About Select Sector SPDRs
Glossary of Terms
12B-1 Fees - The percent of a mutual fund's assets used to defray marketing and distribution expenses. The amount of the fee is stated in the fund's prospectus. The SEC has proposed that 12B-1 fees in excess of 0.25% be classed as a load. A true no load fund has neither a sales charge nor a 12B-1 fee.
Alpha - Measure of risk-adjusted performance. Alpha takes into account the volatility of a particular portfolio and matches the risk-adjusted performance of that portfolio against a benchmark index.
American Depository Receipt (ADR) - Certificates issued by a U.S. depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation.
American Style Option - An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style. See also European Style Options.
Annualized Return - Expressed as a percentage, annualized return calculates the return of a mutual fund or other investment over the period of an average year within a given duration.
Annual Report - Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, as well as balance sheet, income statement, and cash flow statement information. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K.
Arbitrage - Profiting by simultaneously buying a security in one market and selling it in another because the prices are different in both markets. By taking advantage of momentary disparities in price, the arbitrageur performs the economic function of making the markets more efficient.
Ask - This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buy shares of stock; also called the offer price.
Asset Allocation - Investing in a combination of various assets or different types of investments in order to diversify and reduce the risk.
Benchmark - An unmanaged group of securities whose performance is used as a standard to measure investment performance. Commonly known as a market index. Some commonly used benchmarks are the Dow Jones Industrial Average and the S&P 500.
Beta - The measure of a fund's or a stock's risk in relation to the market or to an alternative benchmark. A beta of 1.5 means that a stock's excess return is expected to move 1.5 times the market excess returns. E.g., if market excess return is 10%, then we expect, on average, the stock return to be 15%. Beta is referred to as an index of the systematic risk due to general market conditions that cannot be diversified away.
Bid or Sell Price - The price at which a mutual fund's shares are redeemed by the fund. The bid or redemption price is the current net asset value per share, less any redemption fee or back-end load.
Blue-Chip Company - Used in the context of general equities. Large and creditworthy company. Company renowned for the quality and wide acceptance of its products or services, and for its ability to make money and pay dividends. Gilt-edged security.
Broker - An individual who is paid a commission for executing customer orders. Either a floor broker who executes orders on the floor of the exchange, or an upstairs broker who handles retail customers and their orders. Also, person who acts as an intermediary between a buyer and seller, usually charging a commission. A "broker" who specializes in stocks, bonds, commodities, or options acts as an agent and must be registered with the exchange where the securities are traded. Antithesis of dealer.
Call Option - An option to buy. Call options on securities are ordinarily issued for a period of less than one year.
Capital Gain Distribution - Payments (usually annually) made to mutual fund shareholders of gains realized on the sale of securities in the mutual fund portfolio.
Close - The close is the period at the end of the trading session. Sometimes used to refer to closing price.
Closed-End Fund - An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Related: Open-end fund.
Commission - The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or their dollar value. In 1975, deregulation led to the establishment of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock. Also known as a round-turn.
CUSIP - An identification number assigned to each fund by the committee on Uniform Security Identification Procedures.
Derivative - financial instrument whose value is based on value of another underlying security, index, asset or rate. These range from option contracts, to forward and future contracts, to extremely complex and volatile products. I.e. ETFs
Down Tick - Move down in a particular stock.
Dual Listing - Listing of a security on more than one exchange, thus increasing the competition for bid and offer prices, the liquidity of the securities, and the length time the stock can be traded daily (if listed on both the east and west coasts.) See: Listed security.
European Style Option - An option contract that can be exercised only at the expiration date. See also American Style Options.
Expense Ratio - Ratio of total expenses to net assets of fund. The Expense Ration includes management fees, 12(b)1 charges, if any, cost of shareholder mailings and other administrative expenses. The Expense Ratio is required to be disclosed in the prospectus.
Index - Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month. Indexes measure the ups and downs of stock, bond, and some commodities markets, in terms of market prices and weighting of companies the index.
Intraday - Term meaning "within the day," often to refer to the high and the low price of a stock.
Market capitalization - The total dollar value of all outstanding shares. Computed as shares times current market price. Capitalization is a measure of corporate size.
Market maker - Used in the context of general equities. One who maintains firm bid and offer prices in a given security by standing ready to buy or sell round lots at publicly quoted prices.
NASDAQ Composite Index - Unmanaged index of the National Market system which includes over 5,000 stocks traded only over-the-counter and not on an exchange.
NYSE Arca - Primary Listing for Sector SPDRs. An all-electronic U.S trading platform that provides fast execution with open, direct and anonymous market access.
Option - A contract between two parties in which one party, the holder, has the option to either buy or sell a security to the other party, the writer.
Put Option - The right but not the obligation to sell an underlying security at a particular price (strike price) on or before the expiration date of the contract.
Record Date - The date the fund determines who its shareholders are, "shareholders of record" who will receive the fund's income dividend and/or net capital gains distribution. Frequently the business day immediately prior to the Ex-Dividend Date.
Selling Short - Selling a stock not actually owned. If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug. 1, you purchase 1000 shares of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.
Short Position - Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed, before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought back to close out the transaction. This technique is used when an investor believes the stock price will drop.
Specialist - On an exchange, the member firm that is designated as the market maker (or dealer for a listed common stock). Member of a stock exchange who maintains a "fair and orderly market" in one or more securities. Only one specialist can be designated for a given stock, but dealers may be specialists for several stocks. In contrast, there can be multiple market makers in the OTC market. Major functions include executing limit orders on behalf of other exchange members for a portion of the floor broker's commission, and buying or selling for the specialist's own account to counteract temporary imbalances in supply and demand and thus prevent wide swings in stock prices.
Tracking error - In an indexing strategy, the standard deviation of the difference between the performance of the benchmark and the replication portfolio.
Up Tick - Move up in a particular stock.