A stock mutual fund that invests in equity securities without regard to whether a company is characterized as small, medium or large. The term "cap" is shorthand for capitalization. The investment community measures a company's size by its market capitalization, which is calculated by multiplying the number of a company's outstanding shares by its current stock price. There is no universal consensus on the exact definitions of the various market caps, but the following parameters are a good approximation:Giant or Mega Cap: Above $200 billionLarge Cap: From $10 billion to $200 billionMid Cap: From $2 billion to $10 billionSmall Cap: From $300 million to $2 billion Micro Cap: Less than $300 millionThese designations inform mutual fund investors about the investment focus of the fund in terms of company size. In the case of an all-cap fund, the portfolio manager has complete freedom to invest in companies of any size. Because of the inclusive nature of its holdings, a total stock market index fund would have an all-cap portfolio.
A mutual fund that tends to perform reasonably well during both favorable and unfavorable economic and market conditions. This type of investment result is accomplished, in most cases, through portfolio diversification, by employing a combination of asset classes, and/or using a variety of hedging strategies. In the universe of mutual funds, there is no formal "all weather fund" category. However, a number of fund types qualify for the moniker because of the nature of their portfolios and/or how they are managed.For example, a simple balanced fund (stock and bond) with a 60% equity and a 40% fixed-income portfolio comes close to fitting the all-weather description. An asset-allocation fund (stock, bond and cash equivalents) will also qualify if the proportional representation of its asset classes falls into the moderate style. More recently, long-short funds, which combine long and short stock positions that adjust to market conditions, appear to have potential for benefiting investors on the upside and protecting them on the downside of market moves.
The relative percentages of core asset classes such as equities, fixed income and cash, along with real estate and international holdings, found within a mutual fund, exchange-traded fund or other portfolio. Further breakdowns are sometimes made within the asset classes into growth stocks, value stocks, market capitalizations (small, medium, large) and various types of fixed income such as government bonds, corporate bonds and municipal bonds. Asset class breakdowns are calculated by dividing the market value of a particular asset class's holdings by the total fund or portfolio assets. The asset class breakdown is a simple way to determine the approximate risk profile of a fund. Higher equities exposure equates to a higher potential return, but with greater risk than a portfolio made up of mostly bonds. Many analysts and economists feel that proper asset allocation is the biggest determinant of overall returns - far greater than sector selection or individual security selection.
A mutual fund that provides investors with a portfolio of a fixed or variable mix of the three main asset classes - stocks, bonds and cash equivalents - in a variety of securities. Some asset allocation funds maintain a specific proportion of asset classes over time, while others vary the proportional composition in response to changes in the economy and investment markets. Asset allocation mutual funds come in several varieties. Generally, a "balanced fund" implies a fixed mixed of stocks and bonds, such as 60% stocks and 40% bonds. "Life-cycle" or "target-date" funds, which are often used in retirement plans, usually have a mix of stocks, bonds and cash equivalent securities that starts out with a higher risk-return position and gradually become less risky as the investor ages and/or nears retirement. So-called "life-style," or actively-managed asset-allocation funds provide the active management of a fund's asset classes in response to market conditions.
A ratio used to measure the quality of a fund's investment picking ability. It compares the fund's alpha (or the adjusted return of the fund assuming the market return is zero) to the portfolio's unsystematic risk or residual standard deviation. By selecting a basket of investments, the managers of an active investment fund attempt to beat the returns of a relevant benchmark or of the overall market. The appraisal ratio measures the managers' performance by comparing the return of their stock picks to the specific risk of those selections. The higher the ratio, the better the performance of the manager in question.
The time period for which a limited partnership expects to hold a specific asset. A firm will disclose its anticipated holding period on assets through its prospectus. After the specified time period, the partnership will typically sell the holding, and the capital invested will be repaid to investors through a lump-sum distribution. Before a broker recommends a potential investment to an individual, he or she should evaluate and disclose the selling firm’s anticipated holding periods on underlying assets. The anticipated holding period on assets can affect how investments are graded and therefore recommended to customers. For example, the anticipated holding period on underlying assets can affect mutual funds’ share classes. FINRA – the Financial Industry Regulatory Agency – enforces rules governing broker-dealers, including that they must have “reasonable grounds” for believing that a recommended transaction/investment is suitable for a customer based on his or her financial situation, needs and investment objectives.
A class in a family of multi-class mutual funds. This class is characterized by a back-end load structure that is paid only when the fund is sold. Class B funds will generally have higher management expense ratios compared to front load funds within the same family. Fund companies attempt to increase their profits while the rear load is effective because it will normally decrease in value with time until no load is charged whatsoever. Not all fund companies follow this class structure, but it is the prominent method of distinction.
An investment program in which capital gains or other income received from investments are automatically used for reinvestment purposes. In the case of a mutual fund, for example, capital gains produced by the fund would be used to automatically purchase more shares, instead of being distributed to the investor as cash. By using an automatic reinvestment plan, an investor is able to easily make use of his or her investment gains to produce further gains, taking advantage of compounding. Over a period of years, the added value produced by automatic reinvestment can turn out to be worth a substantial sum.
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