Glossary of Terms

Active Fund Manager

A fund manager who manages a fund by selecting and combining a group of instruments that he/she believes are mispriced, in the belief that by so doing they can successfully outperform a given benchmark.


ALBI

The All Bond Index comprises all listed bonds that are listed on the bond exchange. 


ALSI

The All Share Index is an index that comprises all the shares that are listed on the Johannesburg Securities Exchange, weighted by the total value of each share.

Benchmark

A standard against which the performance of a unit trust, portfolio, fund manager or fund can be measured. Examples include the ALSI, ALBI and SWIX. 


Bond

An interest-bearing debt instrument that governments traditionally issue when it does not have enough money to pay for its expenses.

Cash

An investment that is made in instruments such as a savings account, a fixed-deposit account or a money market account.


Collective Investment Scheme (CISs)

Investment schemes in which investors’ funds are combined together and managed by professional managers. CISs offer protection for the individual investor as they are regulated, and they also offer diversification benefits.


Commodity

A physical substance that can be traded on an exchange; they include oil, gold, metals, and grain.


Compound Interest

The interest earned on interest.


Coupon

A periodic payment that is made to a bondholder, during the time between the issue of the bond and its maturity date.  


Consumer Price Inflation (CPI)

A measure of the change in the price of a standardized basket of goods and services that are consumed by South African households. 


Credit Spread

The difference in the yields of different instruments that is due to the differences in their perceived riskiness. 

Defensive asset

An asset that focuses on income growth. Examples of defensive assets include cash and some fixed interest-bearing instruments and short-term bonds. 


Defensive fund

A fund that comprises defensive assets. 


Derivative

A financial instrument whose value depends on the performance of another instrument. They offer a fund the flexibility to gain exposure to an underlying asset without owning it.  


Diversification

Combining a broad range of investments with the aim of lowering the overall risk of a fund. It is achieved by combining investments that are expected to have low and/or negative co-movement with each other during financial market movements.


Downside risk

An estimation of a fund’s potential to suffer a decline in value if financial market conditions change. 


Duration

A measure of the change in the price of a bond relative to the change in interest rates. For example, if interest rates rise/drop by 1%, a fund with a 5-year duration is likely to lose/gain about 5% of its value. 

Fund manager

An individual that is responsible for the implementation of a fund’s investment strategy and process, monitoring, and managing and reporting on the investments that have been included in the fund.

Gilts

Bonds issued by central governments.


Gross Domestic Product (GDP)

A measure of the total value of the goods and services produced by an economy. The percentage change in GDP from year-to-year reflects a country’s annual economic growth rate.

Income distribution

The payment that is received from the portion of income that is earned by an investment asset and available for distribution. 


Inflation-Linked Bond (ILB)

A bond whose value and return depend on the level of the CPI. 


Investment horizon

The length of time that an investor expects to be invested in a fund. The investment horizon is used to determine the investor's income needs and desired risk exposure, which is then used to aid fund selection. 

JSE Securities Exchange

The JSE’s primary role is to provide a platform where investors can exchange securities under regulated procedures.

Linked Investment Service Provider (LISP)

A financial institution that packages, distributes and administers a broad range of unit trust investments. LISPs give the client a single entry point to a selection of investment options. 


Liquidity

A measure of the ease with which an instrument can be exchanged for cash, between willing market participants.

Money-market investment

An interest bearing instrument that has an investment horizon of less than one year. 


Multi-manager fund

A fund whose underlying assets are managed by more than one fund manager.

NAV

The net asset value is a measure of the value of each unit of a unit trust. It is determined by dividing the value of a unit trust portfolio into identical units with the same value that changes daily. 


Net return

Net return represents the amount an investor receives after all fund management costs have been accounted for.

Outperformance

The act of producing a return that is better than the return that has been delivered by a benchmark. It is also known as “excess return”.

Passive manager

A fund manager who manages a fund in a manner that seeks to only match the performance of an underlying benchmark; and doesn’t seek to beat the fund benchmark.

Regulation 28

A piece of legislation that governs the management of pension, provident and retirement funds. Reg 28, as it is commonly known, limits the extent to which an investor’s pension, retirement and provident funds can be invested in various asset classes. For example, a maximum of 75% of an investor’s funds can be invested in equity instruments.


Running yield

The running yield is determined as the income from an instrument divided by the current value of that instrument. It is typically used to make decisions on whether to buy an asset. However, it is not a true reflection of that instrument’s return as the current market value changes all the time. 

Strategic Asset Allocation (SAA)

The process that is used to determine the most appropriate portion of an investor’s funds that should be allocated to different instruments. 


SWIX

The Shareholder Weighted Index is similar to the ALSI, except, it excludes the ownership of foreign investors.

Tactical Asset Allocation (TAA)

The deliberate active management of an investment portfolio by deviating from the strategic asset allocation, in order to exploit the short-term opportunities found in the market. 


TER

The total expense ratio is a measure of the total management and operating costs associated of an investment fund. It is calculated as the total costs of a fund divided by the fund's total assets.  


Total return

Total return is the sum of the change in the price of an instrument and the income received.

Unit Trust

Unit trusts are the most common form of a CIS. The funds of individual investors are combined and invested across a range of different instruments.  

 

Volatility

A measure of the bounciness of the change in the price of an instrument. 

Yield

The percentage income return on an instrument. It refers to the interest from an instrument divided by the current value of that instrument.  


Yield curve

A picture of the relationship between the expected income or yield and length of the investment. This picture usually shows several yields different contract periods for similar debt contracts.