A type of investment fee that some mutual funds charge to shareholders if they transfer to another fund within the same group. Other fees shareholders may encounter include sales loads, redemption fees, purchase fees, account fees, 12b-1 fees and management fees. Investors should be aware of all fees, both direct and indirect, related to their investments. Fees have a significant impact on total returns and a fund that charges higher fees will not necessarily lead to higher profits for the investor. The SEC does not generally limit mutual fund fees, although FINRA imposes some limits. To make similar investments with lower fees, consider investing in exchange-traded funds.
A fund created by a closed-ended investment company that offers two classes of stock. Each class offers entitlements to either income or capital appreciation. The two types of stock offered by a dual purpose fund are capital and income. The fund's two kinds of potential cash flows allow individual investors to choose classes that are more in line with their investment objectives.
1. A stock or any other security representing an ownership interest. 2. On a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity". 3. In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage. 4. In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage. 5. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio. The term's meaning depends very much on the context. In finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company.
A stock index representing 50 of the largest companies in Europe based on market capitalization. The stock universe used for selection is an aggregate of the 18 Dow Jones STOXX 600 Supersector indexes, which together capture about 95% of the capitalization of the major stock exchanges in 18 European countries. Each sub-index places its largest members placed on a selection list, which is then ranked by market cap to choose the STOXX 50 members. The index, first reported in 1998, is reconstituted annually, and weightings are adjusted quarterly to account for proportional changes in underlying company market caps. The Dow Jones STOXX 50 index closely resembles the Dow Jones EURO STOXX 50 in methodology and construction, with the exception that it does not limit company selection to companies that have fully transitioned to the euro currency.The index limits the weighting of any one member to 10%, but no sector limitations are applied to the index's construction. As such, banking companies dominate the STOXX 50. The index is meant to capture blue-chip companies in the region, so the average market cap is large ($70 billion euros in 2007).
A disadvantage of the dividend structure of unit trust exchange-traded funds (ETFs) that results from SEC rules that stipulate that passively managed ETFs cannot reinvest dividends back into the portfolio. ETFs must instead accumulate the dividends in cash and pay them to holders at periodic intervals. During periods of rising markets, the dividends would be better served being reinvested in securities rather than held in cash. This leads the ETF to lag a portfolio that would be able to reinvest. This is a problem in a rising market, but the same SEC rule is beneficial in a declining market. Either way, this has been a problem in ETF circles, which have been pushing for the SEC to change the rules. If this happens, dividend drag will essentially disappear.
An investment fund that contains a wide array of securities to reduce the amount of risk in the fund. Actively maintaining diversification prevents events that affect one sector from affecting an entire portfolio, make large losses less likely. A diversified fund contrasts with specialized or focused funds, such as sector funds, which focus on stocks in specific sectors such as biotechnology, pharmaceuticals or utilities, or in particular regions such as Asia or Europe.
A mutual fund that invests its assets in a relatively large number and variety of common stocks. The investment manager for this type of fund is not restricted in terms of company size or investment style. A diversified common stock fund will generally tend to a portfolio of stocks in the range of 100 or more issues with large cap, mid cap and small cap company sizes that reflect a combination of value, growth, and blended (value-growth mix) investment styles.
A limit placed on the operating expenses incurred by a mutual fund. The expense limit is expressed as a percentage of the fund's average net assets and represents a cap to the fees a shareholder may be charged. Expense limits are often voluntarily placed on a fund by its manager. The addition of an expense limit can make a fund more attractive, as investors are fully aware of the maximum percentage they may be charged. With an expense limit, fees will never be above the stated percentage; however, the fund may charge under the stated limit. Funds that use an expense limit are referred to as capped funds, since the limit caps the fees that shareholders can be charged.
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