ETF Glossary - Iscore Advisor

Glossary	Definition
ALPHA	A statistical measure of performance adjusted for risk.Alpha reflects the amount by which a mutual fund or portfolio outperforms or underperforms based upon its level of risk. Positive alpha means a portfolio’s risk-adjusted performance was higher compared to its corresponding benchmark index. Negative alpha means a portfolio’s risk adjusted performance was lower compared to its index.
Actively Managed ETF	An actively managed ETF uses an active investment strategy to meet its investment objective.The investment strategy is not based on an index, however an actively managed ETF may have an index-based benchmark. The investment strategy is based on the portfolio manager’s expertise and is described in the prospectus for the ETF.
BETA	Beta is a volatility measurement of a stock mutual fund or ETF versus a comparable benchmark like the S&P 500 stock index. A stock fund or ETF with a higher beta than the S&P 500 will rise or fall to a greater degree. In contrast, a stock fund or ETF with a low beta will rise or fall less.
CLOSED-END FUND	Closed-end funds issue a fixed number of shares through an initial public offering and often use leverage to magnify their performance.Closed-end funds are bought and sold just like stocks and their share price often trades at a noticeable discount or premium to the fund’s net asset value.
CLOSET INDEX FUND	An actively managed fund that closely mimics the volatility and performance of an index fund.
CREATION UNIT	A creation unit is a block of new shares sold by an exchange-traded fund (ETF) company to a broker-dealer for sale on the open market.Creation units are usually transacted in 50,000 share increments, making them large dollar transactions limited to large institutions and other authorized participants. Instead of receiving cash, the seller of a creation unit would receive a basket of securities that corresponds to the portfolio holdings in a particular ETF. This “in-kind” transfer process is unique to ETF’s and does not create tax consequences for the seller.
Creations/Redemptions	ETF shares are created when an “authorized participant” deposits a daily “creation basket” (or cash) with the ETF/ETF shares may be redeemed through the reverse of the creation process. That is, an authorized participant presents the specified number of ETF shares to the ETF in exchange for a “redemption basket” of securities, cash, or both, which typically mirrors the creation basket.
EXPENSE RATIO	The expense ratio of a mutual fund or ETF covers the cost of investment management, legal and administrative expenses, marketing fees and other associated expenses. The expense ratio does not include the cost of acquiring a fund, such as commissions or sales loads, and it’s expressed as a percentage of the fund’s average daily net assets.
FUND FLOWS	Describes the money flow into or out of mutual funds and ETFs. The Investment Company Institute (ICI) tracks and reports monthly fund flow data.
FUND OVERLAP	Fund overlap refers to the duplication in owning two or more ETFs or mutual funds that have the same identical securities and/or underlying investment strategy. Investors are effectively paying twice for double work. They pay one fund company to execute an investment strategy and then they pay again to a competing fund to do the exact same work.
Fund of Funds or ETF of ETFs	A fund seeking to achieve its investment objective by investing primarily in other funds or exchange-traded funds.
HEDGE	A strategy used to reduce financial risk or the possibility of loss. For example, an investor owning 100 shares of an S&P 500 stock fund could hedge that long position by owning a short position or put options on the S&P 500 index.
INCOME FUND	A mutual fund, closed end fund, or ETF that has generating income, as the primary investment objective. Income can be derived from various sources, including interest payments, dividends, and capital gains
Indicative Value	A measure of the intraday net asset value (NAV) of the exchange-traded fund (ETF), which gives an updated measure of the value of the investment based on its assets less its liabilities. An investment’s NAV is usually calculated at the end of the trading day, but the indicative NAV measure gives a more real-time view of this value. Note that indicative NAV is not the price at which you can purchase the instrument; it is only used as a reference for the investment’s underlying value. In many cases, the ETF may trade at a premium or discount to the NAV due to various factors such as supply and demand, and expectations. The symbol for most indicative values is the ETF ticker symbol with an “.IV” (ETF.IV)
INDEX FUND	A type of mutual fund or ETF that attempts to match the performance of a stock, bond or commodity index. Index funds are sometimes referred to as passive funds and are notorious for their tax efficiency and low fees. Some index funds follow traditional market cap indexes whereas others follow an equal weight or fundamental indexing approach.
INVESTMENT GRADE	Bonds whose issuers are rated AAA to BBB for safety and ability to repay principal by Standard & Poor’s or Moody’s Investors Service.
LEVERAGED ETFs	The main objective of leveraged ETFs is to deliver magnified performance of a particular stock, bond or commodity index. Most leveraged ETFs attempt to duplicate daily index returns by two or three times. Short leveraged ETFs aim for daily index returns that move in the opposite direction, but with magnified performance of two or three times.
LIQUIDITY	Liquidity refers to the ability to convert an asset to cash without substantially affecting its price. Assets that are quickly converted to cash have good liquidity whereas those that take time are less liquid. The liquidity of an ETF is best determined by the liquidity of the securities in its underlying stock, bond or commodity index along with the trading volume of the ETF itself. General market conditions are another secondary factor which can influence an ETF’s liquidity.
MSCI	MSCI distributes index and company-level data and also licenses the MSCI indexes to third parties for the purposes of creating mutual funds, ETFs, OTC derivatives and other financial products.
Premium to NAV	Unlike regular mutual funds, which are bought and sold directly from the fund company at the net asset value of their portfolio securities, ETFs trade at prices determined by the market forces of supply and demand. A fund that trades at a price higher than its NAV is said to trade at a premium to its NAV.
PERFORMANCE DRAG	A reduction of portfolio performance due to various factors. An example of performance drag occurs when gains within a portfolio are offset by various expenses, such as management fees, transaction costs and taxes. These expenses create a drag or negative effect on the portfolio’s performance.
PORTFOLIO TURNOVER	Portfolio turnover measures the frequency by which securities within a mutual fund or ETF are bought and sold. Turnover is determined by the dollar value of buys or sells (whichever is less) during a year divided by the total assets in the fund. For example, a mutual fund with $200 million in assets that has $100 million of sales and $100 million worth of purchases (using the same proceeds) during the year would have a 50% turnover rate, indicating an average holding period of two-years. A turn over rate of 100% signifies that a fund manager has sold the fund’s entire portfolio and bought new holdings during the course of a year. High portfolio turnover translates into higher investment costs whereas low portfolio turnover is better because it lessens the impact of trading and tax related expenses.
Prospectus	Required by securities laws and issued by mutual fund companies and ETFs, the prospectus is a legal document that discloses the investment objectives of the fund, operating history, fund management, management fees, portfolio holdings, and other related financial data. Brokers are required to give a prospectus to investors before they invest in an ETF.
R-SQUARED (R2)	R-squared measures the correlation of a fund’s movement in comparison to its corresponding benchmark. An R squared score of 1.00 would indicate a perfect correlation, whereas a score of 0.00 indicates no correlation.
SEC YIELD	A yield calculation developed by the SEC to standardize yield data for mutual funds, close-end funds, and ETFs. The calculation uses the fund’s net investment income over the last 30 days, minus income generated from capital gains or other sources. SEC yields are often quoted for bond funds.
SHARE CLASSES	Some mutual funds use multiple share classes for the same underlying portfolio. For example, investors that buy A shares pay an upfront sales charge to enter a fund, whereas a class B share would defer the sales charge. Some mutual fund families like Vanguard offer their ETFs as an additional share class of existing index mutual funds.
SHARPE RATIO	A measure of a fund’s historical returns adjusted for risk or volatility. The calculation is fund return minus the return on 3-month treasury bills divided by the fund standard deviation.
SHORT ETFs/INVERSE ETFs	The main objective of short ETFs is to deliver inverse or opposite performance to a particular stock, bond or commodity index. Most short ETFs attempt to duplicate daily index returns in the opposite direction. Some short ETFs aim for daily index returns in the opposite direction but with leverage or magnified performance.
STYLE BOX	The investment style box is a visual tool that classifies mutual funds and ETFs by the size (large, mid or small) of stocks a fund holds along with the investment style of stocks (value, growth or blend) it holds. The style box has nine investment categories or styles and was developed by Morningstar.
TARGET DATE FUND	A type of mutual fund or ETF that automatically adjusts its mix of stocks, bonds and other assets based upon a specified year or target date. Typically, a target date fund will reduce its exposure to stocks as it approaches its planned target date and maintain a fixed allocation for the remainder of time.
WINDOW DRESSING	Denotes the selling of underperforming securities by money managers just before the end of each quarter, so these holdings don’t appear in shareholder reports as significant investment positions. This selling activity is often accompanied with buying activity of strong performing securities. After quarterly reports are issued, the portfolio will reveal positions in strong performing securities, despite the fact that the majority of the capital gains in these were never experienced by shareholders. Window dressing is a cosmetic affect and adds little or no value.