Glossary of Terms

A B C D E F I L M N P R S T U W

Additional investment

An extra amount added to an existing investment.
Also commonly referred to as: Buy units, purchase, ad hoc investment, top-up, and additional contribution.

Alpha

Alpha measures a fund’s performance against a benchmark. A positive alpha of 3% means a fund has outperformed its benchmark by 3%. Similarly, a negative alpha of 3% means the fund has underperformed by 3%.
Also commonly referred to as: Outperformance

Active management (active investing)

An active fund manager like Coronation will conduct extensive research to identify mispriced assets trading at discounts or premiums to their long-term business values. Passive investing, on the other hand, simply tracks a benchmark. [See tracker fund.]

Annual management fee

A fixed fee paid to an investment manager for managing investments. The annual charge will depend on the type of fund.

Annualised return

The investment return over a specific period scaled up or down to an average annual figure. For example, if a fund produced a return of 30% over three years, its annualised return was 10% a year.

Asset allocation

The allocation of investments among different types of assets (such as shares, bonds, listed property and cash) to diversify risk and enhance returns.

Benchmark

A standard against which the performance of a fund is measured.

Bond

A bond is a contract between a borrower and a lender; basically an “IOU”. In the contract, the borrower (for example, the government or a company) commits to repay a loan on a specific date, and to make periodic interest payments. These contracts (bonds) are bought and sold on the market. The value of bonds are impacted by changes in a country’s interest rates. If interest rates increase, bonds are negatively impacted as their rates suddenly look less appealing. When rates are lowered, bonds usually receive a boost. (See duration.)

Building block fund

A single asset class fund, for example shares or bonds. Different building block funds can be used to diversify an investment portfolio. The alternative is a multi-asset fund, which is already diversified across different asset classes. (See multi-asset fund.)

Class

A unit trust (fund) offers different classes of units to different types of investors. The units of each class represent the same interest in the fund, but have a different fee structure. For example, Class A units are for individual investors, while Class B and C units are for institutional investors. Class R units were created before the deregulation of the industry in 1998, and comply with earlier fee legislation.

Dividend

A portion of a company’s profit paid out to shareholders.

Derivatives

A derivative is a contract between two parties to buy, sell or swap an asset at a specific price at a future date. These contracts can offer protection against unexpected developments, like a sharp fall in the price of an asset. For example, you can buy a future contract (a type of derivative) that will allow you to sell 100 shares of a company at R100 a share in a month’s time. If the share price falls to R70 by that time, you will still get R100 per share. Derivative contracts are bought and sold on the market.

Duration

The sensitivity of a bond’s price to a change in interest rates, commonly expressed as a number of years. For example, a two-year duration means the bond will decrease in value by 2% if interest rates rise 1% and increase in value by 2% if interest rates fall 1%.
Also commonly referred to as: Modified duration (MD)

Effective Annual Cost (EAC)

The effective annual cost (EAC) is a measure which allows you to compare the cost that you can expect to incur when you invest in different financial products. It is expressed as a percentage of your investment amount. The EAC is made up of four charges; investment management, advice, administration and other charges, which are added together to produce the EAC. Some of the charges may vary, depending on your investment period. The EAC is an ASISA Standard and the full calculation methodology and assumptions are available on ASISA’s website.

Equity

Ownership of a company. This asset class typically offers the highest level of expected returns but with this comes the greatest level of risk.
Also commonly referred to as: Shares or stocks

Fund

Another name for a unit trust. (See unit trust.)

Fund size

The total value of assets under management in a particular fund.

Income distribution

Some of the investments in your fund will earn an income that can be paid out to you. For example, companies pay dividends (part of the profit) out to shareholders and bonds pay interest. You can choose to have these payments paid out to you, or reinvest the distribution in your fund. (See income reinvestment.)

Income reinvestment

Income (in the form of dividends and interest) earned from your fund investment is reinvested into your chosen fund and not paid into your bank account.

Investment Management Charge (IMC)

The investment management charge (IMC) is a component of the effective annual cost (EAC). It is equal to the sum of the weighted average total expense ratio (TER) and transaction costs (TC) of the underlying funds making up the investment.

As an example, for an investment of R100 000 consisting of the following 3 funds:
Balanced Plus Fund: R50 000 (50%) (TER+TC = 1.76%)
Capital Plus Fund: R25 000 (25%) (TER+TC = 1.9%)
Global Managed [ZAR] Feeder Fund: R 25 000 (25%) (TER+TC = 2.25%)
the investment management charge (IMC) = (1.76% x 50%)+(1.9% x 25%)+(2.25% x 25%) = 1.9%

Investment Quote

An investment quote provides a summary of the funds and product that you have selected. It highlights the key features of the product, and details of the effective annual cost as prescribed by ASISA (Association for Savings and Investment South Africa). The document is useful for comparisons prior to investing. You can request an investment quote from our client service team.

Listed property

Companies and other vehicles like Real Investment Trusts (REITs) that invest in property and trade on a stock exchange.

Maximum drawdown

The largest drop (from peak to lowest point) in the value of your investment over a specified period of time.

Maximum gain

The biggest gain (from lowest point to peak) in the value of your investment over a specified period of time.

Multi-asset fund

A fund that invests in a wide range of assets (for example, shares, bonds, cash and property). The managers of multi-asset funds seek to allocate money to a combination of assets that will earn the best returns, while reducing risk.

Net asset value (NAV)

The price at which investors buy and sell units in a fund. All the investments in a unit trust are valued at a set time every business day, at which point the daily unit price (NAV) is fixed. The NAV is calculated by dividing the value of all the investments in a fund by the number of units.
Also commonly referred to as: price, unit value and unit price

Performance fee

A fee that only becomes payable when the fund outperforms a specific benchmark. Only certain funds charge a performance fee.

Positive months

The percentage of months since a fund’s inception that a positive return was achieved.

Preference share

Shares in a company that offer a fixed dividend but usually do not allow investors to vote on company matters.

Regular withdrawal

An amount of your investment paid out to you (on your request) on a regular basis. Regular withdrawals can be scheduled monthly, quarterly, twice a year or annually.
Also commonly referred to as: Cash flow plan (CFP), regular payouts, regular withdrawal payments, CFP redemption and regular drawdown

Risk profile

An indication of how volatile a fund’s returns can be. Typically, the higher the risk profile, the larger the fluctuation in fund returns over short-term periods. Each Coronation fund is managed in line with its own unique risk profile.

Sharpe ratio

A measure of how much risk was taken by the manager to achieve a return. The Sharpe ratio is calculated by dividing a fund's return for a specific period by how much the return fluctuated over that time. A high ratio indicates that very little risk was taken to generate strong returns.

Standard deviation

A measure of how volatile the returns of a fund are. Standard deviation reflects the degree to which a fund’s return numbers fluctuate around their average. The higher the standard deviation, the greater the volatility.
Also commonly referred to as: Annualised deviation

Total Expense Ratio (TER)

A measure of the cost of a fund to the investor. The TER includes the costs associated with managing and operating a fund (including management and trading fees, auditor fees and other operational expenses). It is expressed as a percentage of the value of the investment. Just as with performance, TER is based on historical data and is therefore not always indicative of future costs.

Tracker fund

A fund that tracks a benchmark, typically a market index. Such a fund typically invests in all the securities in the index or a defined segment thereof.
Also commonly referred to as: Index tracker, exchange traded fund (ETF), passive funds

Tracking error

A measure of how closely a portfolio follows the index to which it is benchmarked. Unlike passive funds, actively managed funds do not track an index and can be expected to have a relatively high tracking error.

Transaction costs (TC)

Transaction costs are a necessary cost in managing a fund and impacts the fund’s return. They should not be considered in isolation as returns may be impacted by many other factors over time including market returns, the type of fund, the investment decisions of the investment manager and the TER.

Unit

A unit trust is divided into equal portions called units. When you invest in a fund, you will receive a number of units. Each unit has a price, which is calculated by dividing the value of the investments in the fund by the total number of units. [See Net Asset Value].

Unit trust

A unit trust pools money from many investors to invest in assets like shares, bonds and listed property. Instead of having to pick individual investments yourself, a unit trust offers you exposure to a range of assets, which are selected and managed in line with a defined mandate by investment managers such as Coronation.
Also commonly referred to as: collective investment scheme, OEIC, fund

Withdrawal

Selling a part (or all) of your unit trust investment.
Also commonly referred to as: Sell units, repurchase, redemption, and disinvestment