Financial glossary

Absolute return funds: Absolute return funds target at a constantly positive return under any market conditions.

Accumulated Deemed Distribution Income (ADDI): Aggregation of the income equivalent to distributions - a notional inflow in accordance with tax law.

Accumulation: Description for the reinvestment of income generated by a fund with the objective of increasing the amount of capital invested and thus income.

Active fund management: The portfolio manager actively engages himself with research and a targeted selection of securities in order to achieve a maximum return and to possibly outperform a competitive index. 

Admixture: Securities that do not form the main part of the investment policy but constitute a smaller part of the total portfolio.

Agio: See "Issuing premium".

AIF/Alternative Investment Funds: Collective term for closed-end and open-end investment funds that are not subject to the UCITS directive, such as open-end special funds or investment funds. These funds normally have a broader investment spectrum and/or a smaller risk distribution than funds that are compliant with the directive.

Annual report: Term for a business report that is prepared at the end of the financial year and is published within 4 months after the end of the financial year.

Arbitrage: Also "relative value". Taking advantage of price differences for the same securities on different markets. There is normally solely a short-term price advantage as the prices adjust to each other.

Asset allocation: Distribution of fund assets to the different investment classes. 

Asset class: Different types of securities, such as shares or bonds, are also called investment or asset classes. 

Asset management: Management of assets. 

BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht - Federal Financial Supervisory Authority): Institution under public law that monitors, among other things, compliance with the German investment company act (Gesetz über Kapitalanlagesellschaften) and the banking act (Gesetzes über das Kreditwesen).  

Basis point: A basis point corresponds to 0.01%. 

Bear market: Price drop at the exchange that lasts for a longer period. Opposite of a "bull market".

Benchmark: Comparative basis for the fund, normally an index such as the DAX.

Benchmark index: Also “Benchmark” Comparative basis for the fund, normally an index such as the DAX.

Blue chips: Term for public limited companies with a high market capitalization, hence large companies. 

Bond: Also "fixed interest security". Security that is used by companies to acquire loan capital. In contrast to a share, its owner becomes a creditor of the company instead of a shareholder and normally receives one interest payment and/or regular interest payments in return. There are different forms of bonds. They normally differ with regard to conditions, maturities, interest rate or currency.   

Bond fund: Fund that mainly invests in bonds.

Bond Quota: Describes the percentage of bonds in the total fund assets.

Bonds: English name for bonds. 

Bottom-up valuation: Analysis approach "from bottom to top" where first individual companies are analysed and only then the entire market, or respectively the entire sector.

Bull market: Longer lasting exchange boom. Opposite of "bear market".

BVI method: Standardised method for calculation of the performance of funds. It does not consider individual costs of the investor, such as issuing, redemption and portfolio management costs. 

Capital management company (Kapitalverwaltungsgesellschaft, KVG) / capital investment company (Kapitalanlagegesellschaft, KAG): A regulated service company that issues and manages funds and is also responsible for them, depending on the legal form of the fund.

Cash: Also called "cash reserve" or "liquid funds". Describes the part of the fund assets not invested in securities. Is normally retained by the fund to handle returns of shares and be able to quickly react to opportunities.

Cash reserve: Also called "cash" or "liquid funds". Describes the part of the fund assets not invested in securities. Is normally retained by the fund to handle returns of shares and be able to quickly react to opportunities.

Certificates: Derivative financial instrument that depicts the performance of certain underlying assets such as an index or a share Accordingly, the buyer acquires a debenture from the issuer with the risk of its total loss.

Closed-end fund: Closed-end investment funds.

Collateralized debt obligations: Structured bonds that securitize various claims in one security, in particular loan and mortgage claims.

Corporate bonds: Also "corporate bond". Term for a bond that is issued by a company.

Correlation: Statistical measurement to depict the dependence of various factors, for example price changes for a an individual share compared to changes in the overall market. 

Country funds: Funds that invest their assets primarily in certain countries.

Crash: Sharp slump on the markets.

Credit risk: Risk of default of the debtor.

Creditworthiness: Describes the solvency of a debtor.

Current expenses: Description of the share of costs (for administration, management, etc.) in the fund. In contrast to TER, this figures includes the pro rata TERs of the target funds in which fund has invested.

Custodian: Also “depositary bank” Description of the financial institution which maintains custody of the fund’s assets.

Custodian remuneration: Remuneration to which the custodian (depositary bank) is entitled to receive from the fund for its services. 

DAX: Abbreviation of Deutscher Aktienindex (German share price index). Comprises the 30 most important German shares and indexes the development of the German share market.

Deposit fees: Fees that depositary institutions, such as banks or fund platforms, charge the customer for the management of a deposit.

Depositary bank: see "Custodian".

Depositary bank remuneration: see "custodian remuneration".

Derivatives: Structured financial instruments that overproportionately reproduce the price developments of underlying assets and therefore have increased chances as well as increased risks. Examples: futures or options. 

Distributing funds: Funds whose income can be paid out to the investors, similarly to a dividend in case of shares. The opposite are accumulation (reinvesting) funds.

Distribution policy: Describes the handling of income of the fund assets. The income may either remain in the fund, i.e. accumulated, or be paid out to the investors, i.e. distributed.

Diversification: Spreading of investments to different securities, countries and sectors in order to distribute risks.

Dividend: Distribution of a profit share by a company to its shareholders. 

Dividend yield: Indicator calculated by dividing the dividend by the current share price multiplied by 100. Indicates the interest rate of the invested share capital per share in percent.

Dow Jones: US index. Comprises the 30 most important American stocks and indexes the development of the US stock market.

Duration: Indicator for rating the risk of fixed-interest securities that gives information about how sensitively the security reacts to market interest rate changes.

Eligible assets: Assets admissible in accordance with the UCITS directive, in which a fund compliant with the directive may invest.

Eligible underlying assets: Securities that are, for example, subject to an option and that correspond to the UCITS guidelines.

Emerging markets: Often so-called developing countries, with increased profit potential, but also increased loss potential.

Equity fund: A fund that mainly invests in shares.

Equity market: Market where shares are traded. Share trading may take place on or off the exchange.

ETF (Exchange Traded Funds): Passively managed funds that reproduce an index and therefore show a lower cost burden.

EuroSTOXX: European share index that shows the leading companies of the euro zone.

FATCA (Foreign Account Tax Compliance Act): US law on combating tax avoidance. 

Fixed-income securities: Securities with fixed, normally unvarying, interest payments.

Fixed interest securities: See Bonds.

Fixed-term deposit: Time deposit at a financial institution with agreed fixed maturity. Normally, the agreed interest rate during the term is also fixed.

Floater: Also "floating rate note". Bond with variable interest adjustment that is linked to a reference interest rate.

Forward: Agreement between two Parties to purchase or sell a certain quantity of a financial instrument at the previously defined conditions, whereby payment and delivery are carried out at a later time.  In contrast to futures, they are not traded in a standardised manner on an exchange, but individually agreed and concluded directly between the Parties.

Fund: Also "investment fund". A special asset that invests in securities and is managed by a capital management company.

Fund assets: Sum of all assets (i.e. all securities and liquid resources etc.) of which the fund consists.

Fund category: Reflects the focus of the fund.

Fund manager: See "portfolio manager".

Fund of funds: Funds that invest the fund assets in other open-end investment funds, the so-called target funds.

Fund price: see also "NAV" or "net asset value".

Fund rating: Appraisal/evaluation of a fund awarded by a rating agency on the basis of various criteria.

Fund share: Smallest portion of the fund assets that can be traded.

Fundamental analysis: Attempts to determine the intrinsic/fair value of a security, based on business data and the economic environment, and to make investment decisions on that basis.

Futures: A standardized futures contract between two anonymous market participants where the seller undertakes to deliver a standardized quantity of a certain financial instrument at a certain price and at a defined future point in time, and the purchaser undertakes to make the purchase.

Gains from real estate: The gains from real estate include, for example, rents not yet accrued or not yet considered as accrued, as well as realized and not realized changes in value of the real estate in the fund. In case of a fund of funds, the gains from real estate also include the gains from real estate by the target funds. The gains from real estate are published as percentage of the net asset value.

Gross performance: Performance without consideration of the individual costs of an investor, calculated with the BVI (Bundesverband Investment und Asset Management- Federal association for investment and asset management) method.

Growth strategy: Investment approach where the future profit development of a share is regarded. For this, shares tending to overproportionate profit prospects are selected, while accepting that the share are rather expensive compared with other benchmarks.

Half-year report: Business report of a fund in the middle of the financial year. It is published within the first two months after the end of the first half of the financial year.

Hedge funds: See "AIF".

Hedging: Also “Hedging” The portfolio manager has various instruments at his disposal for hedging against price losses, such as futures and options.

Income equivalent to distributions: Income of a fund that is not distributed but remains in the fund assets. The annual amounts are accumulated, classified as accrued for tax purposes and must be declared in the tax return. 

Index: Reflects the development of selected securities, included contained in the index, in a weighted form. Example: the German share index DAX.

Index fund: Fund that recreates a certain index. 

Interim gain: Share in fund assets attributable to profits that have not yet been accumulated or distributed. Upon the sale of the share, the interim gain is paid out to the extent it has not been invested or distributed.

Investment advisor: A person or team who is/are consulted due to special market knowledge to make  recommendations about the purchase and sale of securities to the portfolio manager of a fund.

Investment degree: Difference between the fund assets and the fund's cash reserve. Term for the invested part of the fund assets.

Investment fund: A special asset that invests in securities and is managed by a capital management company.

Investment horizon: Describes the temporal target of the investment and/or the recommended holding period of the fund shares.

Investment limits/investment principles: They describe the legal framework within which the fund may make various investments in securities. The definition for each fund can be found in the respective sales brochure.

Investment policy: The investment policy describes the strategy and instruments that are available to the portfolio manager of a fund.

Investor profile: Summary of the characteristics of an investor typical and/or suitable for this fund.

ISIN: Abbreviation of International Security Identification Number. Term for the identification number of a security or a special asset.

Issue: Issue of new securities.

Issuer: Entity issuing securities in order to raise capital.

Issue price: Sum of net asset value and issuing premium. The issue price must be paid at the purchase of fund shares.

Kapitalanlagegesetzbuch (KAGB, German code of investment): Successor of the "Investmentsgesetzes" (investment act). German legislative basis for the administration of open-end and closed-end funds.

Key Information Document (KID): Mandatory sales document that summarised the “most important investor information” on two pages and is updated at least once annually.

Management fee: Costs incurred for the management of a fund. For example, this includes costs for fund accounting.

Market capitalisation: Product of the sum of all shares of a public limited company and its market price. Describes the market price of the public limited company.

Maximum loss: Also referred to as “maximum drawdown”. Depicts the maximum cumulative loss in value of a fund within the respective period.

MDAX: German share price index. Includes 50 companies, who rank lower than  the companies listed on the DAX, i.e. medium-sized companies.

Micro-finance fund: Fund that indirectly provides micro-loans to entrepreneurs in emerging/developing countries.

Micro-finance institution (MFI): Institution, similar to a bank, that grants micro-loans and provides borrowers with advice and support.

MidCaps: Companies with a medium-range/market capitalisation.

MiFID(Markets in Financial Instruments Directive): EU Directive for purposes of harmonising competition in the financial sector with the objective of providing improved investor protection.

Minimum subscription amount: Fixed minimum amount in order to acquire shares of a fund.

Minority shareholders: Shareholders whose voting right carry little weight due to their small participation in the company.

Mixed funds: Fund that mixes various investment categories, for example share or bonds depending on conditions in the market.

Momentum: Figure that is intended to provide information on the speed and strength of the upward movement of a share. Is frequently used in order to identify the ideal time to buy.

Money market fund: Fund that mainly invests in money-market papers.

Money market papers/instruments: Short-term debentures with a maturity of normally up to one year. In Germany, they traditionally include government securities such as treasury bills and financing treasury notes, furthermore also debentures with a maturity of less than one year from banks (certificates of deposit) and from companies (commercial papers).

Mortgage bonds: Fixed-interest and primarily long-term bonds issued by mortgage banks or credit institutions established under public law. Mortgage bonds are deemed to be low-risk investments as they are collateralised.

NAV (Net Asset Value): Abbreviation for “Net Asset Value”, i.e. the value of the underlying assets. See also “Fund price”.

Net asset value strategy: See “value strategy”.

Net performance: For the investor, the individual performance of a fund where the investor’s individual costs (in the model calculation, the investor’s individual costs are the full issuing premium and the redemption fee if applicable) are taken into account. 

Open investment fund: Fund, whose shares  are not limited and may generally be redeemed at any time.

Option premium: Price paid by the buyer of an option for the right it represents or the price the seller of the option receives as consideration. The amount depends on a variety of factors, e.g. term, exercise price, expected  performance of the underlying asset and its volatility. The option premium must also be paid if the buyer does not exercise its option right and permits the option to lapse.

Options: A securitized right to buy or sell a certain security (underlying asset) at an agreed price at a later time. 

Outperformance: If a fund or its portfolio manager generates additional yield above a given benchmark, this is referred to as outperformance.

Performance: Indexes the history of a security or a fund and indicates how the share price has changed.

Performance fee: See “Performance-based remuneration”.

Performance-related remuneration: Also "performance fee". Term for the remuneration the portfolio manager receives if he reaches or exceeds a certain target. The exact amount and targets are defined in the sales brochure.

Portfolio manager: Also “fund manager”. Individual or team of specialists that make investment decisions for the fund.

Private equity: A form of investment capital that is not raised via the stock exchange/regulated market. As the generally involves risk capital that is frequently invested in very young companies, private equity investments are seen as risky.

Public funds: Neither the number of shares nor the group of eligible investors are subject to restrictions. The shares may be purchased by anyone. Opposite to special fund, closed-end fund.

Public limited company (Aktiengesellschaft - AG): Legal form of a company where the share capital of the company is distributed among shareholders.

Ranking: Mathematical evaluation process as part of which comparable funds are ranked, e.g. based historical performance or volatility.

Rating: Forecast process in which various criteria such as quality, creditworthiness, development, etc. of an entity (e.g. company or fund) are evaluated.

Real estate funds: Funds that mainly invest in real estate. 

Redemption price: Difference between the share price and the redemption fee. Amount received by an investor upon the redemption of shares in a fund.

REIT: "Real Estate Investment Trust". Name for a listed real estate company/ financial intermediary/company that primarily acquires and manages real estate companies.

Relative value Analysis/approach: also referred to as “Arbitrage”. Taking advantage of price differences for the same securities on different markets. There is normally solely a short-term price advantage as the prices adjust to each other.

Research: Analysis of securities or markets with regard to opportunities and profitability and/or risk.

Risk management: Principle of risk diversification / spread of assets among different asset classes in order to reduce overall risk.

Rolling 12-month performance: Form of presentation in which the directly preceding 12 months over a term of a least five years are always considered. 

S&P 100: A share index developed by the rating agency Standard & Poors that shows the 100 largest US-companies.

Safety margin: Value Investing concept where only those securities are purchased whose market price is significantly below its intrinsic value (i.e. based on an estimate of the fair value by the portfolio manager). This difference is referred to as the safety margin.

Sales prospectus: Obligatory document that includes all relevant information on a fund for the investor and serves at the basis for the investment.

Savings plan: Regular payment of a certain amount to create wealth and/or purchase shares in a fund.

Second-line shares: Also referred to as "small caps".  Shares in the smaller companies/public limited companies will low market capitalisation. 

Sector funds: Funds that invest in securities of certain sectors (e.g. biotechnology).

Securities account: Account of an investor at a bank or fund platform, where securities and fund shares are deposited.

Securities ID number (SIN): Six-digit identification number for securities/funds.

Separate funds: See “Funds”.

Share class: A fund can offer several share classes that differ, for example, with regard to distribution of income, currency or investor structure.

Share profit: Quota in the fund's increase in value that is attributable to the shares included in the portfolio and is relevant for the taxation of commercial investors.

Share Profit KStG: Information relevant for the corporate income tax declaration, which describes the quota in the fund's increase in value that is attributable to the shares included in the portfolio. 

Shareholder value strategy: Management approach that give priority to shareholder success and acts accordingly.

Shares outstanding: Amount of all fund shares issued.

Sharpe ratio: Ratio that depicts the excess yield of a fund in relationship to its risk. Subject to otherwise consistent conditions, the fund with a higher Sharpe Ratio has less risk.

SICAV: "Société d'Investissements à Capital Variable". Legal form for an investment fund whereby the fund is an independent company under the laws of Luxembourg. Comparable to a German Investment-AG.

Special funds: In contrast to a public fund, the pool of eligible investors is highly restricted in this case and is mostly reserved for one or a few institutional investors.

Squeeze-out: Process to force out minority shareholders by a large shareholder, who owns at least 95% of the company. The minority shareholders are generally forced out of the company in exchange for a suitable cash compensation.

SRRI: "Synthetic Risk and Reward Indicator". Indicator used to depict the riskiness of a fund. It is based on the volatility of a fund and is indicated on a scale of 1 (almost none) to 7 (very high).

Stock: Security which allocates to its owner a shareholder right in a public limited company.

Stock option: A securitized right to buy or sell a certain share at an agreed price at a later time. 

Stock quota: Percentage of shares in the total fund assets.

Strike price: Determined price at which the owner of an option may for example purchase or sell the underlying asset.

Subscription Fee: Premium in favour of distribution that is incurred on the purchase of fund shares and summed with the net asset value results in the issue price.

Takeover offer: Description for an offer directed at shareholders according to which the shares of a company are to be transferred in exchange for cash compensation to a large shareholder who is making the offer.

Target fund: If a fund purchases other investment funds as part of its portfolio, they are called target funds.

Technical analysis: Also “chart analysis” Derives conclusions for determining the ideal time to buy or sell based on past developments/reactions in the markets. 

TIS (Taxable Income per Share): The amount per share that is subject to EU tax on interest upon sale, i.e. the accumulated interest portion of the daily redemption price.

Top-up right: In many cases, the compensation payment in a “squeeze-out” is below the current market price. In order to compensate the minority shareholders for this loss, they receive this securitised top-up right.

Total Expense Ratio/TER: Indicates the part of the fund's costs that have occurred during the previous financial year, for example for administration and management. Does not include transaction costs and performance fees. All costs are already considered in the share price of the fund.  

Tracking error: Risk measurement that indicates the degree to which a fund deviates from its benchmark index. A larger tracking error represents a very high degree of deviation, generally found in the case of actively managed funds. A low tracking error represents low deviation, generally in the case of index funds.

Trend-based trading approach: Rule-based strategy for technical analysis. The core principle is to analyse price changes rather than the fundamentals for traded assets.

Turnaround situation: A turnaround situation is a situation in which a company is facing certain difficulties (e.g. lawsuits, indebtness or operational issues) and an investment represents high opportunities but also high risks.

UCITS: "Undertakings for Collective Investments in Transferable Securities". International term for the UCITS.

UCITS guidelines: Defines the special requirements applicable to funds and their management companies. In this context, one focal point is the regulation of the permissible assets in which an UCITS may invest (“eligible assets”).

Umbrella fund: Fund structure under which various sub-funds are managed.

Underlying: Security, such as a share, that underlies an option, i.e. that can be purchased or sold with the option. 

Undervalued security: In the opinion of the portfolio manager, the fair/intrinsic value of a security is below over the current market price. The security is thus undervalued in his opinion

Value strategy: Investment strategy in which the purchase and sales decisions for securities are made exclusively on the basis of the real economy equivalent of the investment (market price), the so-called intrinsic/fair value.

Volatility: Indicator of the degree of fluctuation in fund prices.

Withholding tax: (Income) Tax on income that is directly deducted at the source of the payment and remitted to the competent tax office.

Yield: Indexes the performance of an investment taking into account interest and dividend income, price changes and the amount of capital invested.

Yield/risk profile: Relationship between expected capital gains and the risk of an investment.

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