Glossary

Basis Point (bps)

A measure equal to one percent of one per cent, or 0.01%.

Basket

Authorised ETF participants accumulate baskets that include all of the securities tracked by a specific index. The baskets then become creation units for an ETF that tracks that index.

Benchmark

A standard against which the performance of a security, managed fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose. By tracking a benchmark, a fund can provide an investor with a return on a market rather than a specific company or stock.

Beta

A quantitative measure of the covariance of a given stock, managed fund, or portfolio relative to the overall market (normally represented by a benchmark). A beta above 1 means the instrument moves more than the overall market, while a beta below 1 means it moves less than the overall market.
E.g. If a security has a beta of 1.1 to the overall market, and the market moves 10%, the security would be expected to move 1.1 X 10% = 11%.

Bid/Ask Spread

The difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it.

Block Trade

A block trade, also known as a block order, is an order or trade submitted for the sale or purchase of a large quantity of securities. A block trade involves a significantly large number of equities or bonds being traded at an arranged price between two parties, sometimes outside of the open markets, to lessen the impact on the security price.

Bond

Tradeable, long-term debt raised by a borrower who agrees to make regular interest payments, known as coupons, and to repay the initial sum borrowed at a specified time.

Capital Gain

A profit on the sale of assets.

Capital Growth

An increase in the dollar value of an asset.

Capital Loss

When the proceeds from the sale of an asset (i.e. an ETF) are less than the cost of the investment.

Capital Market Instrument

An instrument which facilitates the transfer of capital in the financial markets, such as equity, bond or a SPDR ETF.

Cap Weighted Index

A capitalisation-weighted index is one in which the components are weighted according to the total market value of their outstanding stock.

Correlation

The historical tendency of two investments to move together. Investors often combine investments with low correlations to diversify portfolios.

Creation and Redemption Process

The process whereby an ETF issuer takes in and disburses baskets of assets in exchange for the issuance or removal of new ETF shares.

Currency Hedging

A strategy to manage the risk of fluctuation in asset value through currency movements. Currency hedging is typically implemented using derivatives such as forwards or futures.

Current Yield

The market value weighted average current coupon of the bonds in the portfolio divided by the current market price of the bonds in the portfolio. 

Date Payable

The Date Payable is the date on which an ETFs distribution is paid to its unit holders.

Developed Markets

Refers to countries or market areas with relatively high levels of economic growth, market liquidity and transparency as well as political stability, rule of law and safety.

Distribution

Payment to unit holders of a fund out of the profits of the fund. These are allocated on a per unit basis.

Diversification

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 goal of diversification is to reduce risk or volatility by investing in a variety of securities or assets.

Dividend

A sum of money paid by a company to it's shareholders on a regular basis.  Dividends of the underlying securities held within an ETF are typically distributed to unit holders on a regular basis. (Distributions may be impacted by gains or losses from the sale of securities). 

Dividend Reinvestment Plan (DRP)

An alternative to cash dividends, allowing unitholders to receive new units instead of cash.

Earnings

Income or profit of an entity. May be expressed as gross or net.

Earnings Per Share (EPS)

A profitability measure that is calculated by dividing a company’s net income by the number of shares outstanding.

Emerging Markets

Developing countries where the characteristics of mature economies, such as political stability, market liquidity and accounting transparency, are beginning to manifest. Emerging market investments are generally expected to achieve higher returns than developed markets but are also accompanied by greater risk, decreasing their correlation to investments in developed markets.

Equities

Shares (ownership) of a company. Having equity in a business gives you voting rights at a company’s annual general meeting. Equities are a measure of the firm’s value.

ESG Investing

A strategy and practice of incorporating environmental, social and governance (ESG) factors in investment decisions and active ownership (asset stewardship).

ETF Model Portfolio

An ETF Model Portfolio is a carefully selected portfolio of exchange traded funds (ETFs) constructed by a professional investment manager. Where an ETF model portfolio is offered on an investment platform, investors who select it effectively instruct the platform operator to acquire units in the ETFs that comprise the model portfolio. 

Ex-date

The ex-date occurs one business day before the ETFs Record Date. To be entitled to a distribution a unitholder must have purchased the ETF before the ex-dividend date. If you purchase ETFs on or after that date, you are not entitled to the distribution. An ETFs price may move up as the ex-date approaches and then fall after the ex-date.

Exchange

A marketplace where securities, commodities, derivatives and other financial instruments are traded. Its main function is to ensure fair and orderly trading, as well as efficient dissemination of price information, for any securities trading on that exchange. Exchanges provide a platform to sell securities to the investing public, and may be physical or electronic.

Exchange Traded Fund (ETF)

An investment product that tracks an index, commodity or basket of assets in a similar manner to an index managed fund, but trades like a stock on an exchange.

Exchange Traded Managed Fund (ETMF)

See Active ETF.

Expense Ratio

The annual operating expenses of an unlisted managed fund or ETF, expressed as a percentage of the fund's assets.

Franked Dividend

Dividend paid by a company out of profits on which the company has already paid tax. The investor may be entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company.

Franking Rate

Tax rate at which the dividend is franked.

Fund

The common name for a Managed Investment Scheme (MIS).

Fund Fiscal Year 1 Forward Price/Earnings

The weighted average of each security's Fiscal Year 1 Forward P/E (FY1 P/E). FY1 P/E is calculated by dividing the closing price as of the report date by the mean Earning Per Share estimate for the next unreported fiscal year as of the report date.

Fund Dividend Yield

Fund Dividend Yield is the dividends received by the Fund from its investments, divided by the market value of the Fund, expressed as a percentage.

Fund Estimated 3 (or 5) Year Earnings Per Share (EPS) Growth

Based on the underlying holdings of the Fund, the change in forward earnings estimates for the underlying holdings between 3 (or 5 or some other period) years are used to calculate a 3 year EPS growth. 

Government Bond

Debt security issued by the government.

Hedging

A hedge is an investment made in one asset to reduce the risk of adverse price movements in some other asset. Normally, a hedge consists of taking an offsetting position in a related security.

Holdings

All the assets found in a fund. This includes all shares, cash and other financial instruments.

Imputation Credits

Tax credits passed on to a shareholder who receives a franked dividend.

Index (Indices)

A representative measure of the value a securities market or a section of that market. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Equity and fixed income market indices are used as the benchmark for index managed funds and ETFs, whose portfolios aim to mirror the components of the index.

Index Dividend Yield

Index Dividend Yield is the weighted average of the indicated annual dividend of the underlying holdings divided by price, expressed as a percentage.

Indexed Portfolio Management

Indexed portfolio management selects a group of securities, generally represented by an index, and holds these securities over long periods of time. The portfolio is generally only traded or rebalanced when the index constituents change. Passive portfolio management usually involves lower turnover than active management. 

Interim Dividend

When a dividend is paid more than once a year, dividends other than the final one are called interim dividends. Typically, dividends are paid twice a year, one interim and one final dividend.

Intraday NAV / iNAV

An Intraday NAV is based on the last trade price of each holding listed in the basket used for creation and redemption including estimated cash amounts. This value is used to provide an intraday relationship between the basket of securities representing the ETF and the market price of the ETF. An intraday NAV is calculated and published throughout the trading day.

Large Cap

A stock with a high level of capitalisation, usually with a market value of more than $10 billion.

Limit Order

An order placed with a broker to buy or sell a set number of shares at a specified price or better. Because the limit order is not a market order, it may not be executed if the price set by the investor cannot be met during the period of time in which the order is left open. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.

Liquidity

This is a term used to describe an investor's ability to buy or sell a particular security or product. A product which has high trading volumes is easy to buy and sell and considered to be 'liquid'. Also, if Market Makers stand ready to either buy or sell large volumes near fair value at any time, called 'making a market', then this product is also liquid. Liquidity is attractive for investors as it makes their investments more realisable, allowing them to change strategy or generate cash quickly without necessarily incurring high transaction costs.

Listing Rules

Rules governing the procedures and behaviour of all entities listed on ASX.

Long or Long Position

A long or a long position is the purchase of a security such as a stock, commodity, currency or ETF in the hope that the asset’s price will rise. A long position is the opposite of a “short” position or short selling.

Management Costs

A measure of the costs incurred when investing in a SPDR ETF. It Includes the Responsible Entity's fee and the Investment Manager's fee, which covers the funds normal operating fees and expenses. It does not include transactional fees such as ordinary brokerage and transactional fees for settling trades, and any interest or other charges on overdrafts.

Market Capitalisation

The market value of a company’s available shares, calculated by multiplying the total number of shares on issue by its current share price.

Market Maker

An entity appointed by the Responsible Entity for the purposes of providing buy and sell quotes in the Units of the Funds in order to help keep the market for the Funds liquid and trading efficiently.

Market Order

A buy or sell order in securities markets that an investor makes through a broker or brokerage stipulating the best available current price. Market orders are the default option when placing a trade and are likely to be executed because they do not contain restrictions on the buy/sell price or the timeframe in which orders can be executed. They are considered risky when market conditions are volatile because securities market prices can quickly and significantly change.

Market Risk

Market risk (or systematic risk) is the potential for an investor to experience gains and losses from general movements in securities prices. Market risk cannot be diversified away and is systematic of participation in that market.

Minimum Volatility Factor

A category of stocks that are characterized by relatively less movement in share price than many other equities.

Momentum Factor

The tendency for a security to maintain a certain direction of price trajectory. This tendency is well documented in academic research, which has made “momentum” one of the six smart beta factors that are systematically being isolated in new-generation strategic indexes.

Net Asset Value (NAV) Per Share

The market value of an ETF's total assets divided by the number of units outstanding. 

Price/Book Ratio

Current market price of the stock divided by the most recent reported book value per share for the prior fiscal year.

Price/Cash Flow Ratio

The closing price of a security as of the report date divided by the cash flow per share for the prior fiscal year as of the report date.

Price/Earnings Ratio

The closing price of a security as of the report date divided by the Earnings Per Share for the last 12 months as of the report date.

Primary Market

The part of the capital market in which new securities are issued by companies, governments or other groups. Primary markets are facilitated by underwriting groups, which consist of investment banks that set an initial price range for a given security and then oversee its sale directly to investors. In some countries, primary markets are also known as new issue markets (NIM).

Property Trusts

Trusts that enable investors to purchase an interest in a diversified portfolio of real estate assets. Investors in property trusts gain exposure to the value of the real estate the trust owns, and receive rental income through distributions the trust pays to investors.

Proxy

Written authorisation by a shareholder giving someone else (such as fund or company management) authority to represent his/her vote at a shareholder meeting.

Quality Factor

One of the six widely recognized, research-based smart beta factors that refers to “quality” equities. Companies whose stocks qualify exhibit consistent profitability, stability of earnings, low financial leverage and other characteristics consistent with long-term reliability such as ethical corporate governance.

Record Date

In Australia, the Record Date is the date an ETF closes its share register to determine which unitholders are entitled to receive the current dividend. It is the date where all changes to registration details must be finalised.

REITs or Real Estate Investment Trust

Companies that own and operate commercial properties, such as office buildings and apartment complexes.

Return on Equity

A measure of profitability calculated as the dollars of profit generated for each dollar of shareholders' equity.

Size Factor

A smart beta factor based on the tendency of small-cap stocks to outperform their large-cap peers over long time periods.

Secondary Market

The part of the capital market where investors purchase securities or assets from other investors, rather than directly from issuing companies. The national exchanges- such as the Australian Securities Exchange - are secondary markets. In any secondary market trade, cash proceeds from the buying investor to the selling investor rather than to an underlying company/entity.

Short Position or Short Selling

A strategy that seeks to profit from a decline in price of a stock or security. The short seller borrows the security and sells it to another investor, hoping the price falls and that he or she can buy it back at a lower price and lock in a profit. A short position is the opposite of a long position.

Small Cap

Stocks with a relatively small market capitalisations— generally companies with market values of between $300 million and $2 billion. Small-cap stocks are more volatile than mid-or large-cap stocks, but tend to deliver higher returns over longer time periods.

Smart Beta

Smart beta is a rules-based approach that seeks to capture specific factors — or investment characteristics — that active managers commonly seek exposure to, while preserving the benefits of traditional passive investments, including transparency, consistency and low cost.

SPDR

SPDR stands for Standard & Poor's Depositary Receipts, the name of the original exchange traded fund launched by State Street in 1993. It's pronounced "spider".

Strategic Asset Allocation

A long-term allocation of a fund across a variety of asset classes.  Portfolios are usually kept close to their strategic asset allocation, though if permitted by the fund, short-term tactical deviations may be taken with an aim to profit from risk or return opportunities.

Trading Halt

As defined in the ASX Listing Rules as an interruption to trading at the request of an entity that is not a suspension from quotation.

Ticker

A unique code used to identify listed companies.

Tracking Error

Tracking error is a statistical measure that describes how closely a fund's return is expected to track its benchmark. Tracking error of x% is interpreted as "over a one year period the fund's return is expected to be within x% of the index return two thirds of the time. Ex-post tracking error is the annualised standard deviation of actual excess returns or past performance. Ex-ante tracking error is the expected return deviation based on statistical relationships between securities. A low tracking error means the fund's returns have been very close to its benchmark returns. 

Unit Registry

Organisation which, on behalf of a company, records changes in unit ownership, issues unit holding statements and makes adjustments for dividend payments, etc.

Value Factor

One of the basic elements of “style”-focused investing that focuses on companies that may be priced below intrinsic value. The most commonly used methodology to assess value is by examining price-to-book (P/B) ratios, which compare a company’s total market value with its assessed book value.

Volatility

The tendency of a market index or security to jump around in price. Volatility is typically expressed as the annualised standard deviation of returns. In modern portfolio theory, securities with higher volatility are generally seen as riskier due to higher potential losses.

Yield

The income produced by an investment, typically calculated as the interest received annually divided by the price of the investment. Yield comes from interest-bearing securities, such as bonds and dividend-paying stocks.

Yield Factor

A factor which screens for companies with a higher than average dividend yield relative to the broad market, and which have demonstrated dividend sustainability and persistence.

Yield to Maturity

The market weighted average rate of return anticipated on the bonds held in a portfolio if they were held to their maturity date.