Glossary · 35 terms
Glossary: the words behind the numbers
Every figure on Fundology rests on a definition, and most fund comparisons go wrong on a definition rather than on arithmetic. These are the ones we use, in plain English, each with how we calculate it where that applies.
Costs
- Fee dragThe cumulative amount a fund’s ongoing charges remove from a holding over a period, compounded year on year.
- OCFOngoing Charges FigureThe annual cost of running a fund, expressed as a percentage of the money you have invested in it.
- TERTotal Expense RatioAn older measure of a fund’s yearly running costs, still quoted by many ETF providers and broadly comparable with the ongoing charges figure.
- Tracking differenceHow far a fund’s return differed from the return of the index it tracks over a period — usually a small shortfall close to its charges.
Returns
- BenchmarkAn index a fund’s performance is measured against, stated with its own currency and return basis.
- Calendar-year and discrete returnsA fund’s return in each separate period — each calendar year, or each of the last five 12-month periods — instead of one figure across several years.
- CPIHConsumer Prices Index including owner-occupiers’ housing costsThe lead official measure of UK consumer inflation, extending CPI to include the cost of owning a home.
- Dividend yieldThe income a fund or share has paid over the last twelve months, as a percentage of its current price.
- Real returnA return after inflation has been removed — what the money can actually buy.
- Total returnThe return of an investment including income (dividends or interest), not just the change in price.
Risk
- Currency hedgingA way for a fund to reduce the effect of exchange-rate moves between the currencies of its holdings and the pound.
- Leveraged and inverse ETPsExchange-traded productsExchange-traded products that aim to deliver a multiple of an index’s return — such as two or three times, or the opposite — over a single day.
- Maximum drawdownThe largest peak-to-trough fall over a period — the worst loss a holder would have sat through.
- Sharpe ratioReturn earned per unit of volatility — a way of comparing results that were achieved with different amounts of risk.
- Sortino ratioLike the Sharpe ratio, but measuring only downside volatility.
- VolatilityHow much a fund’s returns vary around their average, usually stated as an annualised standard deviation.
Tax wrappers
Fund structure
- Accumulation vs income unitsAccumulation units reinvest the fund’s income automatically; income units pay it out as cash.
- Effective number of holdingsHow many equal-sized holdings would make a portfolio as concentrated as it really is.
- ETFExchange-Traded FundA fund whose units trade on an exchange throughout the day like a share.
- GiltsBonds issued by the UK government: it borrows money, pays interest (usually twice a year) and repays the face value on a set date.
- Holdings overlapThe share of two funds’ portfolios that consists of the same underlying holdings at the same weights.
- Index fundTracker fundA fund that aims to match the return of a market index, such as the FTSE 100 or the S&P 500, by holding the shares or bonds in it.
- Investment trustA company listed on the stock exchange whose business is investing in other assets. Its shares trade at a market price that can differ from the value of what it owns.
- ISINInternational Securities Identification NumberA 12-character global identifier for a specific security or fund share class.
- Money market fundA fund that lends money for short periods to governments, banks and large companies, aiming to keep its value steady and earn a return close to short-term interest rates.
- NAVNet Asset ValueThe per-unit value of a fund’s assets after its liabilities, normally struck once per day.
- OEICOpen-Ended Investment CompanyA UK fund set up as a company that creates or cancels shares as money comes in or goes out, priced once a day at the value of what it holds.
- Physical and synthetic replicationThe two ways an index fund can track its index: by holding the securities in it (physical) or through a swap contract with a bank (synthetic).
- Share classA variant of the same fund with its own charges, currency or income treatment — and its own ISIN.
- Specialist Fund SegmentSFSThe part of the London Stock Exchange for specialist closed-end funds aimed at institutional, professional, professionally advised and knowledgeable investors.
- UCITSUndertakings for Collective Investment in Transferable SecuritiesA European regulatory framework for retail funds, setting rules on diversification, liquidity and disclosure.
Tax
How the figures themselves are produced is set out in the methodology. For the rules on ISAs and pensions, see the ISA and pension guides. This is information, not advice.