Glossary
ABC - DEF - GHI - JKL - MNO - PQR - STU - VWXYZ
Global custody: An all-in-one service package offered by banks to institutional investors, aiming to pool the administration, settlement, custody and monitoring of their securities and cash positions.
Going public: Initial public offering (IPO) of a company's stock.
Growth company: A company with high growth potential.
Growth stock: The shares of a company characterised by high growth potential.
Illiquid market/security: See liquidity.
Index: Indicator of the performance trend in a given stock market or market segment. Indices serve as references to measure the performance of a fund invested in the market or type of market covered by the index. Examples: the SPI, or Swiss Performance Index, includes all domestic stocks listed on the Swiss Exchange; the SMI, or Swiss Market Index, only includes a maximum of 30 Swiss blue chips. The SILO and MILO include small and medium-sized capitalisations, respectively.
Index fund: An investment fund that mirrors the composition of a benchmark index.
Initial issue price: Price paid by the investor who subscribes to units in a fund when they are first issued..
Institutional investors: Professional investors managing large amounts of capital, such as banks, pension funds and insurance companies, as opposed to private investors.
Investment fund (mutual fund): Collective investment that enables an investor to participate in the performance of a widely diversified portfolio managed by professionals, without necessarily being required to invest a large amount of capital.
Investment Fund Act: The Swiss Federal Act on Investment Funds of 18 March 1994.
Investment policy: The way in which the portfolio is managed: it involves defining an investment style (active or passive), an investment universe (e.g. small caps) and several other constraints, such as the portfolio's minimum/maximum cash exposure, the use of derivative instruments, etc.
Investment strategies of hedge funds:
Macro or Global Macro
With 'Macro' strategies, fund managers are seeking to exploit shifts in economic or monetary trends by taking advantage of opportunities in several areas, such as stock and bond markets, forex markets, interest rates or commodities. The end-goal is to take up a directional position so as to profit from the movement that is being anticipated. Managers often use considerable leverage (borrowing).
Long/Short Equity
This strategy is the oldest of the alternative strategies. This is where the term 'hedge fund' originates from. The purpose of this strategy is to construct a portfolio which aims to generate a profit from taking up both long and short positions in shares rather than just tracking market trends. Today, this strategy is the most widely used as it is the simplest to put in place. However, this simplicity masks the serious complexity involved in taking up the relevant hedged positions.
Arbitrage
Funds employing arbitrage strategies are seeking to capitalise on market inefficiencies which surface and disappear as the market fluctuates. Arbitrage strategies aim to take advantage of the relative price gap between two comparable instruments. Among the most common arbitrage strategies, we have Fixed Income Arbitrage which exploits inefficiencies on yield curves and Convertible Bond Arbitrage which taps into disparities between convertible bonds and shares issued by the same company. This involves buying the convertible and selling the underlying share short in ratios between the two that are constantly being recalculated.
Event-Driven
These strategies exploit specific events, such as mergers & acquisitions, companies in administration or threatened with bankruptcy or undergoing any other capital restructuring. Among classic such Event-Driven strategies are Distressed Securities, which focuses on bankrupt businesses, and Risk Arbitrage which takes advantage of uncertainties engendered by the announcement of a merger or takeover.
Investment universe: Geographical market, economic sector or asset class from which a portfolio or investment fund is composed.
Issue price: Price at which a fund unit or security is initially issued on the market.
Issue/redemption price: Price for the subscription/redemption of a fund unit, corresponding to net asset value plus/minus a commission rate defined in advance by the fund's management.