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APIR code

A unique identification code assigned to products by APIR Systems Limited.

Asset class

A group of financial assets that have similar risk/return characteristics. The broad asset classes are equity, fixed interest, and cash. Alternative asset classes can include property, infrastructure, commodities, FX, derivatives, private equity, and private debt.

Bonds

Bonds are securities which involve the holder of a bond lending a principal amount to a bond issuer, which the bond issuer then has an obligation to pay back to the bond holder plus interest (called coupons). Bonds are collectively called fixed interest/income as an asset class. Bonds rank ahead of equity in a company’s capital structure, meaning bond holders have first claim on a company’s assets in event of bankruptcy or liquidation.

Buy/Sell spread

These are costs charged to entering/exiting investors to cover transactions costs for underlying investments. The reason for the buy/sell spread is to fairly attribute the costs to the investors entering/exiting and NOT all other current unit holders in the fund.

Custodian

An entity responsible for the safety of investors’ financial assets. The custodian is the legal holder of the financial assets on behalf of the investor who is the ultimate and beneficial owner.

Distribution

An amount investors receive from earnings generated by a fund’s investments. This can be paid out to the investor or reinvested back into the fund. The amount could comprise dividends, coupons, or principal.

Dividend

A payment made to an equity holder from a company’s earnings.

Equities

(Also called shares or stocks) Equities are securities that give the holder proportionate ownership of a company and thus entitlement to a share of the company’s earnings. Equities rank behind bonds in a company’s capital structure, meaning equity holders only have a claim on a company’s assets in event of bankruptcy or liquidation after bond holders.

ESG

Environmental, social and governance issues are underlying factors an investor may consider when determining the future value of an investment.

ETFs

Exchange traded funds are a basket of securities that you can buy and sell on an exchange.

Ethical investing

An investor’s moral, religious and/or social values and beliefs guide what they invest in.

Estimated Transaction Costs

Represent the net transaction costs born by all investors in a Fund after any buy/sell spread recoveries. This is typically estimated based on the last financial year and may vary. It is important to understand that actively managed investments are likely to incur higher transaction costs than passively managed funds, because of the higher expected volume of trading of the portfolio’s assets in generating investment returns. This fee is typically correlated with turnover.  This is a new disclosure for Australian funds and typically not disclosed in New Zealand.

FUM

Funds under management. The total amount managed within the fund.

FUM in the strategy – amount managed by the manager in the same style, includes other share classes and institutional mandates.

FUM in the sector – amount managed by the manager in the Asset Class.

Australasian FUM – amount managed by the manager in Australia and NZ.

Total FUM – amount manged by the manager across all asset classes globally.

Green (light/dark/deep) investing

Commonly referred to in the context of ethical investing where the shade of green gives the investor an idea of how rigorous the ESG criteria for investment has been applied.

High water mark

(In reference to a performance fee) This is the highest value a fund has achieved. Any performance fees are only payable if the fund return reaches this mark plus the hurdle rate. This should not be resettable.

ICR

(An Australian term, same as TER) Indirect cost ratio. Includes the MER plus (where applicable) any performance fees, and any costs and expenses associated with investments in underlying funds. It is expressed as an annual percentage of the investment fund’s average dollar value.

Index

A group or basket of securities that track the performance of a particular part of the market or reference benchmark, e.g. the S&P/NZX 50 Index tracks the 50 largest stocks by free-float market capitalisation in the New Zealand market.

ISIN code

International securities identification number. This is unique to the fund or security.

Legal domicile

This is the country an investment product is registered in and determines the tax and regulatory regime applicable. This then has implications for the availability of legal structures, supply of service providers and resultant operating/compliance costs.

Legal structure

The legal structure essentially determines the rules for how the assets are accounted for, most importantly any tax implications for investors e.g., a Portfolio Investment Entity (PIE) fund is a common legal structure in New Zealand, followed by Australian Unit Trusts (AUT).

Managed fund

An investment fund that pools investors’ money together to invest into financial assets e.g., shares, bonds, cash, property.

Market Capitalisation (“market cap”)

The total market size of a company’s outstanding shares in dollar terms. Market cap categories are micro-cap, small cap, mid cap, large cap, and mega cap.

MER

Management expense ratio. This fee is paid directly to the fund manager for portfolio management costs (team, tools, time) plus operational costs (Supervisor, normal legal, custody, registry, fund accounting, unit pricing and audit fees). It is expressed as an annual percentage of the investment fund’s average dollar value.

Performance fee hurdle rate

A predetermined percentage return that is to be achieved over a specified time period before a fund manager is entitled to receive a performance fee.

PIE structure

Portfolio investment entity. A legal structure in New Zealand where investors can pool their contributions together and invest into a range of different assets. Tax implications will depend on the investor’s “Prescribed Investor Rate”.

Portfolio holdings

The securities held within a fund.

Portfolio Manager

A person or group of people that make investment decisions. Key responsibilities include implementing investment strategy, constructing portfolios, and deciding when to buy or sell financial assets.

Portfolio turnover

This measures how frequently the holdings within a fund change over an annual period. An actively managed fund will have higher turnover than a passively managed fund.

Product benchmark

A benchmark is a standard to compare the performance of a fund manager against. An index is the most common form of a benchmark.

Product disclosure statement

A document that a financial service provider must give a prospective investor. It includes essential information such as the key product terms, risks, fees, the organisation, taxes, and complaints process.

Responsible entity

(An Australian term) A licensed manager and trustee of a managed investment scheme.

Responsible investment

An investor will recognise the link between the success of an investment and its interaction with society and the environment. Key considerations taken into account are collectively known as ESG factors (environmental, social, governance).

Risk

Different investment strategies may carry different levels of risk, depending on the assets that make up the strategy. Assets with the highest long-term returns may also carry the highest level of short-term risk. See our views on  what investment risks to look out for on the Research IP blog, as well as a comprehensive list of investment risk definitions.

Securities

Financial assets that can be traded via an exchange or directly.

Socially responsible investing (“SRI”)

Commonly known in its abbreviated form “SRI”. The definition is the same as “responsible investment” and “sustainable investing”. Any perceived differences in the definitions are likely due to the time in which they were first coined and the underlying investment approaches they first referred to. For example, “SRI” was initially understood to mean negative screening.

Sustainable investing

Generally accepted definition is the same as “responsible investment” and “socially responsible investing”. 

TER

(Same as ICR) Total expense ratio. Includes the MER plus (where applicable) any performance fees, and any costs and expenses associated with investments in underlying funds.

UN PRI

Principles for Responsible Investment. An internationally recognised organisation that examine how investors can incorporate consideration of environmental, social and governance factors when investing.

UN SDGs

Sustainable Development Goals. A total of 17 goals designed as “a blueprint to achieve a better and more sustainable future for all by 2030”.

Yield

The income return on an investment as a percentage of its value e.g., the coupons paid on a bond over an annual period, or the dividends paid on a share over an annual period.