UNIT TRUSTS - Active management An investment approach that relies on independent investment judgements and active portfolio changes by fund managers to achieve growth in returns. In contrast, passive management occurs when a manager's main aim is to mirror market performance by replicating the composition of market indices.

All Share Index A weighted average of the market prices of all shares listed on the Johannesburg Stock Exchange (JSE). The index gives the best indication of general market direction because it includes shares from all sectors of the stock market.

Ask Selling price of a unit in a unit trust at any point in time.

Asset allocation A spread of investments across the full range of financial vehicles, including cash, fixed income and shares. The fund manager decides on the percentage of the funds that will be devoted to each type of asset. This mix will change in line with market conditions and to reflect the risk profile of the fund or investor.

Asset Swap A foreign exchange control requirement established by the SA Reserve Bank to allow fund managers to invest a portion of their funds under management offshore without triggering capital outflows. The local institution is allowed to swap a portfolio of domestic investments with a foreign party up to a certain limit. The foreign party is supposed to hold onto the securities for an agreed period to prevent money flowing out of the country during the fund manager's asset diversification.

Average Annual Compound Return The average of all the annual rates of return, including reinvestment of distributions, earned over a specific period of time.

Benchmark A market indicator against which you can measure the comparative performance of another investment vehicle. For instance, unit trust returns are usually judged relative to the performance of a stock market index.

Bid price Sell price of a unit in a unit trust fund.

Bid/Offer spread Difference between the price at which an investor buys an investment (offer price) and the lower price (bid) at which it is sold.

Bonds Government, local authorities and companies issue bonds to fund their expenditure. They usually offer investors a bi-annual fixed or variable coupon for the life of the bond. At maturity the investor receives a principal payment. The bond, also known as a fixed income security, is guaranteed by government or, in the case of corporate bonds, is assigned a rating that quantifies the level of risk

Diversification Strategy of spreading investments across a number of different types of assets, stocks and share sectors to reduce the risk of being exposed to any one asset's investment performance.

Derivative A financial contract where the value is derived from an underlying security or index. It is an agreement by the investor to buy or sell the underlying asset in the future at a set price. The value of the derivative is based on the anticipated future movements in the stock price. Derivatives either trade on a formal exchange or over-the-counter between parties in an unregulated transaction.

Fixed-income Fund A specialist unit trust invested in bonds and other fixed-income instruments.

Fund Another name for a unit trust

Growth Fund A unit trust with a strategy of concentrating on delivering capital growth by investing in companies with a history of fast-growing profits and relatively higher price-to-earnings ratios. Growth funds are traditionally more volatile than other unit trusts.

Hedging A strategy aimed at countering and protecting an investment against adverse movements in prices, interest rates or exchange rates. It usually involves taking the opposite position in the derivatives market by, for instance, selling Anglo call warrants or options (or buying puts) to limit the impact of a fall in the conglomerate's share price on the actual investment in Anglo shares.

Income Distribution Any income, including dividends and interest earned by the unit trust. The proceeds are either paid out to unit holders or reinvested in the fund.

International Unit Trust A unit trust with a significant exposure to non-South African assets.

Investment Objective Defines the fund manager's investment goals and gives an indication of where the money will be invested. It gives the investor the security of knowing his money will be invested as spelt out by the management company.

Linked Product Company Companies that invest in a number of unit trusts on an investor's behalf in return for an ongoing administration fee. Investors can switch their investments between different unit trusts for a small charge. Linked product companies demand relatively large minimum investment amounts.

Liquidity Amount of cash held by a unit trust and its ability to buy or sell any of the shares in the fund portfolio. Unit trust regulations dictate that a specific percentage of a unit trust's asset should always remain in cash.

Money Market Wholesale funding market the banks use to raise or lend money to balance their retail assets and liabilities. Money market instruments are relatively short-term in nature (maturity of one year or less) and include certificates of deposit, treasury bills and other types of interbank funding.

Net Asset Value (NAV) The market value of a unit trust's total assets (stocks and shares plus income less expenses) divided by the number of units. The NAV of a unit trust is usually calculated daily.

Offer price The purchase price of a unit trust.

Portfolio Investment Investments in financial assets (including shares, government bonds etc.) rather than fixed physical assets.

Prospectus A legal document stipulating the history, financial standing and objectives of a company or a unit trust as well as background on the fund managers and any other pertinent financial information.

Real Rate of Return The inflation-adjusted return of an asset.

The measure strips out the increase in prices to reflect the actual increase in the assets value for the period.

Securities Financial instruments such as stocks, bonds, treasuries and debentures. Any debt or equity instrument issued by a company, the government or other institution to investors.

Spot markets Markets where currencies or commodities are traded for immediate delivery.

Unit A unit trust is divided up into saleable units. To calculate the value of a unit, the investment proceeds of a unit trust are divided by the number of units.

Treasuries Debt securities issued by the government.

Unit Trust Linked Products A range of financial products with unit trusts as the main underlying investment. Investors can usually switch between various unit trusts.

Value Unit Trusts Value funds invest in shares that are considered undervalued compared to the rest of the market.

Unit trusts Collective investment vehicles divided into equal units. Money earned from the sale of units in these funds is invested in securities such as stocks and bonds.

Warrant A contract that gives an investor the right to buy shares at a fixed price at a pre-determined time in the future.