A
Active Management
The use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell. The opposite of active management is called passive management, better known as "indexing".
Alpha coefficient
A measure of performance on a risk adjusted basis. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index used as a benchmark, since they are often considered to represent the market’s movement as a whole. The excess return of a fund relative to the return of a benchmark index is the fund's alpha.
Annual and semiannual report
An annual and a semiannual report happens once or twice a year, typically every twelve or six months. The annual reports must be audited and the reports submitted to the regulatory authority of each country within 2 to 4 months – usually in the country’s official language. Annual and semi-annual reports are important tools for marketing the fund: every investor, before completion of a transaction, must be presented with the current annual report or – if this is older than eight months – the latest semi-annual report.
Arbitrage
It is the possibility of a risk-free profit after transaction costs. For instance, an arbitrage is present when there is the opportunity to instantaneously buy low and sell high.
Asset Management Company
An Asset Management Company is a management investment oriented company, that has been licensed in Greece, is operating according to the local regulations and laws and is controlled by the Capital Market Commission.
Assets Under Management
The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked at as a measure of success against the competition and consists of growth/decline due to both capital appreciation/losses and new money inflow/outflow.
Β
Basis Point (bps)
Basis point (BPS) refer to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001), and is used to denote the percentage change in a financial instrument.
Bear Market
A market condition in which the prices of securities are falling.
Benchmark
A benchmark is a standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose.
Beta Coefficient
In finance, the beta (β or beta coefficient) of an investment indicates whether the investment is more or less volatile than the market. In general, a beta less than 1 indicates that the investment is less volatile than the market, while a beta more than 1 indicates that the investment is more volatile than the market.
Bond Yield
The bond yield is the annualized internal rate of return that investors require to purchase a bond. The bond price thus equals the sum of all bond cash flows discounted at the bond yield.
Bull Market
A bull market is a financial market of a group of securities in which prices are rising or are expected to rise.
C
Capital Market Commission
The Capital Market Commission is a government commission created to regulate the securities markets and to protect investors.
Capital Markets
Capital markets are markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals.
Closed - Εnd Fund
A closed-end fund (or closed-ended fund) is a mutual fund with a fixed number of units, by opposition to open-ended funds where additional units are created by fund managers to meet demand from investors. Units of closed-end funds can be bought or sold in the market.
Collateralized Debt Obligation (CDO)
A collateralized debt obligation is a type of asset backed security backed by bonds, loans or other debts. Return on these products is paid in trance and is then adapted to different investors’ risk/return profiles. Starting in the beginning of the nineties, CDOs’ were largely originated by financial institutions to move debt off balance sheets.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is an index measuring the price of a basket of goods representative of the actual consumption. The variation of CPI is a measure of the rate of inflation.
Convertible Bond
Is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value.
Coupon
The annual interest rate paid on a bond, expressed as a percentage of the face value.
Credit Default Swap (CDS)
A CDS is a swap between two counterparties, the buyer and the seller of credit protection referencing a debt issuer (either a company or a country). In exchange for a stream of payments, the buyer of protection will be compensated in case of issuer’s default. The CDS can be considered as an insurance contract against the default of the debt issuer. The CDS default settlement is triggered at the occurrence of a credit event requiring the seller of protection to pay the buyer a compensation for the issuer’s uncovered amount.
Credit event
A credit event is an event whose occurrence triggers the default settlement of CDS. The three main eligible credit events are failure to pay, bankruptcy and restructuring. ISDA is in charge of defining, watching and ascertaining the occurrence of credit events.
Current Expenses
Accounting & Book-keeping, non capital and usually recurrent expenditures necessary for the operation of a business.
Custodian
A custodian is a financial institution responsible for holding and safeguarding financial assets for a third party. It provides an investor with a place to store assets with little risk in exchange for a fee (custodian services) and is legally responsible for maintaining electronic records of financial assets. Other services such as settlements, corporate actions’ administrations and accounting can also be offered by custodians.
Custodian Fee
A fee a brokerage or other financial institution charges for safekeeping services.
D
Derivative
A derivative is a financial instrument whose value depends on (is derived from) the value of an underlying. Underlying can either be stocks, swaps, forwards and futures. Derivatives enable a wide range of underlying exposure, such as leveraged exposure, short exposure or even a customized exposure (with the use of options). In contrast to their flexibilities, derivatives may involve counterparty risk.
Distributor
The name given to institutions that sell or distribute mutual funds to investors for fund management companies without direct relation to the fund itself. For mediating these transactions, third-party distributors receive a portion of the trailer fees associated with mutual fund sales for acquiring new business.
Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets. If asset prices do not change in perfect synchrony, a diversified portfolio will have less variance than the weighted average variance of its constituent assets, and often less volatility than the least volatile of its constituents.
Dividend
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.
Duration
The duration of a bond is a measure of time (in number of years) expressing:
• The weighted average maturity of all discounted bond cash flows (Macaulay duration)
• Or, the bond price sensitivity to yield movements (Modified duration)
For a bond with a fixed coupon, modified and Macaulay duration are close and linked by the following relation:
Modified duration= Macaulay duration/ (1+yield)
Duration is widely used to measure risks of fixed income portfolios, either the risk of variation in credit spread or risk free rates.