A measurement of the risk-adjusted performance, considering the risk due to the specific security rather than the overall market. A positive alpha indicates that the securities or strategy have performed better than would be predicted given its volatility. Arbitrage
The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time. Asset Allocation
An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon. Authorised Participant
An entity chosen by an ETF sponsor to control creations and redemptions in the fund and also to source the necessary underlying assets for investment.
A unit of a fund or collective investment scheme equal to 1% of 1%, or 1 / 10,000th, of the fund's total NAV. 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, mutual 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 measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns. Passive products like State Street SPDR ETFs aim to provide a beta close to one, meaning that they are supposed to deviate as little as possible from their underlying index returns. Bid Price
The price a prospective buyer is prepared to pay at a particular time for trading a unit of given security. Buying on the Margin
Purchasing an asset by making a down payment (called the margin) and financing the balancing amount through a loan by using the asset as the collateral (such as in a mortgage loan). In securities trading, only a down payment is required because the value of the securities themselves (which remain in the possession of the broker or seller) fully collateralises the unpaid amount.
This is the amount that a capital asset increases in value over the time it is owned. The capital gain is not realised until the asset is sold. In most cases capital gains are subject to capital gains taxes. Capital Market Instrument
An instrument which facilitates the transfer of capital in the financial markets, such as an equity, bond or State Street SPDR ETF. Cap Weighted Index
A capitalization-weighted index is one in which the components are weighted according to the total market value of their outstanding stock. It is also known as market value-weighted index. Collective Investment Scheme
This name is given to a financial vehicle which allows investors to pool their assets for investment management purposes to accomplish certain investment goals. Pooling assets in such a way creates cost efficiency through economies of scale. Core-Satellite Approach
This describes the way in which investors allocate their assets or how a product supplier structures their product offering. 'Core' describes the more commonplace or mainstream products, whereas 'Satellite' refers to more exotic strategies. Investors may balance what proportion of their capital they will allocate between the two approaches. Counterparty Risk
The risk of default of one party in a particular transaction. Currency Fluctuations
Changes in the value of one currency relative to another.
Distribution yield is a measurement of cash flow paid by an ETF. Dividend Yield
The Dividend Yield measures the weighted average of gross dividend yield of stocks in the fund, not the dividend yield of the fund.
An Exchange Traded Fund (ETF) is a collection of securities that tracks, and is intended to represent, the performance of a broad or specific segment of the market (e.g. domestic equities, small cap stocks or emerging markets). An ETF is similar to an index mutual fund but trades like a stock throughout the day. ETFs combine the features of index mutual funds with individual securities. Like index mutual funds, ETFs allow investors to track a vast range of indices. Like individual stocks, ETFs give investors the flexibility to buy and sell on the major stock exchanges throughout the day, at the market price. Like stocks, investors can place stop loss and limit orders on ETFs. They can even be bought on margin and sold short, subject to your broker's terms and conditions.
An entity, such as a private bank, independent financial advisor or wealth manager, who manages financial affairs on behalf of their clients.
The act of taking a position in order to reduce the risk of potential price movements in other investments. Holdings
All the saleable assets found in a fund. This includes all shares, cash and other financial instruments.
Indicative net asset value is calculated and published throughout the trading day on a minute by minute basis. iNAV is calculated by taking into account the market prices of individual holdings in a fund. This value can be used to provide an up to the minute indication of what an ETF is worth that can be used to check investors own calculations or, by comparing the iNAV with bid-ask spreads, to see whether an ETF is being priced fairly in the market. Indexing
A method used by investment managers in order for their product to track a specified index. This is traditionally achieved by continuously rebalancing the securities in the investment vehicle to match the weightings of the target index. Intraday
Another way of saying within the day. The term is used to refer to prices which are updated frequently throughout a business day. This is common for equities, ETFs and indices, as opposed to mutual funds which price only once daily at close of business. Intraday pricing normally implies that the product had intraday liquidity.
This is a term used to describe an investor's ability to convert a particular product into cash. A product which has high trading volumes is easy to buy and sell, and therefore liquid. Liquidity is attractive for investors as it makes their investments more realisable, allowing them to change strategy or generate cash quickly.
The price of an asset determined by market forces. While open-ended funds are usually bought and sold at net asset value (NAV), the market price of an ETF may be different from its NAV. However, the ETF creation and redemption process is designed to ensure that ETFs will usually trade at market prices that are close to their NAVs. Market Risk
Market risk (or systematic risk) is the potential for an investor to experience losses from movements in securities prices. Investors can protect themselves from market risk by buying less risky assets which are less prone to volatile fluctuations.
Market value of a mutual fund's and ETF's total assets, minus liabilities, divided by the number of shares outstanding. NAV per share
A fund's NAV per share is the proportion of its net assets allocated to each share of the fund. It represents the value of each share of the fund i.e. (Assets - Liabilities) / Shares Outstanding. ETFs are sold at their market prices, which may be at a premium or discount to NAV. The creation and redemption process is designed to bring an ETF's market price back towards NAV, thus avoiding a prolonged period of premium or discount to NAV.
The price that a seller is willing to sell a certain security. A broker's offer price will normally be his most recent low offer. Open Ended Fund
This describes a fund that has no restrictions on the amount of shares it can issue; a form widely used by ETFs. By issuing new shares to new investors, the fund's NAV per share moves in a way to reflect only the performance of the underlying index. Shares can also be retired from the market if necessary. OTC
Acronym for Over The Counter. OTC transactions are trades not done via an exchange. This term usually applies to derivative instruments which can be more bespoke than other financial instruments, making them harder to trade on an exchange.
Passive portfolio management is a style of portfolio management associated with mutual funds and ETFs where a fund's portfolio mirrors a market index. Passive management is the opposite of active management in which a fund manager attempts to beat the performance of the market. Primary Market
This term refers to the market in which ETF shares are created or redeemed directly with the issuing company. For State Street SPDR ETFs the primary market is accessed through our Authorised Participants who have the ability to create and redeem shares in the funds. Physical Replication
This is an investment style adopted by the investment managers for State Street SPDR ETFs. To replicate the performance of a benchmark index our investment managers will buy the same stocks and apply the same weightings of those stocks as the index. This approach means the fund is actually directly invested in the companies as opposed to gaining exposure through derivative positions. By adopting a physical replication approach the fund avoids the greater counterparty risk inherent in derivative strategies.
The process of delivering shares back to a fund in exchange for cash. The opposite of a creation.
This describes a market where investors buy and sell the assets, such as ETFs, of other investors rather than from the issuer of the assets. Large exchanges such as the London or New York Stock Exchanges are secondary markets. Short Selling
Short selling is selling a security not owned in anticipation of subsequently buying an identical security at a cheaper price before the sale has to be closed out. Short sellers sometimes complete their sales through the delivery of borrowed stock. Spread
This is the difference between the bid price and the offer price of a security.
Total Expense Ratio (TER)
Acronym for Total Expense Ratio. The ratio refers to the expenses paid by a fund, such as management fees, trustee's fees and operational costs, such as trading and custody, expressed as a percentage of a fund's assets. Tracking Error
The difference in the performance of a fund when compared to its benchmark. Passive management attempts to minimise tracking error by replicating the benchmark as closely as possible. It is referred to as tracking error even when the fund has outperformed its benchmark.
This is the measure of the amount of shares or number of units of a particular security traded over a given period of time. Volume is a useful measure of the liquidity of a security.
Important Risk Information
Asset Allocation is a method of diversification which positions assets among major investment categories. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Diversification does not ensure a profit or guarantee against loss.
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