An aggressive type of mutual fund that aims to deliver superior returns by balancing bullish stock picks with bearish ones. They can also generate income from the interest proceeds of the sales of short securities. The objective of these funds is to generate consistent returns that are at least three to six percent above the T-bill rate. These funds can also offer returns similar to leveraged ETFs which aim to deliver 200-300% returns on any given investment. Market neutral funds are fairly complex products. They are also probably not appropriate for novice or conservative investors. These funds endeavor to offer a type of investing strategy that has been found chiefly in hedge funds and separately managed accounts. Market neutral funds tend to have fairly high fees as well as turnover, and investors should consider both these issues before investing.
The comparison of an account's performance to that of a representative peer group of money managers. This is used when analyzing the performance of a money manager. In addition to being compared to a standardized index such as the S&P 500, the performance of a manager is compared to the performance of others who look over similar accounts in terms of asset class, style, etc. The peer group is referred to as the money manager's universe.
The length of time that a manager(s) has been at the helm of a mutual fund. A long-term fund performance record, preferably of five to 10 years, is a key indicator of a fund manager's investing abilities. Mutual fund investors are best served by investment managers who have proved themselves over an extended period of time. The more closely matched a manager's tenure is with a solid fund performance record, the better.For example, let's compare two different funds: The XYZ Fund has an annualized average 10-year total return of 11% and has been run by the same manager over that period. The ABC Fund has the same 10-year annualized average total return of 11%, but it has had two different managers. One's tenure covered the first nine years and the second has only been on the job for one year. Will the second manager be just as good as the first? We hope so, but making a decision on current managerial quality is difficult because fund performance and managerial tenure don't match.For obvious reasons, mutual funds under team management or index funds are not subject to questions concerning manager tenure.
Investment funds that invest in companies based on current trends in such things as earnings or price movement. The portfolio manager will look for companies that have been trending in a certain direction (e.g. a series of extremely positive earnings releases or upward price momentum in the short term). The manager will then take positions in the same direction as the trend and attempt to ride the wave and sell once it has peaked. These funds are also known as "momo funds". This type of fund, which was very popular in the late 1990s, will often make investments in companies that have grown their earnings or sales at a rapid pace, looking for further increases in the near future. Momentum funds also invest based on technical indicators such as price breakouts from historic levels. The investment premise of this type of fund has often been questioned by the more long-term, value oriented segments of the market, as it is considered difficult to predict short-term price movement.
A type of mutual fund, typically run by a life insurance company, that enables an investor to access another company's mutual fund through his or her life insurance policies. For example, you might be able to invest in a Fidelity mutual fund through your life insurance policy with Royal & SunAlliance. These types of funds usually involve extra fees/charges.
A combination of asset classes (such as cash, equity or bonds) used as an investment. A multi-asset class investment would contain more than one asset class, thus creating a group or portfolio of assets. The weights and types of classes will vary according to the individual investor. Also known as a multiple-asset class. Multi-asset class investments increase the diversification of an overall portfolio by distributing investments throughout several classes. This reduces risk (volatility) compared to holding one class of assets, but might also hinder potential returns.For example, a multi-asset class investor might hold bonds, stocks, cash and real property, whereas a single-class investor might only hold stocks. One asset class might outperform during a particular period of time, but historically no asset class will outperform during every period.
An investment fund that is managed by more than one investment manager, each with a particular specialty. The goal of the multi-advisor fund is to make investment decisions based on multiple professional opinions, rather than relying on a single person to have comprehensive knowledge of investment options. The multi-advisor fund tends to have a very specific international focus; for example, a fund may invest in high-grade South American debt and Asian equities, with one manager responsible for South American debt and a team responsible for the Asian equities component. As investment options become more complex, multi-advisor funds become increasingly necessary to fully understand the markets and businesses in which we invest. "Multi-advisor fund" is most commonly used to describe a type of hedge fund.
A rating system that measures how often a fund loses money compared to the risk-free rate of return (T-bill return). A rating of 1 is considered average for each class of funds. So, if a mutual fund's risk rating is 1.25, then it is 25% more risky than the other funds in its class.
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