Exchange Traded Products & Indexing Guide Switzerland 2013

glossarY
ACTIVE MANAGEMENT
The process of hand selecting securities with the purpose of
trying to outperform a benchmark index. Active portfolio managers
use economic data, investment research, market forecasts,
and other indicators to help make investment decisions.
ALPHA
A statistical measure of performance adjusted for risk. Alpha
reflects the amount by which a mutual fund or portfolio
outperforms or underperforms based upon its level of risk.
Positive alpha means a portfolio’s risk-adjusted performance
was higher compared to its corresponding benchmark index.
Negative alpha means a portfolio’s risk adjusted performance
was lower compared to its index. The alpha for index ETFs
should match the accepted beta of the benchmark.
ASSET ALLOCATION
The process of apportioning investments among various asset
classes, such as stocks, bonds, commodities, real estate, collectibles
and cash equivalents. Asset allocation affects both the
risk and return of investors, and is often used as a core strategy
in basic financial planning.
ASSET CLASS
Refers to the categorization of an asset. Representative asset
classes include equities, bonds, commodities, etc.
AUTHORIZED PARTICIPANTS
This term refers to large financial institutions, such as specialist
firms and market makers, which are involved in the
creation and redemption activity of ETF shares.
BASIS POINT
Measurement used to quote bonds. One basis point is equal to
0.01%, or one one-hundredth of one percent. 100 basis points
is equal to 1%, whereas 50 basis points would equal one half
percent, or 0.50%.
BASKET
A unit or group of securities. The grouping of securities within
an ETF is sometimes referred to as a basket.
BENCHMARK
A benchmark is a yardstick or standard for measuring the performance
of an investment. For example, the Barclays Capital
U.S. Aggregate Bond index is a popular benchmark for judging
79 ExchangE TradEd ProducTs & IndExIng guIdE Switzerland 2013
the performance of diversified taxable bond mutual funds. The
goal of most money managers and investors is to outperform
their respective benchmark.
BETA
Beta is a volatility measurement of a stock mutual fund or ETF
versus a comparable benchmark like the S&P 500 stock index.
A stock fund or ETF with a higher beta than the S&P 500 will
rise or fall to a greater degree. In contrast, a stock fund or ETF
with a low beta will rise or fall less.
BOND
A debt instrument issued by corporations and governments to
raise capital. Interest on the outstanding debt is paid to bondholders
at specific intervals, with the principal amount of the
loan paid on the bond maturity date.
BLUE CHIPS
Blue Chip stocks are regarded as leading companies with world
class products and services, universally recognizable brands
and run by top-notch management teams.
BREAKPOINTS
Mutual funds with front-end loads, or a sales charge, enable investors
to reduce front-end sales charges as the amount of that
investment increases to certain levels called "breakpoints".
Each prospectus will have details on the breakpoints used to
reduce the front-end sales charge.
CALL OPTION
A call option gives its owner the right (not obligation) to buy
a predetermined quantity of stock or commodities from the
seller at a specified price (strike price) within a certain time
frame (expiration date).
CHICAGO BOARD OPTIONS EXCHANGE (CBOE)
Founded in 1973 the CBOE changed options trading by creating
standardized listed stock options. Prior to this time, trading
options was largely unregulated. The CBOE lists options on
interest rates, individual stocks, and various market indexes.
The exchange is located in downtown Chicago, IL.
CLOSED-END FUND
Closed-end funds issue a fixed number of shares through an
initial public offering and often use leverage to magnify their
performance. Closed-end funds are bought and sold just like