ABSOLUTE RETURN The actual rate of return achieved on an investment, whether expressed as a CUMULATIVE or ANNUALISED RETURN. ACTIVE MANAGEMENT A style of investment management which seeks to add value to benchmark returns through actively managing the stock selection of the portfolio. Holdings are therefore likely to be different from the benchmark index both in terms of the securities held and their proportion. ANALYST An employee of a brokerage or fund management house who studies companies and makes buy-and-sell recommendations on their securities. Most specialise in a specific industry or market. ANNUALISED RETURN The percentage movement in the value of the shares or units in a fund over a period of time (i.e. the CUMULATIVE RETURN), adjusted to an annualised (or compounded) basis, rather than being a simple percentage change over the total period under review. A simple example would be a fund increasing in value in a two-year period from $100 per share to $125 per share. The increase of $25 per share in the two-year period would represent a 25% ($25/$100) CUMULATIVE RETURN, but would be 11.8% per annum on an ANNUALISED RETURN basis (a two-year compound return of 11.8% equates to an cumulative return of 25% over the same period [$100*(1.118^2) = $125]). ASSET ALLOCATION The way in which a fund's assets have been allocated between different asset, geographic or sector classes eg equities, bonds and cash; US, Japan and Korea; banks, oil companies etc. ASSETS Fixed assets are land, machines and buildings; current assets consist of cash, money owed, stock, investments and work in progress; intangible assets are goodwill, trade marks, patents, etc; liquid assets are funds kept in cash or in a form that can be quickly and easily turned into cash. BASIS POINT Usually one hundredth of a percentage point (0.01 per cent), used in quoting movements in interest rates or yields on securities. BEAR An investor who expects share prices to fall and thus likely to sell short. More generally, a pessimist about the market outlook. See also Bull. BEAR MARKET A period of falling share prices; a pessimistic state of affairs. See also Bull Market. BEARER STOCK A stock not registered in the name of an owner, who can thus remain anonymous. Common on the continent of Europe. BENCHMARK A benchmark is often a target against which investment performance is measured, usually a stock exchange index or a combination of stock exchange indices. The primary purpose of benchmarks is to allow the ready comparison of the relative performance of investment funds to benchmarks in regions or sectors similar to the funds. Investment funds will often state which benchmarks they regard as being appropriate to judge the fund against, given their stated investment focus and objectives. BID PRICE The price at which investors will redeem their investment ie net asset value per share or unit. BOND A certificate of debt issued to raise funds. It normally has a fixed rate of interest and is repayable at a fixed date. BOTTOM-UP Refers to the process of building an investment portfolio by identifying the companies in which to invest rather than choosing countries / sectors first and companies last (opposite of Top-down). BULL An investor who expects share prices to rise. See also Bear. BULL MARKET A period of rising share prices; an optimistic state of affairs. See also Bear Market. CENTRAL PROVIDENT FUND Compulsory pension fund in Singapore to which all employees are required to contribute. CLOSED-END FUND Fixed capital structure. Variations in demand for the shares of the fund are reflected in movements in their market prices and not by an expansion or contraction in their supply. CUMULATIVE RETURN The percentage movement in the value of the shares or units in a fund over a period of time. It is calculated as the change in the value of your investment divided by the initial investment amount, expressed as a percentage. For example, if you have invested $5,000 on 1 January 1995 and the investment is worth $6,500 on 30 June 1998, the cumulative return on your investment over this 3.5 year period is ($6,500-$5,000) / $5,000 = 30%. CUMULATIVE RETURN is also sometimes referred to as Total Return. CUSTODIAN The independent entity which holds the share certificates owned by a unit trust or mutual fund, and ensures their safe keeping. DEALING DAY The day on which the investment fund is available for subscription or redemption; depending on the type of fund, this may typically be daily, weekly or monthly. EMERGING MARKETS Markets which have not traditionally been used as an equity base centre. Through envisaged growth, prospects of a particular area become attractive to the investor eg Turkey, India, Latin America etc. EQUITIES The risk-sharing part of a company's capital, normally referred to as 'ordinary shares'. They are also referred to as 'shares', 'securities' or 'stocks'. EQUITY Investors'equity in a company equals to the value of shares held. House owners' equity equals the value of their house less any unpaid home-purchase loan. Negative equity occurs when the house is worth less than the debt on it. FEEDER FUND A unit trust which invests directly into another fund or funds rather than into the market. FRONT-END LOAD The initial service charge paid by investors at the time of purchase. First State Funds typically carry a 5% front-end load. FULLY INVESTED If all the money in a fund is invested, rather than having some held in cash form, the fund is said to be fully invested. FUND SIZE The total net asset value (NAV) of the fund. GEARING Measure of the degree to which a business is funded by debt rather than shareholders' equity. The US expression for the same thing is leverage. A highly geared, or highly leveraged, company carries a lot of debt. HEDGING The process of cutting the currency exposure of a portfolio to reduce the effect of exchange rate fluctuation on the portfolio's value. Hedging is used to reduce the risk of loss through adverse movements in interest rates, equity markets, share prices or currency rates. It has become an accepted risk management tool. INITIAL CHARGE The charge levied by the managers of a unit trust or mutual fund when a new investor joins the scheme. INVESTMENT FUND A mechanism for aggregating a number of different investors' monies into a legal vehicle which then invests into a range of stocks, bonds and other securities. The main benefits of such schemes are, due to their size, their ability to invest in a far wider range of securities than one investor could typically invest in. This wider range of investments (or diversification) reduces the scheme's exposure to any one investment compared to an individual investor; this often reduces the overall risk (or volatility) of the scheme. LIQUIDATION The process whereby a company's assets are realised, creditors are repaid and shareholders receive any remaining surplus according to their rights and priorities as stated in the company's Articles of Association. LIQUIDITY The amount within a portfolio which is held in cash rather than being invested. LISTED INVESTMENTS Investments which have an official listing on one of the world's recognised stock markets. MANAGEMENT FEE The fund managers' remuneration. The managers are also entitled to a periodic fee which is quoted as an annual percentage of the fund value, and factored into the daily price of the fund. MANDATORY PROVIDENT FUND Compulsory pension fund in Hong Kong to which all employees are required to contribute. MINIMUM INVESTMENT The minimum number of units / shares that a unitholder / shareholder may subscribe for and hold. MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) MSCI provides share market indices that measure the performance of share markets of different countries, regions and sectors. Investors may use these benchmark indices to compare with the performance of their own portfolio. MSCI ALL COUNTRY FAR EAST FREE EX JAPAN A combined regional index which includes the following countries: Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. "Free" refers to the index calculation having regard for the number of shares that make up the "free float" ie the shares that are most likely to be traded on the stock market and not locked up by long term strategic investors (such as parent companies). MSCI EMERGING MARKET FREE ASIA A combined regional index which includes the following countries: China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines and Thailand. MSCI PACIFIC FREE EX JAPAN A combined regional index which includes the following countries: Australia, Hong Kong, New Zealand and Singapore. MUTUAL FUND A mechanism for aggregating a number of different investors' monies into a vehicle which then invests in a range of stocks, bonds and other securities. The main benefits of such schemes are, due to their size, their ability to invest in a far wider range of securities than one investor could typically invest in. This wider range of investments (or diversification) reduces the scheme's exposure to any one investment compared to an individual investor; this often reduces the overall risk (or volatility) of the scheme. A mutual fund is legally an investment company which issues shares in itself to investors. The underlying investment portfolio is typically safeguarded by an independent custodian. In practice the day-to-day operations of unit trusts and mutual funds are very similar. NET ASSET VALUE (NAV) NAV is the total value of all of the fund's assets, minus its liabilities. NAV per share or unit is the net asset value of the fund divided by the outstanding number of shares or units of the fund. NOMINEE ACCOUNT If you use a nominee service, your shares are held in the nominee company's name. You remain the beneficial owner of the shares and are eligible for compensation in the same way you would be if they were held in your own name. This also enables us to deal with all the administrative paperwork on your behalf. NOMINEE COMPANY A company formed by a bank or other organisation for the purpose of holding shares on behalf of the beneficial owner. Nominee company employees carry out all the paperwork and other chores associated with the documentation of shareholding and arrange for necessary transfers when a share is sold. OFFER PRICE The price at which investors will subscribe to their investment ie bid price + front-end load (see above). OPEN-ENDED FUND A fund whose capital can normally be increased or decreased by its managing body without the approval of existing investors in the fund. This is usually done to satisfy demand from buyers and sellers. The fund can repurchase any units or shares presented for redemption. Unit trusts and open-ended investment companies are open-ended funds. OPTION Agreement entitling the holder to buy (call) or sell (put) shares, commodities etc within a given time and at a given price, from or to the other party to the agreement. ORDINARY SHARES The main type of equity capital, and the main sort of investment trust share which is of interest to the private investor. OVERWEIGHT A portfolio is said to be overweight in a market, sector or security, if its holding in that market, sector or security represents a higher percentage of its total portfolio than the weighting of that market, sector or security in the relevant benchmark index (opposite of Underweight). PERFORMANCE Absolute performance is quoted as the percentage movement in the value of the shares or units in a fund from one period to the next. It is usually presented in a percentage format on either an absolute return basis or an annualised return basis. Performance may also be judged on a relative basis against a benchmark. PORTFOLIO Collection of investments, normally consisting of shares, fixed interest stocks and cash. Good portfolios have an objective and the selection of investments is designed to achieve it. PROSPECTUS A document required by law to be published on the occasion of an issue of shares or fixed interest securities to the public. A prospectus gives details of the company and the issue. In the case of listed investments, stock exchanges usually require the publication of more information than the legal minimum obligation. It is a useful document for prospective investors. RELATIVE RETURN The difference between the ABSOLUTE RETURN achieved by an investment and the return achieved by a comparable benchmark index, whether expressed as a CUMULATIVE or ANNUALISED RETURN. For example, if an investment in a fund invested in Asian equities (excluding Japan) earns an annualised absolute return of 10% pa over a 5 year period, and the MSCI ALL COUNTRY FAR EAST FREE EX JAPAN Index earns an annualised absolute return of 5% pa over the same period, the RELATIVE RETURN (annualised) is 5% pa. The fund has outperformed the comparable index by 5%. SHARE PRICE The price quoted on a stock exchange at which the shares of a company are traded. The price may go up or down and reflects the outlook for that company in the eyes of the investment market. TOP-DOWN Refers to the process of building an investment portfolio by identifying the most attractive regions, countries, sectors to invest in (opposite of Bottom-up). TRUSTEE The independent entity which oversees the activities of a unit trust and ensures that all legal responsibilities are adhered to. UNDERWEIGHT A portfolio is said to be underweight in a market, sector or security, if its holding in that market, sector or security represents a lower percentage of its total portfolio than the weighting of that market, sector or security in the relevant benchmark index (opposite of Overweight). UNIT TRUST A unit trust is a collective investment scheme under which the investible securities of the fund are held on trust for the investors (similar to Mutual Fund). WARRANTS Transferable certificates which give the holder the right to subscribe for shares in the underlying security or securities at some time or times in the future and at prices fixed when the warrants are issued. They offer the purchaser of warrants an option on a future interest in the underlying security or securities for a relatively small initial investment. Most warrants can be dealt in separately. They carry neither entitlement to dividends nor voting rights unless the option is exercised. The rights of the warrant holder on the liquidation of the underlying security or securities before the final exercise date vary. At the least, however, a warrant holder would be entitled to exercise warrants before liquidation and share any surplus over the subscription price applicable to the ordinary shares acquired. YIELD The yield on an investment indicates the size of the income return on the investment in relation to the price paid for it. It is calculated by expressing the annual gross dividend or income as a percentage of the investment price. ZERO COUPON STOCK Loan securities with a fixed life, from which the lender receives no annual interest. Instead, the security is issued at a price lower than the maturity value to compensate for the foregone income.