ETFs Glossary

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Active management

The process of hand selecting securities with the purpose of trying to outperform a benchmark index. Active portfolio managers use economic data, investment research, market forecasts, and other indicators to help make investment decisions.

After tax return

The return from an investment after all income taxes have been accounted for and deducted. The SEC has adopted a number of rule and form amendments requiring mutual funds to disclose standardized after-tax returns. The amendments require a mutual fund to disclose standardized after-tax returns for 1-, 5-, and 10-year periods in the risk/return summary of the prospectus.

Alpha

A measure of performance in percentage above or below what would have been predicted by risk as suggested by its Beta. Positive alpha means a fund performed greater than its risk would suggest, while negative Alpha means the fund under performed. An ETF of Alpha 1.5 outperformed its index by 1.5% as predicted by its Beta.

American Depository Receipt (ADR)

Receipt for the shares of a foreign based company held in the vault of a U.S. bank. Shareholders of ADRs are entitled to receive all dividends and capital gains. Individuals that want to own a foreign company without buying it on an overseas market can purchase an ADR listed on U.S. exchanges.

American Stock Exchange (AMEX)

The Amex was known until 1921 as the "Curb Exchange", and to this day is sometimes affectionately referred to as the "Curb". The stocks and bonds traded on the Amex tend to be those of smaller to medium sized companies compared to firms listed on competing exchanges like the NYSE and NASDAQ. In recent years, the Amex has become a leading developer and listing place for exchange-traded funds or ETFs. The Amex is located in downtown Manhattan.

Annual turnover

Percentage of value of stocks in a portfolio that are sold and replaced with new stocks each year. Turnover in indexing should be low.

Ask price

Lowest price any seller is willing to accept for a security at a given time.

Asset allocation

The process of apportioning investments among various asset classes, such as stocks, bonds, commodities, real estate, collectibles and cash equivalents. Asset allocation affects both the risk and return of investors, and is often used as a core strategy in basic financial planning.

Asset class breakdown

Percentage of holdings in different types of investments, ie. large stocks, international, bond, etc.

Asset class breakdown

Percentage of holdings in different types of investments, ie. large stocks, international, bond, etc.

Authorized Participant

Often called a specialist, this sophisticated professional trading firm helps create (trade stocks for an ETF) and redeem (trade an ETF for stocks) ETFs.