Finance, Stocks, Shares & ISA glossary – A-Z Definitions – explained
Financial Advisor offering advice and products from a limited number of companies.
Also referred to as a passive fund, tracker funds hold all the stocks in a particular index such as the FTSE 100. There is no fund manager, instead the proportion of shares in each company is allocated by computer and it will alter as the index weightings change. Therefore, the performance of a tracker will mirror that of the index it is tracking. However, there is an annual management charge which means the return will always be slightly lower than the index.
For example, if you invest in a FTSE 100 tracker that has an annual fee of 0.5% and the FTSE 100 rises by 10% over a year, the fund would only go up by 9.5% because of the fee.
Total Expense Ratio. Shown as a percentage rate, this represents the total cost of investing in a particular fund. It includes the management fee and addition expenses such as trading fees, legal fees and other administration charges.
When a company’s shares, or a fund, don’t perform as well as its benchmark. For example, if the FTSE 100 Index rose by 5% over 12 months, but the share price of a company in that index only went up by 3%, it would have underperformed.
A fund is said to be underweight in an asset when it holds less than the appropriate index or benchmark weight. For example, if a company’s shares make up 8% of the FTSE 100 and a fund that invests in FTSE 100 companies holds 6% of its money in that company, then it is underweight.
Fund managers may opt to take an underweight position in shares or sectors they expect to underperform and be overweight in companies they expect to do well. If they’re right the fund should perform better than the index or benchmark.
A type of investment fund. Investors’ money is pooled and used to buy shares (or bonds) in number of companies. Unit trusts tend to invest in between 80 and 100 companies. This helps spread the risk for investors.
Value Added Tax. It is charged on most goods and services. The standard rate of VAT is 20%, although some goods and services qualify for a reduced rate of 5% or a 0% rate. Zero-rated items include most food, children’s clothing and books and magazines.
The yield is shown as a percentage rate and it represents the annual return paid on a stock in the form of a dividend or the effective rate of interest paid on a bond.