Glossary
Active Management
An investment strategy that aims to outperform a particular market or sector. Active managers have full flexibility in deciding what securities to buy and sell based on investment research, market forecasts, and their own judgment.
Aggressive Growth Fund
An investment strategy that focuses on investing in stocks, which the fund manager expects will experience substantial growth in earnings per share in the near term. The companies in question are generally of small or mid capitalisation in size.
Annualised rate of return
The annualised rate of return means, over a period of time, expressed as the equivalent annual compound interest rate, which would have achieved the target result . This is helpful in understanding the performance over a long period of time, but can be misleading for shorter periods.
Asset Allocation
An investment that has a low statistical correlation of its risks and returns with traditional investments such as stocks or bonds.
Authorised Unit Trusts
A unit trust or mutual fund that meets the requirements of the Hong Kong Securities & Futures Commission and is allowed to be sold in Hong Kong. Authorisation does not imply recommendation by the SFC.
Balanced Fund
A unit trust or mutual fund that aims to provide some combination of growth, income, and conservation of capital by investing in a mix of stocks, bonds, and / or money market instruments.
Benchmark
An index (usually stock market) or the average performance of similar equity products that a unit trust attempts to outperform.
Bid-offer Spread
The difference between the fund's buy and sell price.
Bid Price
The price of selling units to the fund manager. You may also calculate your current holding values by multiplying by the number of units.
Bond Fund
A unit trust or mutual fund that invests in debt securities issued normally by corporations and governments. Bond funds generally emphasize on regular income streams.
Capital Appreciation
An increase in the value of capital - the objective of most equity-invested unit trusts.
Closed-end Fund
A unit trust or mutual fund that has a fixed number of shares, usually listed on a major stock exchange.
Contribution
Regular investments made into a unit trust savings plan or Mandatory Provident Fund Scheme.
Custodian
An entity whose responsibility is to take care the assets of the unit trust, pay for purchase of investments by the portfolio manager, and deliver assets against payment when the manager sells.
Daily Valuation
The calculation of the latest market value of a fund's underlying assets on each business day.
Diversification
The objective of the investment strategy is to reduce the overall investment risk and to avoid worsens the investment portfolio by unsatisfactory performance of individual equity, sector or country.
Dividend Distribution
Payments to unit trust holders of gains realised during the year on securities that the fund has sold at a profit, minus any realised losses.
Dollar-cost Averaging
Investing equal amounts of money at regular intervals over time. This technique ensures that an investor buys fewer shares when prices are high and more shares when prices are low. Historically, this has proven to reduce the overall cost of the investment.
Emerging Markets Fund
A unit trust that invests primarily in developing markets in Asia, Latin America, or Eastern Europe. Such funds are considered higher risk investments in view of size, liquidity, and development cycle of these markets.
Equity Fund
A unit trust that invests in local and / or overseas stocks. The objective is primarily to seek capital growth.
Fact Sheet
A short document produced by fund managers with key information on the unit trust is provided. Usually, fact sheets contain investment objectives, large holdings, recent performance, asset allocation, fund manager's views, and so forth. Fact sheets are developed for customers use.
Feeder Fund
A fund that invests exclusively in another fund, usually managed by a another fund manager, to achieve its investment objective.
Fee structure
The fee charging system pattern managed by a manager for a unit trust. The fee structure usually includes the annual management fee, the initial preliminary charge, realisation charge, or administrative fee, if any.
Fixed-income Fund
A unit trust that seeks current income by investing in fixed-income securities such as bonds.
Front-end Fee
A sales commission charged at the time of purchase and paid to the distributors.
Fund Manager
The person or persons responsible for making investment decisions regarding a unit trust or mutual fund.
Guarantee
A promise of a certain level of return (e.g. 5% annualised rate of return for 4 years), or a certain pattern of return (e.g. maximum loss of 10% and a 90% share of any profit) within a specified time frame.
Global Fund
A unit trust or mutual fund that invests in securities worldwide.
Growth and Income Fund
A wide range of investment funds that seeks to make investment gains that are not related to movements in the markets of the underlying securities in which the fund invests.
Historic performance
It portraits how a unit trust has performed in the past. However, the historic performance of a fund is not indicative of future performance.
HKIFA
The Hong Kong Investment Funds Association. The professional body that represents the fund management industry in Hong Kong.
Income Fund
A unit trust or mutual fund that seeks current income rather than capital growth, investing mainly in bonds.
Index Fund
A passively managed unit trust or mutual fund that seeks to mirror the performance of a particular market index.
Investment Adviser
A person or organisation that makes the day-to-day decisions regarding a portfolio's investments, either on behalf of a unit trust or mutual fund (fund manager) or individuals (intermediary).
Investment objectives
The target or investment approach that a unit trust, is trying to achieve - for example "to outperform a rolling 4-year period of the Hang Seng Index", or to achieve the rate of return of at least 4% above a 3-month Hong Kong dollar time deposit by investing in Asian regional fixed income securities with a prudential approach."
Liquidity
Liquidity refers to cash, the amount of a unit trust not invested in securities, or the amount of a security that is typically traded regularly. Liquidity is a measure of how easy it would be to buy or sell easily. Unit trusts have virtually perfect liquidity.
Lump sum investment
A one-time investment of an amount of capital (different from the monthly savings plan of small amounts to build capital).
MPF
Mandatory Provident Fund Scheme - a retirement scheme for employees required by the HKSAR government.
Management Fee
The amount that a unit trust or mutual fund pays its fund manager for the work of overseeing the fund's holdings. Normally charged daily to the fund and reflected in the fund's net asset value.
Mutual Fund
An investment company that pools the money of like-minded investors and invests it in a variety of securities with a specific objective. Also known as a unit trust in Hong Kong.
Money Market Fund
The money market is the "stock market" where institutions trade cash. A money market fund is like a bank deposit, except that it normally pays a higher rate of interest, and is properly diversified across several banks or institutions.
Monthly Savings Plan
The opposite of lump sum investment, a monthly savings plan allows investors to consistently build a large amount of capital through monthly contributions of investment, with a fixed small amount of capital.
Morgan Stanley Capital International Indices
A comprehensive set of indices for global stock markets and regional stock markets for performance calculations and comparisons.
Net Asset Value (NAV)
The market value of a unit trust or mutual fund's total assets, minus liabilities, divided by the number of units or shares outstanding. The value of a single share is called its unit or share price.
Offer price
The sales price of a fund, which equals the net asset value plus a front end fee, if any.
Offshore Fund
A unit trust or mutual fund that is domiciled outside Hong Kong. Most unit trusts or mutual funds available in Hong Kong are domiciled in overseas jurisdictions such as Luxembourg, Bermuda, or Dublin.
Open-end Fund
A unit trust or mutual fund that has an unlimited number of shares available for purchase.
Pension Plan
A retirement plan that holds investments of a company's employees for the purpose of providing retirement benefits when the employee retires or leaves the company.
Performance rankings
A list of unit trusts listed in a sequence by their historical performance over a period of time.
Portfolio
All securities held by a unit trust or mutual fund or the total investment holdings of an individual or an institution.
Prospectus
A legal document that gives prospective investors information about an investment, including its investment objectives and policies, risks, costs, and past performance. Before investing in a unit trust or mutual fund, one should read the prospectus.
Realised profit (loss)
A profit or loss is realised after the investments are sold for cash.
Redemption
Selling a unit trust or mutual fund back to the fund manager.
Redemption Fee
A sales fee charged by some unit trusts or mutual funds when an investor sells his / her investments in the fund.
Redemption Price/Bid Price
The price at which a unit trust or mutual fund's shares are redeemed or bought back by the fund, determined by deducting a redemption fee from the net asset value (NAV) per unit or share.
Registrar
The agent who is responsible for ensuring that the unit holder register is accurate and up to date for paying out dividends and mailing out regular statements of holdings.
Regional Fund
A unit trust or mutual fund that invests in securities of a particular region such as Europe, Asia, etc.
Reinvestment
Use of dividend distribution to buy additional securities. Many unit trusts and mutual funds offer the automatic dividend reinvestment option to unit holders.
Report
Fund managers usually produce a document disclosing a unit trust's holdings, accounts, the way the particular unit trust has been run, and how the markets have performed, on an annual or bi-annual basis. Reports are sent automatically to all unit holders and are normally available to all interested parties.
Risk Tolerance
An investor's ability to endure declines in the prices of investments while waiting for them to increase in value.
Risk-adjusted Return
This is a measure of how much risk a fund takes to make its returns. The measure is usually expressed as a number or rating, with the more return per unit of risk, the better.
Sector / Theme Fund
A unit trust or mutual fund that concentrates on a relatively narrow market sector, such as technology or healthcare funds. These unit trusts can experience higher share-price volatility than some diversified unit trusts because sector funds are subject to issues specific to a given sector.
Share
A unit of ownership in a mutual fund.
Third-party distributor
A bank or other financial organisation that sells other companies' products.
Time Horizon
The amount of time, usually expressed in years, which an investor expects to hold an investment.
Trustee
The party named in a trust or plan who is authorised to hold the assets of the trust or plan for the benefit of the beneficiaries or participants.
Unauthorised Fund
A unit trust or mutual fund that has not been approved for sale to the general public in Hong Kong by the Securities & Futures Commission.
Unit
A unit of ownership in a unit trust / mutual fund.
Unit Trust
A collective investment vehicle that pools the money of like-minded investors and invest into securities with a specific objective. Same as mutual fund.
Volatility
The degree of fluctuation in the value of a unit trust or mutual fund, or index, volatility is often expressed as a mathematical measure such as a standard deviation or beta. The greater a fund's volatility, the wider the fluctuations between its high and low prices.
Voluntary Contributions
Additional investments in a retirement plan from either the employer or the employee. A common way for people to save more for their retirement nest egg.
Warrant Fund
A unit trust or mutual fund that invests in warrants - the entitlement to purchase a certain amount of common stock at a set price over a period of time. Normally considered a high-risk investment.
The majority of the above information is sourced from the InvestEd website operated by the Securities and Futures Commission, and Hong Kong Investment Funds Association.
