the same weighting as they are held on that index.

Funds or portfolios that invest in multiple asset classes such as cash, bonds, property, and equity.

An index or measure of a group of similar funds within a sector that managers use to determine/compare out or under performance of their own funds

A measure of volatility. Beta is a fund’s volatility measured against its benchmark index, normally set at a measure of 1. Therefore, if a fund has a Beta higher than 1, it is moving up and /or down more than the rest of the market. A fund with a Beta of 2 will double to 20 % when the market rises 10 % .

Highest price that any buyer is willing to pay for a security at any given time.

Profits on the sale of stocks determined at time of sale.

Institution established to hold securities and to affect transfer under section 32 of the Securities Services Act, No 36 of 2004 between accounts, typically by book-entry.

A portfolio of securities or other investment assets registered with the Financial Services Board (FSB) under the Collective Investment Schemes Act (2002). Participatory units in the CIS portfolio are offered to investors by the manager of the CIS. Most ETFs are Collective Investment Schemes listed and traded on the Stock Exchange (JSE).

A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

A company’s declared dividends per share as a percentage of its current share price.

The Effective Annual Cost (EAC) is a measure which has been introduced to allow you to compare the charges you incur and their impact on investment returns when you invest in different Financial Products. It is expressed as an annualised percentage.

An ETF is defined as a listed investment product, which tracks the performance of a particular index by physically holding the assets which underlie the index. ETFs are traded on an exchange just like an ordinary share and the price of a particular ETF will be determined by the demand and supply of the ETF.

An ETN is defined as a listed unsecured and/or unsubordinated debt security that tracks the performance of a particular index through synthetic replication as opposed to physically holding the underlying assets of the index it tracks like ETFs do. ETNs are traded on an exchange just like an ordinary share and the price of a particular ETN will be determined by the demand and supply of the ETN.

This act requires that the Administrator establish and verify your identity to prevent money laundering and terrorist financing.

This act controls the activities of anybody who gives advice or provides intermediary services to investors about certain financial products. It requires that such persons be licensed and that professional behaviour be controlled through codes of conduct.

Growth investing is an investment style and investment strategy that is focused on the growth of an investor’s capital. Those who follow the growth investing style – growth investors – typically invest in growth stocks or companies whose earnings are expected to grow at an above-average rate compared to its industry or the overall market.

An index is an indicator or measure of something, and in finance, it typically refers to a statistical measure of change in a securities market.

Indexing is the adjustment of the weights of assets in an investment portfolio so that its performance matches that of an index

Liquidity is the ease of buying and selling a financial instrument for cash without causing any significant change in its price.

Market capitalisation (or market cap) is the total value of the issued shares of a publicly traded company; it is calculated by multiplying the current share price by the number of shares outstanding. This value is an indication of a company’s size (or capitalisation).

A market cap weighted index is created by giving weightings to shares according to the company’s size (or capitalisation). The larger the company’s market capitalisation, the larger it’s weighting in the index.

Stockbroking firms that provide liquidity to ETFs by quoting representative bid and offer prices on the market for such securities

Measures the present market value of assets, including cash and income to be distributed to shareholders. ETF issuers report on a daily basis the NAV of their individual portfolios.

Passive investment is a style of investing where a fund replicates the performance a particular market index. Passive investment vehicles include Exchange Traded Funds (ETF’s) and index tracking unit trusts. They are so called because the portfolio manager doesn’t choose the underlying portfolio. They simply replicate the index they have chosen to track.

Rebalancing is when the asset manager buys and/or sells constituents in a portfolio in order to bring the portfolio in line with the index being tracked.

An instrument representing ownership (stocks), a debt agreement (bonds) or the rights to ownership (derivatives).

The difference between the price at which a market maker is willing to buy a security and the price at which the seller is willing to sell it (the difference between the bid and ask for a given security).

A risk-adjusted measurement of fund performance. Sharpe ratio is calculated by dividing the excess return of a fund over the risk-free rate (Treasury bonds) by its standard deviation. The higher the Sharpe ratio, the better a fund’s risk-adjusted performance.

A stockbroker can execute your purchase or sale order through the JSE’s trading system (stockbrokers need to be registered members of the JSE). As with any share transaction, your broker will attempt to find a sell order for your securities in the market that match against your buy order.

The electronic settlement system utilised by the JSE and administered by Strate, which facilitates the electronic clearing and settlement for all transactions concluded on the JSE.

Measure of fund volatility in percentages. Standard deviation measures the average variability of the fund’s returns over a time period. Stable investments like money market funds have standard deviations near zero, while high-risk equity funds often have a much higher one. A standard deviation of 10 means approximately 68% of the time a fund will be within 10% of its mean (average) price.

This is the total costs associated with managing and operating an investment (excluding administration, financial planning and servicing fees). These costs consist primarily of management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of the fund is divided by the fund’s total assets under management to arrive at a percentage amount, which represents the TER.

Percentage amount a fund’s assets deviate from its benchmark index. This should be quite small.

Volatility is a measure of ‘risk’, and refers to the extent to which the price of an investment or fund fluctuates over a certain period of time. Funds with a high volatility usually offer the potential for higher returns over the longer term than low volatility funds but also the potential for significant downside.