Mutual Fund Investing Glossary


Active Asset Allocation

Uses stock market return extremes to rebalance our portfolio between the Retirement Asset Allocation, Conservative Asset Allocation, Insightful Asset Allocation and Aggressive Asset Allocation depending on the financial market environment.

Asset Class

The different types of investments that someone can invest, including stocks, bonds, real estate, and cash.


A measure of the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates the fund’s under-performance, given the expectations established by the fund’s beta.


Beta is a measure of a fund’s sensitivity to market movements. By definition, the beta of the stock market is 1.00. A beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant. Conversely, a beta of 0.85 indicates that the fund’s excess return is expected to perform 15% worse than the market’s excess return during up markets and 15% better during down markets.

Expense Ratio

The annual expense ratio is the percentage of assets deducted each fiscal year for fund expenses, including, management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund.


The category for equity mutual funds is based on its investment style (Growth or Value) and market capitalization (Large, Mid, or Small). For bond funds the category is based on taxable or municipal bonds along with the average duration as measured by their underlying portfolio holdings.

Credit Quality

Average credit quality is the weighted average of the bonds in a funds portfolio. The average credit quality of bond funds ranges from AAA (highest) to B (lowest). U.S. government bonds carry the highest credit rating, while bonds issued by speculative or bankrupt companies usually carry the lowest credit ratings.

Dollar Cost Averaging

Dollar Cost Averaging is an investment strategy in which securities, typically mutual funds, are purchased in fixed dollar amounts at regular intervals over a long period of time, regardless of what direction the market is moving. The result is that more shares of the stock or mutual fund are purchased when prices are relatively low and less are purchased when prices are relatively high. This can result in lower average per share cost over time.


Drawdown is the measure of the decline from a historical peak in the value of an investment or a portfolio of investments. The Maximum drawdown is measured from the highest peak to the lowest trough. Investments with larger maximum drawdowns are usually more volatile than those with smaller maximum drawdowns.


Duration is a time measure of a bond’s interest-rate sensitivity, based on the weighted average of the time periods over which a bond’s cash flows accrue to the bondholder. The shorter the duration, the less sensitivity a bond has to interest rates.

Exchange Traded Funds (ETFs)

ETFs are index funds or trusts that are listed on an exchange and can be traded intraday. Investors can buy or sell shares in the collective performance of an entire stock or bond portfolio as a single security. Exchange traded funds add the flexibility, ease and liquidity of stock trading to the benefits of traditional index fund investing.


Growth investing is a style that selects stocks of companies with rapid earnings and revenue growth that is expected to continue in the future.

Large Cap

The stocks of the largest companies that generally have a market capitalization above $5 Billion.

Manager Tenure

This represents the number of years that the current manager has been the portfolio manager of the fund.

Market Capitalization

The average market capitalization of a fund’s equity portfolio gives you a measure of the size of the companies in which the fund invests.


The maturity of a bond is the amount of time the holder must wait until the principal amount is returned. The Average Maturity for a Mutual Fund is computed by weighting the maturity of each security in the portfolio by the market value of the security, and then averaging these weighted figures.

Mid Cap

Companies that fall between Large Cap and Small Cap that generally have a market capitalization between $1 Billion and $ 5 Billion.

Net Assets (Size)

Net Assets are useful in judging a fund’s size, agility, and popularity. The smaller the fund, the easier it is for the fund to move in and out of investments, which is most important for small cap funds. Normally, the larger the fund the lower the expense ratio, but this is not always the case.

Number of Holdings in Portfolio

The number of different holdings in a fund’s portfolio is helpful for gaining insight into it’s diversification. The lower the figure, the more concentrated the fund is in a few companies, and the more the fund is susceptible to the market fluctuations in these few holdings.

Price / Earnings Ratio

The price/earnings (P/E) ratio of a fund is the weighted-average of the price/earnings ratios of the stocks in a fund’s portfolio. The P/E ratio of a company, which is a comparison of the cost of the company’s stock and its trailing 12-month earnings per share, is calculated by dividing these two figures. A high P/E usually indicates that the market will pay more to obtain the company’s earnings because it believes in the firm’s ability to increase its earnings. While a low P/E indicates the market has less confidence that the company’s earnings will increase, a ‘Value’ investor may believe such stocks have an overlooked or undervalued potential for appreciation.

Price / Sales Ratio

Price/sales represents the amount an investor is willing to pay for a dollar generated from a particular company’s operations. This is the weighted-average of the price/sales ratios of the stocks in a fund’s portfolio.

Redemption Fee

A redemption fee is an amount charged when money is withdrawn from the fund. This fee goes directly into the fund itself and does not represent a net cost to shareholders. Redemption fees are usually only charged for short term trades (like 30, 180, or 365 days) to discourage market timers, whose quick movements into and out of funds can be disruptive to the fund and its investors.


Total returns are the standard measure of a fund’s performance. They represent both the income generated by a fund’s holdings (in the form of coupon or dividend payments) and the capital appreciation of its holdings.

Sharp Ratio

The Sharpe Ratio (developed by Nobel Laureate William Sharpe) can be used to compare two funds on how much risk a fund had to bear to earn excess return over the risk-free rate. It is calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the fund’s historical risk-adjusted performance.

Small Cap

The stocks of small companies that generally have a market capitalization below $1 Billion.

Standard Deviation

A statistical measurement of how widely a mutual fund’s returns varied over a certain period of time. Investors use the standard deviation of historical performance to try to predict the range of returns that are most likely for a given fund. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility.

Turnover Ratio

The Turnover Ratio is a measure of a fund’s trading activity. A low turnover figure (20% to 30%) would indicate a buy-and-hold strategy. High turnover (more than 100%) would indicate an investment strategy involving considerable buying and selling of securities.


An investment style that selects stocks of companies that are priced below their estimated value. A company exhibiting good value is generally taken to mean that its assets are selling for less than their intrinsic value, and such companies tend to have low price-to-earnings or price-to-book ratios.


Yield (%) is the percentage income return your portfolio returned over the past 12 months. It is calculated by taking the weighted-average of the yields of the stocks and bonds that comprise the portfolio.

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