Glossary and Snapshot Guide
In this page, you may search (in alphabetical order) for explanations or definitions of terms that you are not familiar with. This page also serves as a concise but comprehensive guide on how to use the FundScope Fund Snapshots, by highlighting the purpose of the important ratios and graphs depicted in the Snapshots.
Average Cost Differential is calculated for each family of funds and is used as a measure of the Family's average cost in Family Ratings. Cost Differential of individual funds represents the difference between each fund's Estimated Annual Cost and the peer average Estimated Annual Cost for the category to which it belongs. The lower the cost differential, the better. For example:
|Est. Annual Cost for "A" Can. Eq. Fund :
|Est. Annual Cost for "B" Money Market Fund :
|Peer Avg. Cost for Can. Eq. Funds:
|Peer Avg. Cost for Money Market Funds:
|Cost Differential for "A" Can. eq. Fund:
|Cost Differential for "B" Money Market Fund:
|Estimated Annual Cost for "A" Can. Bond Fund :
|Estimated Annual Cost for "B" Can. Bond Fund :
|Peer Average Cost for Can. Bond Funds:
|Peer Average Cost for Can. Bond Funds:
|Cost Differential for "A" Can. Bond Fund:
|Cost Differential for "B" Can. Bond Fund:
|Average Cost Differential Family A:
|Average Cost Differential Family B:
The advantage of the Average Cost Differential method is that it takes into consideration the cost disparity between different investment categories. If you had computed a simple average cost of Families A and B, you would have obtained comparable average costs of 1%, leading you to believe that both families have similar cost profiles. This is of course misleading. In relative terms, Family A's funds have much less expenses than their respective peer averages, and this distinct advantage in clearly reflected in the Average Cost Differential.
Annual Performance Graph: this graph depicts a fund's results in each individual year, compared to the peer average and relevant market index. Its purpose is to help investors evaluate the consistency of returns, i.e. whether a fund's performance record is attributed to consistent returns throughout the years or is the result of a fluke.
Average Performance Graph: this graph depicts a fund's Year-to-Date, 1-Year, 3-Year and 5-Year returns, compared to the peer average and relevant market index. Its purpose is to help investors evaluate the performance of a fund compared to its peers and the index. However, average rates of return suffer from a major drawback in that long-term results may conceal unpleasant episodes in a fund's history. For example, the Average Performance Graph does not tell whether long-term returns are attributed to a solid, consistent record, or to a strong performance during a short time interval. To find out which is the case, investors should concurrently examine the Annual Performance Graph.
Beta: is a statistical measure of risk that depicts a fund's volatility relative to the index. Beta is expressed in percentage terms. A beta factor of more than 100% reflects a higher level of volatility compared to the index, and vice-versa. Beta is only indicative for funds with a relatively high correlation with the index. In other words, the higher R-Squared is, the more relevant the fund's Beta.
Category momentum : this index measures your fund's momentum compared to its peers within the same category. It's a weighted average of the number of times that your fund out-performed its peer average, with the highest weightings assigned to the most recent periods. The index is designed to help investors capture funds as they start gaining momentum, to benefit from shifting market trends.
Cost Efficiency: this is a ratio of the excess return over a fund's benchmark, divided by management expenses. It calculates the value added (i.e. the excess over index returns) contributed by each percentage point of management expenses. A positive ratio would indicate that management expenses have a positive contribution and that the fund has "earned its fees".
Default risk: refers to the risk of non-payment by a bond issuer. Default occurs when companies with weak financial situations have difficulty meeting their debt obligations, in which case bondholders face the risk of losing their principal investment. Default risk is higher during periods of economic recession or slowdown.
Economies of Scale: refers to a graph that features at the right bottom of FundScope's Mutual fund Summary Reports. It shows the trend of each fund's MER compared to asset size. If MER decreases as a result of asset growth, unitholders are considered to have benefited from economies of scale. On the other hand, a stable or higher MER means that the fund company has reaped the full benefit of economies of scale and has not shared any of this benefit with investors.
Efficiency: is measured in terms of risk-adjusted returns (RAR). If two funds have a similar risk level, the fund that produces the higher return is more efficient, because it makes better use of the assumed risk.
Estimated Annual Cost is defined as the aggregate of annual management expenses (including management fees) and Estimated Annual Load.
Estimated Annual Load is defined as the lower of the front-end fee or the redemption fee. As front-end fees are generally negotiable, we have assumed the lowest possible fee for purchasing each fund. For funds that are sold directly by sponsors at no load or through no-load brokers, we have assumed no load. For funds that are sold through discount brokers, we have assumed a front-end load of 2% (representing discount brokers' standard 2% commission for investment amounts of up to $24,999) and an average investment period of less than five years. We have also included additional management and administrative fees that are directly charged to the investors, over and above the reported management expense ratio (MER). For those funds where the investment portfolio consists of other funds (funds of funds), we have calculated the weighted average MER of the underlying funds and added it to the reported MER (when such additional cost is not included in the reported MER).
Index: refers to the market benchmark corresponding to each category of funds. For a list of the benchmark indices corresponding to each category of funds, click here.
Interest rate risk: this refers to the risk of fluctuation in the market value of bonds, due to intrerest rate movements. Higher interest rates result in lower bond values and vice versa. Interest rate risk is higher for bonds with longer maturities/duration.
Manager Value Added (MVA): This section of the FundScope Snapshot evaluates the value added by the portfolio manager. In addition to R-Squared Factors, it includes a measure of the Fund's Risk-Adjusted Return, Leverage Factor and Efficiency (all based on 3-year returns). Each of those indicators is defines separately in this glossary.
: this index measures your fund's momentum compared to the overall funds universe. It's a weighted average of the number of times that your fund out-performed the universal average, with the highest weightings assigned to the most recent periods. The index is designed to help investors capture funds that belong to market segments that are gaining momentum, to benefit from shifting market trends.
Recent Correction: this new column shows the maximum loss incurred by a fund during the most recent market correction (currently being the summer 1998 correction.
Risk-Adjusted Return (RAR): FundScope uses a risk adjusted-return measure that rests on the notion of leverage. Like a regular company, the risk profile of a mutual fund can be altered by adjusting its leverage. For any fund, we measure the amount of risk by determining to what extent we have to increase, or decrease, its leverage, to attain a volatility level equivalent to a pre-determined benchmark (usually represented by the standard deviation of the benchmark index).
In very simple terms, our risk-adjusted return measure tells you how much a high risk fund would have earned if it has assumed a lower risk level, and how much a lower risk fund would have earned if it has assumed a higher risk level. By comparing funds using this key indicator, you can identify the most efficient funds within each category.
We calculate RAR in two steps: First, we adjust the funds risk to a level comparable to that of its respective benchmark index. Then, we calculate the rate of return that the fund would have posted under that assumption. In other words, RAR gives us the rate of return that the fund manager would have obtained, had he/she been prepared to assume the same risk level as the index.
Risk Adjustment Factor (RAF): refers to the percentage of the portfolio that needs to be adjusted in order for a fund to match the risk level (measured by standard deviation) of its benchmark index. If a fund has a risk level lower than its index, its risk can be increased by leveraging a percentage of the portfolio equal to the RAF (which in that instance is expressed as a negative percentage). If a fund has a risk level higher than that of the index, its risk can be decreased by converting a portion of the portfolio (equivalent to the RAF, then expressed as a positive percentage) into cash.
R-Squared: is a statistical indicator measuring the fund's coefficient of correlation with the relevant market index. R-squared is expressed in percentage terms, with a 100% factor reflecting perfect correlation with the index (e.g. Index funds would have a 100% R-Squared). R-Squared may help investors determine if a fund is actively managed or whether it is engaged in closet indexing. A low R-Squared is an indication of active portfolio management, whereas a high R-Squared (>=95%) should raise suspicions of closet indexing.
Share of New Assets: refers to the percentage of new mutual fund assets that was attracted by a mutual fund company during a certain period. A negative percentage measures the company's shares of total mutual fund redemptions during that period. This calculated number is an estimate inferred from the total fund assets reported by the mutual fund companies to the Globe HySales software and is calculated based on the following formulas.
|Share of New Assets =
|Total Increase (Decrease) in assets - Increase in assets attributed to fund returns
|Total Increase (Decrease) in Industry Assets