Study your flashcards anywhere!
Download the official Cram app for free >
 Shuffle
Toggle OnToggle Off
 Alphabetize
Toggle OnToggle Off
 Front First
Toggle OnToggle Off
 Both Sides
Toggle OnToggle Off
 Read
Toggle OnToggle Off
How to study your flashcards.
Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key
Up/Down arrow keys: Flip the card between the front and back.down keyup key
H key: Show hint (3rd side).h key
A key: Read text to speech.a key
37 Cards in this Set
 Front
 Back
12b1

The 12b1 fee represents the maximum annual charge deducted from fund assets to pay for distribution and marketing costs. Although occasionally a flat dollar amount, this fee is almost always expressed as a percentage. Some funds may be permitted to impose 12b1 fees but are currently waiving all or a portion of the fees. Total 12b1 fees, excluding loads, are capped by law at 1.00% of average net assets annually. Of this, the distribution and marketing portion of the fee may account for up to 0.75%. The other portion of the overall 12b1 fee, the service fee, may account for up to 0.25%. Often, funds charging a 12b1 fee will allow shareholders to convert into a share class without the fee after a certain number of years. Investors should check the fund's prospectus for full details.


3 Yr Earnings Growth

A measure of the trailing annualized earningsgrowth record of the stocks in the portfolio. Like Lipper's price/earnings and price/book ratios, this number is weighted so that larger positions in the portfolio count proportionately more than lesser positions. Stocks with losses during the past three years and those that lack a threeyear track record are excluded from this calculation.


% Rank in Category

Percentile scores indicate how the fund performed within the category. A percentile score of 20 indicates that the fund did better than 80% of the funds in its category in that time period. Percentile ranks are useful for large fund categories, but letter scores are more useful in categories with fewer than 100 funds for a particular time periods. If a category contains fewer than 100 funds, the percentile ranking for that period will be understated for betterperforming funds and overstated for lowerperforming funds. For example, the topranked fund in a category with only 10 funds would show a percentile ranking of 10 rather than 1. The bottomranked fund would show a percentile ranking of 90 rather than 100.


Duration

Average duration provides a measure of a fund's interestrate sensitivity the longer a fund's duration, the more sensitive the fund is to shifts in interest rates. The relationship between funds with different durations is straightforward: A fund with a duration of 10 years is twice as volatile as a fund with a fiveyear duration. Duration also gives an indication of how a fund's NAV will change as interest rates change. A fund with a fiveyear duration would be expected to lose 5% from its NAV if interest rates rose by one percentage point or gain 5% if interest rates fell by one percentage point.
Lipper prints an average duration statistic provided by the fund company that incorporates call, put, and prepayment possibilities. These fundcompany numbers may provide some indication of a fund's interestrate sensitivity. 

Expense Ratio

The expense ratio, taken from the fund's annual report, expresses the percentage of assets deducted each fiscal year for fund expenses, including 12b1 fees, management fees, administrative fees, operating costs, and all other assetbased costs incurred by the fund. Portfolio transaction fees, or brokerage costs, as well as initial or deferred sales charges are not included in the expense ratio. The expense ratio, which is deducted from the fund's average net assets, is accrued on a daily basis. If the fund's assets are small, its expense ratio can be quite high because the fund must meet its expenses from a restricted asset base. Conversely, as the net assets of the fund grow, the expense percentage should ideally diminish as expenses are spread across the wider base. Funds may also opt to waive all or a portion of the expenses that make up their overall expense ratio.


Alpha

Alpha measures 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 a fund has underperformed, given the expectations established by the fund's beta. Some investors see alpha as a measurement of the value added or subtracted by a fund's manager. There are limitations to alpha's ability to accurately depict a manager's added or subtracted value. In some cases, a negative alpha can result from the expenses that are present in the fund figures but are not present in the figures of the comparison index. Alpha is dependent on the accuracy of beta: If the investor accepts beta as a conclusive definition of risk, a positive alpha would be a conclusive indicator of good fund performance. Of course, the value of beta is dependent on another statistic, known as Rsquared.


Average Credit Quality

Average credit quality gives a snapshot of the portfolio's overall credit quality. It is an average of each bond's credit rating, weighted by the relative size in the portfolio. For the purpose of Lipper's calculations, U.S. government securities are considered AAA bonds, nonrated municipal bonds generally are classified as BB, and other nonrated bonds generally are considered B.


Average Weighted Maturity

This figure is computed by weighting the maturity of each security in the portfolio by the market value of the security, then averaging these weighted figures.
We list Average Effective Maturity for Taxable FixedIncome and Hybrid funds. We list Average Nominal Maturity for Municipal Bond Funds. Average Effective Maturity Used for taxable fixedincome funds only, this figure takes into consideration all mortgage prepayments, puts, and adjustable coupons; it does not, however, account for call provisions. The number listed is a weighted average of all the maturities of the bonds in the portfolio, computed by weighing each maturity date (the date the security comes due) by the market value of the security. Average Nominal Maturity Listed only for municipal bond funds, average nominal maturity is computed by weighting the nominal maturity of each security in the portfolio by the market value of the security, then averaging these weighted figures. Unlike Lipper's duration figure, it does not take into account prepayments, puts, calls, or adjustable coupons. 

BackEnd Load Sales Charge

Also called a deferred load, a backend load sales charge is an alternative to the traditional frontend sales charge as it is only deducted at the time of sale of fund shares. The backend load sales charge structure commonly decreases to zero over a period of time. Atypical backend load sales charge structure might have a 5% charge if shares are redeemed within the first year of ownership, and decline by a percentage point each year thereafter. These loads are normally applied to the lesser of original share price or current market value. It is important to note that although the backend load sales charge declines each year, accumulated annual distribution and services charges (the total 12b1 fee) can sometimes offset this decline.


INTRODUCTION:

The Lipper Leader system is a toolkit that uses investorcentered criteria to deliver a simple, clear description of a fund's success in meeting certain goals, such as preserving capital or building wealth through consistent, strong returns. The strength of the measures is their use in conjunction with one another. They can be used together to identify funds that meet your particular characteristics.
The highest 20% of funds in each classification are named Lipper Leaders for, the next 20% receive a score of 2, the middle 20% are scored 3, the next 20% are scored 4, and the lowest 20% are scored 5. For a complete list of the Lipper scores for each category, as well as an explanation of the methodology used to calculate them, you can visit www.lipperleaders.com. 

LIPPER LEADERS FOR TOTAL RETURN

A Lipper Leader for Total Return is a fund that has provided superior total returns when compared to a group of similar funds. Lipper Leaders for Total Return may be the best fit for investors who are risktolerant and focus on funds with the best possible past performance. This measure is not suitable in isolation for most investors, since it does not evaluate downside risk, and investors should be strongly cautioned that past performance is not indicative of future performance. For more riskaverse investors with a strong preference for high past performance, the Total Return measure can be used with Preservation and/or Consistent Return to make a riskreturn tradeoff decision.
Calculation and Scoring Lipper scores for Total Return reflect funds' historical total return performance relative to peers. The overall calculation is based on an equalweighted average of percentile ranks for the Total Return metrics over three, five and tenyear periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Total Return, the next 20% receive a score of 2, the middle 20% are scored 3, the next 20% are scored 4 and the lowest 20% are scored 5. The scores are subject to change every month. 

LIPPER LEADERS FOR CONSISTENT RETURN

A Lipper Leader for Consistent Return is a fund that has provided superior consistency and riskadjusted returns when compared to a group of similar funds. Lipper Leaders for Consistent Return may be the best fit for investors who value a fund's yeartoyear consistency relative to other funds in a particular peer group. Investors are cautioned that some peer groups are inherently more volatile than others, and even Lipper Leaders for Consistent Return in the most volatile groups may not be well suited to shorterterm goals or less risktolerant investors. Consistent Return is a robust and sophisticated measure that can be successfully combined with several other measures to deliver a suitable fund.
Calculation and Scoring Lipper scores for Consistent Return reflect funds' historical riskadjusted returns, adjusted for volatility, relative to peers. The overall calculation is based on an equalweighted average of percentile ranks for the Consistent Return metrics over three, five and tenyear periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Consistent Return, the next 20% receive a score of 2, the middle 20% are scored 3, the next 20% are scored 4 and the lowest 20% are scored 5. The scores are subject to change every month. 

LIPPER LEADERS FOR PRESERVATION

A Lipper Leader for Preservation is a fund that has demonstrated a superior ability to preserve capital in a variety of markets when compared with its asset class  Equity, Mixed Equity, or Fixed Income funds. Choosing a Lipper Leader for Preservation may help to minimize downside risk, relative to other fund choices in the same asset class. Investors are cautioned that Equity funds have historically been more volatile than Mixed Equity or Fixed Income funds, and that even Lipper Leaders for Preservation in more volatile asset classes may not be wellsuited to shorterterm goals or less risktolerant investors.
Within the Fixed Income asset class, Lipper Leaders for Preservation are often in fund categories with lower risk and return profiles, and in these categories it can be especially useful to minimize expenses using the Lipper Leader for Expense measure. Calculation and Scoring Lipper scores for Preservation reflect funds' historical lossavoidance relative to other funds within the same asset class. The overall calculation is based on an equalweighted average of percentile ranks for the Preservation metrics over three, five and tenyear periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Preservation, the next 20% receive a score of 2, the middle 20% are scored 3, the next 20% are scored 4 and the lowest 20% are scored 5. The scores are subject to change every month. 

LIPPER LEADERS FOR TAX EFFICIENCY

A Lipper Leader for Tax Efficiency is a fund that has been successful at postponing taxable distributions, relative to similar funds.
Lipper Leaders for Tax Efficiency may be the best fit for taxconscious investors who hold investments that are not in a definedbenefit, IRA, or other retirement plan account, especially those in a high marginal income tax bracket. Some funds with poor relative performance may excel at avoiding distributions by generating capital losses, so the Tax Efficiency measure should be used alongside Consistent Return and/or Total Return to identify funds that have shown strong relative performance without exposing investors to excessive taxable distributions. Calculation and Scoring Lipper scores for Tax Efficiency reflect funds' historical success in postponing taxable distributions relative to peers. The overall calculation is based on an equalweighted average of percentile ranks for the Tax Efficiency metrics over three, five and tenyear periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Tax Efficiency, the next 20% receive a score of 2, the middle 20% are scored 3, the next 20% are scored 4 and the lowest 20% are scored 5. The scores are subject to change every month. 

LIPPER LEADERS FOR EXPENSE

A Lipper Leader for Expense is a fund that has successfully minimized its expenses relative to its peers and within its load structure.
Lipper Leaders for Expense may be the best fit for investors who want to minimize their fund expenses, and can be used in conjunction with Total Return or Consistent Return to identify funds with aboveaverage performance and lowerthanaverage expenses, or with Preservation to identify lowexpense funds that have minimized risk. Calculation and Scoring Lipper scores for Expense reflect funds' expense minimization relative to peers with similar load structures. The overall calculation is based on an equalweighted average of percentile ranks for the Expense metrics over three, five, and tenyear periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Expense, the next 20% receive a score of 2, the middle 20% are scored 3, the next 20% are scored 4, and the lowest 20% are scored 5. The scores are subject to change every month. 

Beta

Beta, a component of Modern Portfolio Theory statistics, is a measure of a fund's sensitivity to market movements. It measures the relationship between a fund's excess return over Tbills and the excess return of the benchmark index. Equity funds are compared with the S&P 500 index; bond funds are compared with the Lehman Brothers Aggregate Bond index. Lipper calculates beta using the same regression equation as the one used for alpha, which regresses excess return for the fund against excess return for the index. This approach differs slightly from other methodologies that rely on a regression of raw returns.
By definition, the beta of the benchmark (in this case, an index) is 1.00. Accordingly, a fund with a 1.10 beta has performed 10% better than its benchmark index after deducting the Tbill rate than the 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 has performed 15% worse than the index in up markets and 15% better in down markets. A low beta does not imply that the fund has a low level of volatility, though; rather, a low beta means only that the funds marketrelated risk is low. A specialty fund that invests primarily in gold, for example, will often have a low beta (and a low Rsquared), relative to the S&P 500 index, as its performance is tied more closely to the price of gold and goldmining stocks than to the overall stock market. Thus, though the specialty fund might fluctuate wildly because of rapid changes in gold prices, its beta relative to the S&P may remain low. 

Deferred Sales Charge Schedule of Decline

The actual percent charged, or amount you will pay during the corresponding time periods. This amount or percentage that your pay goes down as time goes on. (the longer you hold the fund the lower the sales charge).


FrontEnd Load Sales Charge

The initial sales charge or frontend load is a deduction made from each investment in the fund. The amount is generally based on the amount of the investment. Larger investments, both initial and cumulative, generally receive percentage discounts based on the dollar value invested. A typical frontend load might be a 4% charge for purchases less than $50,000, but might decrease as the amount of the investment increases.


Holdings

This is a fund's most recently reported top securities (excluding cash and cash equivalents for all but shortterm bond funds). The securities are ranked by the percentage of the portfolio's net assets they occupy. With this information, investors can more clearly identify what drives the fund's performance.
Lipper makes every effort to gather the most uptodate portfolio information from a fund. The law, however, requires funds to report this information only two times during a calendar year, and funds have two months after the report date to actually release the shareholder report and portfolio. Therefore, it is possible that a fund's portfolio could be up to eight months old at the time of publication. We print the date the portfolio was reported. Older portfolios should not be disregarded, however; although the list may not represent the exact current holdings of the fund, it may still provide a good picture of the overall nature of the fund's management style. 

Inception Date

The fund inception date gives the date on which the fund commenced operations. Here it is defined as the date from which the Since Inception return data for the fund is calculated.


Initial Purchase

The smallest investment amount accepted for establishing a new account. Where Clsd appears, the fund is closed to new investors. The minimum initial purchase notifies the investor of monetary restrictions for becoming a shareholder. Generally speaking, institutional funds have the highest minimum initial purchase amounts. For those investors with only a small amount to invest, checking the fund's minimum initial purchase should be one of the first criteria you use when selecting an appropriate mutual fund.


Interest Rate Sensitivity

Interestrate sensitivity, measured by the average effective duration the longer a fund's duration, the more sensitive the fund is to shifts in interest rates. The relationship between funds with different durations is straightforward: A fund with a duration of 10 years is twice as volatile as a fund with a fiveyear duration. Duration also gives an indication of how a fund's NAV will change as interest rates change. A fund with a fiveyear duration would be expected to lose 5% from its NAV if interest rates rose by one percentage point or gain 5% if interest rates fell by one percentage point


Median Market Cap

The median market capitalization of a fund's equity portfolio gives you a measure of the size of the companies in which the fund invests. (Market capitalization is calculated by multiplying the number of a company's shares outstanding by its price per share.) We use a trimmed mean to calculate a fund's median market cap. First, we rank the common stocks (domestic and international) in a fund's portfolio from highest to lowest based on their market capitalizations. Next, we identify the stocks that fall into the middle quintile of the portfolio. We then calculate the averageweighted market cap of the stocks in this middle quintile. The result is the fund's median market cap. The advantage of using a median rather than an average is that the median is not disproportionately affected by one or two extremely largecap or smallcap holdings. For example, a smallcompany fund that holds a small position in General Electric for liquidity purposes won't have its market cap unduly skewed by that company's market cap, unless it has a substantial portion of its assets in that stock.


Lipper Rating

The Lipper Rating summarizes a fund's historical risk/reward profile. To determine a fund's rating, the fund's Lipper Risk score is subtracted from its Lipper Return score. The top 10% of funds in each investment class (international equity, domestic equity, fixedincome, or municipal bond) receive 5 stars; the next 22.5%, 4 stars; the middle 35%, 3 stars; the next 22.5%, 2 stars; and the bottom 10%, 1 star. Ratings are recalculated monthly.


Net Assets

This figure is recorded in millions of dollars and represents the fund's total asset base, net of fees and expenses.


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 12month earnings per share, is calculated by dividing these two figures. In computing the average, Lipper weights each portfolio holding by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the fund's final P/E. 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. (P/Es can also be artificially inflated if a company has very weak trailing earnings, and thus a very small number in this equation's denominator.) A low P/E indicates the market has less confidence that the company's earnings will increase; however, a fund manager or an individual with a 'value investing' approach may believe such stocks have an overlooked or undervalued potential for appreciation.


Portfolio Style

Equity Portfolio Style combines both a fund's particular investment methodology and the size of the companies in which it invests. Investment methodologies include growthoriented, valueoriented, or a blend of the two, and are determined by dividing the average price/earnings and price/book ratios of a fund by those of the S&P 500 and adding the results. Funds with a sum less than 1.75 are classified as valueoriented; blendoriented funds are those with a sum equal to or greater than 1.75 but less than or equal to 2.25; and growthoriented funds have a sum greater than 2.25. (The S&P 500 would have a sum of 2.00 because each of its ratios divided by itself equals one.) Equity style also measures the size of the companies held in a fund's portfolio by median market capitalization and classifies funds as either small cap, medium cap, or large cap. Lipper ties market cap to the relative movements of the market. The top 5% of the 5,000 largest domestic stocks in Lippers equity database are classified as large cap, the next 15% of the 5,000 are medium cap, and the remaining 80% (as well as companies that fall outside the largest 5000) are small cap. Lipper then determines a funds market cap by ranking the stocks in a fund's portfolio from the largest marketcapitalized stock to the smallest, and then calculating the average weighted market capitalization of the stocks in the middle quintile of the portfolio. After a fund's market cap has been determined, Lipper places the fund in the largecap, mediumcap, or smallcap group (noted above).
FixedIncome Style focuses on the two pillars of fixedincome performance: interestrate sensitivity and credit quality. Lipper splits fixedincome funds into three groups of rate sensitivity as determined by maturity (short, intermediate, and long) and three creditquality groups (high, medium, and low). Nine possible combinations exist, ranging from short maturity/high quality for the safest funds to long maturity/low quality for the more volatile. To calculate interestrate sensitivity, Lipper uses average effective maturity (average nominal maturity for municipalbond funds), which provides a more accurate description of a bond's true life than does a simple weighted maturity; the former takes into consideration all mortgage prepayments, puts, and adjustable coupons. Funds with an average effective maturity of less than four years qualify as shortterm. Funds with bonds that have an average effective maturity greater than or equal to four years but less than or equal to 10 years are categorized as intermediate, and those with maturity that exceeds 10 years are longterm. Fixedincome funds that have an average credit rating of AAA or AA are categorized as high quality. Bond portfolios with average ratings of A or BBB are medium quality, and those rated below BB are categorized as low quality. For the purposes of Lipper's calculations, U.S. government securities are considered AAA bonds, nonrated municipal bonds are classified as BB, and all other nonrated bonds are considered B. 

Price/Sales Ratio

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


Quintile Rank

A letter score shows the quintile ranking. An A indicates the fund was among the top 20% of the funds in its objective. Every 20 percentage points translates to a letter grade decrease, with a letter score of E indicating the fund was in the bottom 20% of the objective in that time period.


RSquared

Rsquared ranges from 0 to 100 and reflects the percentage of a fund's movements that are explained by movements in its benchmark index. An Rsquared of 100 means that all movements of a fund are completely explained by movements in the index. Thus, index funds that invest only in S&P 500 stocks will have an Rsquared very close to 100. Conversely, a low Rsquared indicates that very few of the fund's movements are explained by movements in its benchmark index. An Rsquared measure of 35, for example, means that only 35% of the fund's movements can be explained by movements in its benchmark index. Therefore, Rsquared can be used to ascertain the significance of a particular beta or alpha. Generally, a higher Rsquared will indicate a more useful beta figure. If the Rsquared is lower, then the beta is less relevant to the fund's performance.


Sales Charge

Fees paid to a brokerage house by a buyer of shares in a load mutual fund.


Sharpe Ratio

The Sharpe ratio, provided by Lipper, is based on a riskadjusted measure developed by Nobel Laureate William Sharpe. It is calculated using standard deviation and excess return to determine reward per unit of risk. First, the average monthly return of the 90day Treasury bill (over a 36month period) is subtracted from the fund's average monthly return. The difference in total return represents the fund's excess return beyond that of the 90day Treasury bill, a riskfree investment. An arithmetic annualized excess return is then calculated by multiplying this monthly return by 12. To show a relationship between excess return and risk, this number is then divided by the standard deviation of the fund's annualized excess returns. The higher the Sharpe ratio, the better the fund's historical riskadjusted performance.


Standard Deviation

Standard deviation is a statistical measure of the range of a fund's performance. When a fund has a high standard deviation, its range of performance has been very wide, indicating that there is a greater potential for volatility. The standard deviation figure provided here is an annualized statistic based on 36 monthly returns. By definition, approximately 68% of the time, the total returns of any given fund are expected to differ from its mean total return by no more than plus or minus the standard deviation figure. Ninetyfive percent of the time, a fund's total returns should be within a range of plus or minus two times the standard deviation from its mean. These ranges assume that a fund's returns fall in a typical bellshaped distribution. In any case, the greater the standard deviation, the greater the fund's volatility.


Subsequent Purchase

This indicates the smallest permissible additional purchase a fund will accept in an existing account.


Treynor Ratio

A gauge of riskadjusted performance calculated by dividing the excess return of a portfolio above the riskfree rate by its beta. Higher values are desirable and indicate greater return per unit of risk.


Turnover Ratio

A measure of efficiency, this figure represents how many dollars in revenue a company can generate with a dollar in assets. It is calculated by dividing total revenues for the time period by total assets for the time period.


Yield

Yield, expressed as a percentage, represents a fund's income return on capital investment for the past 12 months. This figure refers only to interest distributions from fixedincome securities, dividends from stocks, and realized gains from currency transactions. Monies generated from the sale of securities or from options and futures transactions are considered capital gains, not income. Return of capital is also not considered income. NMF or No Meaningful Figure appears in this space for those funds that do not properly label their distributions. We list N/A if a fund is less than one year old, in which case we cannot calculate yield.
Lipper computes yield by dividing the sum of the fund's income distributions for the past 12 months by the previous month's NAV (adjusted upward for any capital gains distributed over the same time period). 