AIF stands for alternative investment fund. Unlike retail UCITS, retail AIF are subject not only to the provisions of the Investment Fund Act 2011 (InvFG 2011), but also to the provisions of the Alternative Investment Fund Manager Act (AIFMG). Among other differences compared with retail UCITS, retail AIF are subject to expanded investment limits and issuer restrictions.

All relevant information for the investor can be found in the Information for Investors pursuant to § 21 AIFMG (which is comparable to the prospectus for retail UCITS), the fund terms and conditions, and the key investor document (KID) of the respective retail AIF. These can be found on the website www.erste-am.com.

Retail AIF can be sold in other countries in Europe in accordance with the respective local laws.
The registration of retail AIF for sale is subject to more stringent requirements from the supervisory authorities than retail UCITS, and also involves high costs.

The fund measure “average term to maturity” is the weighted average of the term to maturity of the bonds held by the fund.The fund measure “average term to maturity” is the weighted average of the term to maturity of the bonds held by the fund.

See Statement of accounts.

Apart from investment funds and own investments, clients may also have their securities managed by an asset manager. In this case an asset management contract detailing the investment rules and management fees is drafted. Clients’ assets are then managed directly in their deposit according to the agreed rules and without further consultation.

In the case of accumulating units the fund’s income is kept in the fund and reinvested by the fund manager. The investor thus does not receive regular annual income in the form of a distribution but participates in the increased value of the fund assets.

Asset allocation means to intentionally spread assets among various investment vehicles (e.g. bonds, shares, sight deposits), markets, industries and currencies. The aim of this type of investment strategy is to optimise a portfolio’s return and risk.

Alternative investment funds (AIFs) are funds that are not undertakings for collective investment in transferable securities (UCITS). Since July 2013 AIFs have been regulated by the Alternative Investment Fund Managers Act (AIFMG), and they are also subject to the 2011 Investment Fund Act (InvFG 2011). Examples of alternative investment funds are other special assets, special funds, real estate funds, hedge funds and private equity funds.

Absolute return denotes the performance of an asset irrespective of market cycles or a benchmark over a given period of time.

B

The best in class approach is based on a selection of the best companies within a sector. This means that investments are made in those companies that command the best ESG standards within the respective sector.

Source: www.erste-am.at

The beta factor complements volatility. It, too, indicates the potential of share prices to fluctuate. The beta factor is a risk factor that expresses the dynamics of a share, i.e. the velocity at which it experiences fluctuations in comparison with other shares. The beta factor is calculated from historical data on the basis of statistical methods. A beta of 1 is defined as a share price development that is exactly in line with the index. If the price fluctuations of a share is more pronounced than those of the index, the beta will exceed 1. A beta of less than 1 means that the fluctuations of a share are generally less significant than those of the index.

As a rule, balanced funds may invest both in equities, bonds and other investment funds, thus combining the potential return entailed in stock markets with income from fixed-income-securities.

A benchmark is a standard against which the performance of an investment and the quality of fund management can be measured. Generally, this refers to a comparable index portfolio (e.g. market indexes or indexes of index providers such as MSCI, Merril Lynch or Citigroup).

Bond funds (also called fixed income funds) are investment funds that primarily invest in interest-bearing securities such as government and corporate bonds, mortgage bonds or debt securities of financial institutions.

C

The Latin expression ceteris paribus means „all other things being equal“. It plays and important role especially in connection with economic analyses and means that the analysis is carried out under the assumption that all variables but one remain unchanged.

Cost averaging principle applies in the context of the s Fonds Plan (i.e. when regular fixed payments are made to an investment fund). The principle describes the effect of price fluctuations. If the s Fonds Plan is based on a certain fixed amount, more units of a fund are purchased when issue prices are low and fewer units are bought when issue prices are high. In the long term, this leads to a lower average purchase price than the regular purchase of a fixed amount of shares over the same period.

Currency risk hedging means safeguarding the assets of a fund against foreign currency risks.

Creditworthiness is an assessment of the likelihood that a borrower (e.g. issuer of a bond) will be able to pay regular interest and repay the nominal value at maturity. The assessment is carried out by specialised credit rating agencies.

A cooperation fund is an investment fund which is exclusively marketed by a cooperation partner (e.g. savings banks, other financial institutions, asset managers, insurers, etc.). The fund is either managed by the management company, the cooperation partner or a third party.

Capital maintenance (also financial capital maintenance) means that the value of the capital paid in by the investor has been maintained over a defined period of time, after adjusting for inflation.

Pursuant to the InvFG 2011 (UCITS Directive), an Austrian investment company is obliged to commission a financial institution as custodian bank for the special assets it manages. The custodian bank is particularly in charge of issuing and redeeming unit certificates, determining the issue and redemption prices and making distributions to the unit holders.

This term is used in the context of investment funds in connection with the evaluation of the risks associated with derivative instruments. With this approach, for the purposes of risk assessment derivatives are translated in such a way as if they corresponded to an investment in the underlying instrument (nominal value method). The translation into the equivalent underlying asset is called a “commitment”. In the case of futures, for example, this would be the relevant contract value. In the case of a bond future (e.g. Bund future) with a contract value of EUR 100,000, that value would be assigned to the risk position of the fund’s assets under management. The amount of these nominal values (equivalent underlying instruments) in relation to the fund assets shows whether and to what extent an investment fund’s risk position has changed through the use of derivatives.

See s Fonds Plan.

Foreigners are liable to a limited tax on domestic interest income as referred to in the Austrian EU Withholding Tax Act (EU-QuStG), provided the interest is subject to capital gains tax deduction (capital gains tax on interest pursuant to Article 98 para. 1 no. 5 lit b of the 1988 Income Tax Law – EStG 1988). The following individuals are subject to limited tax liability:

  • natural persons from third countries* (with Austrian interest income as referred to in the EU-QuStG);
  • natural persons from third countries* and the EU who hold an interest in foreign entities that are transparent from a tax point of view (particularly partnerships);
  • ambassadors and diplomats from third countries* as well as employees of international organisations (from third countries* and the EU).

Interest payments related to securities of Austrian issuers and Austrian bank deposits have been subject to this extended tax liability since 1 January 2015. The current tax rate is 27.5%.

* Third countries mean non-EU countries in this context.

The “current costs” are specified in the Key Investor Information Document and cover various payments to be settled from the fund assets. These costs may be incurred by payments to the investment fund’s management company, to the custodian bank, any investment advisers or to the statutory auditor. The current costs are calculated at least annually in arrears, and stated as a percentage of the average fund assets. The exact calculation method for these costs is laid down in the law.

The capital gains tax (KESt) is a withholding tax, currently levied at a rate of 27.5%, on domestic investment income and foreign investment income drawn in Austria. KESt is directly deducted from interest, bond coupons and dividends. With the 2011 Budget Accompanying Act (BBG 2011), the taxation of capital assets was reorganised and, among other things, extended to sales of securities. Since April 2012, profits from sales of capital assets have been subject to KESt (price gains tax). From 1.1.2016 the capital gains tax was increased from 25% to 27.5%.

D

The dividend yield is a ratio that serves for the valuation and benchmarking of equities. It is defined as the dividend paid by the company divided by the share price. This ratio can refer to the dividend paid out in the ongoing year or to future expected dividend pay-outs.

Source: www.boerse.de

The distribution yield (or payout yield) is defined as ratio of the pre-tax payout (including withholding tax) in relation to the net asset value of the fund on the ex-dividend payout date of the respective year.

Example:

Net asset value of the fund on the ex-dividend payout date of the respective year: EUR 100

Pre-tax payout: EUR 5

The distribution yield is 5/100, or 5%.

Duration is an indicator to assess the risk of bonds. It is a measure of the interest rate risk entailed in fixed-interest securities and represents the average time the invested capital is tied up, expressed in years. Because interim interest payments are made on the invested capital, the duration is shorter than the bond’s term to maturity. The longer the duration, the more bond prices will rise or fall when interest rates change.

Derivative financial instruments is the general term denoting forward transactions (options, futures and swaps). They are mainly traded on separate futures exchanges. Derivatives are based on underlying assets and are used for hedging and/or speculation.

Every investment fund consists of one or multiple share classes, each of which has a separate ISIN.

The share class with regular (at least annual) disbursements is usually labelled with (A) in Austria. The amount of the disbursement is determined separately each year by the investment firm that manages the fund. The lower limit for the disbursement is set by law, namely at least the incurred capital gains tax (KESt) must be disbursed. Any disbursement above this amount is made at the discretion of the KAG, and disbursements can also be made from the fund’s capital.

It is important to note that the disbursement is always made from the fund assets and reduces these assets – and the calculated value of the fund – by the same amount.

Investment funds usually offer an annual distribution, which must be effected no later than four months of the end of the fund’s accounting year. Where investment funds are distributing, this usually comprises ordinary and, where applicable, extraordinary income and the capital gains tax applicable to the notional distribution. Ordinary income includes dividends and/or interest, while extraordinary income includes profits made through the sale of securities. The net asset value of an investment fund is reduced by this distribution amount on the day of distribution (ex-day). The amount of the distribution is set by the investment company every year and may also draw on the investment fund’s material assets. The distribution amount is no indication of the quality of an investment fund or its fund management.

Diversification is a basic principle of an investment fund. By intentionally spreading investments over different securities, issuers, markets, currencies, terms, etc., the risk is spread. Ideally, losses from one security will be neutralised by simultaneous profits generated by other securities.

E

EAM has established a rating in accordance with ESG criteria for its investment decisions. For more information please visit “Responsible investing” at www.erste-am.at.

The ex-dividend date (or EX DATE) is the date at which the right to a distribution is separated from the investment fund share. If the investor buys the share after the ex-dividend date but prior to the actual distribution, he/she will pay a price reduced by the amount of the distribution but will not receive said payout.

Environmental, social and governance (ESG) criteria refer to the three basic principles underlying any sustainable investment.

An exchange-traded fund (ETF) is an investment fund that is traded on the stock exchange. When buying or selling an ETF the investor has to pay transaction fees. ETFs are investment funds that aim to reproduce the performance of a pre-defined benchmark in the form of a financial index.

 

Financial investors use the term “emerging markets” to refer to newly industrialised countries. These countries are in the process of growing and catching up, a situation accompanied by political and economic change. Unlike “developed markets”, i.e. industrialised nations, financial markets in emerging markets are exposed to greater price fluctuations and political risks.

 

Equity funds are investment funds that mainly invest in stocks. Holders of units in an equity fund therefore directly participate in the assets and income of a large number of companies.

F

Fund assets signify the entire assets of an investment fund. They are calculated daily and comprise various assets. Fund assets are reduced by costs and fees incurred in the fund, e.g. management fees, custodian fees and transaction costs. Their value changes with the price of the assets included in the fund, with the issue and redemption of fund units and with distributions to unit holders. The fund assets constitute special assets and are co-owned by the unit holders. This means that unit holders cannot lose their assets, even if the investment company or custodian bank is liquidated.

Floaters are bonds with a variable rate of interest, which is linked to a reference rate and reset at regular intervals.

See Master-feeder funds.

A fund of funds is an investment fund that does not invest its assets in individual securities but in several individual open-end funds (sub-funds or target funds). These investment funds may belong to the same investment company as the fund of funds or to other companies (third-party funds). Funds of funds are usually more broadly diversified than other types of funds and are often used as vehicles for implementing asset allocation decisions.

To cover the costs associated with the issuing of share certificates, the investment company may charge a load on the net asset value. The front-end load is applied once at the time of the purchase of units in a fund. Its maximum amount is stipulated in the fund rules.

Futures are forward contracts traded on an exchange. With a forward contract two parties agree on the delivery or sale of an asset, with delivery occurring at a future point in time. The price is fixed at the time when the forward contract is concluded. Futures contracts have standardised conditions and are traded on futures exchanges.

The Investment Fund Act (InvFG) allows one investment fund to be merged with another. The conditions that need to be met are approval by the Financial Market Authority and an appropriate announcement. When two funds are merged, the assets of one fund are transferred to the assets of another. The transferor fund then ceases to exist. The subscription ratio is determined according to the assets of the two funds, and the unit holders of the transferor fund then become unit holders of the transferee (merged) fund. From the perspective of the unit holders, a merger does not constitute a sale under tax law.

The fund rules determine the details of a fund’s investment. The investment conditions of a UCITS fund are stricter than those for alternative investment funds (AIFs) since UCITS funds must be more broadly diversified than AIFs. They must be approved by the Financial Market Authority (FMA). The fund rules are attached to the fund’s prospectus in the annex.

See Bond funds.

G

Dividend distribution per fund share prior to income taxes.

H

Hybrid bonds are subordinated bonds from the non-financial segment that share certain characteristics with equity. The yields of hybrid bonds are significantly higher than those paid by the senior bonds from the same issuer.

The risk/return profile of this asset class is located on the continuum between equities and senior bonds. Hybrid bonds either come with very long maturities or have no end of maturity at all. The issuer has certain rights of termination during the life of the bond.

Hybrid bonds do not offer a fixed pay-out; the rate of return is linked to the earnings and business situation of the issuer. This means that coupon payments may be suspended, but they are typically recovered as soon as a dividend is paid out.

Coupon payments are fixed for a period of five to twelve years, which is followed by a period of variable rates. If the bond is not redeemed at the initial call date, the coupon turns variable. The percentage of the coupon consists of a referential interest rate and a risk premium. At every new call date, the risk premium on the referential interest rate increases, which incentivises the issuer to redeem the bond as early as possible.

Hybrid bonds come with numerous benefits for issuers. Hybrid issues are less costly than an IPO or a capital increase via shares. In contrast to dividends, the issuer can deduct the coupon payments for tax purposes, and hybrid capital supports the rating of senior bonds. Most rating agencies include up to 50% of hybrid bonds in the issuer’s equity ratio.

Special issuer rights of hybrid bonds

 

Termination rights particular to hybrid bonds

 

High-yield bonds are bonds that carry a rating of BB+ (Standard & Poor’s) or Ba1 (Moody’s) or lower. They are therefore not as creditworthy as investment-grade bonds (with an AAA to BBB- rating). As a rule, low creditworthiness stands for high risk, which most often means that high-yield bonds pay a higher effective yield and their performance is subject to higher volatility.

“Hedging” means safeguarding an investment against certain market risks (e.g. interest rate, price or exchange rate risks). This is achieved mostly by means of derivative products (e.g. options, futures).

The name “hedge fund” derives from the original strategy of safeguarding a portfolio against significant downward trends (declines in stock exchange prices). The possibility of benefitting from rising or declining prices on the stock exchange is characteristic of this kind of funds. There are two distinctive types of hedge funds strategies: The first type either invests in a lot of different asset classes or specializes in a specific type of equities. The second type results from whether the portfolio decisions are made fundamentally (qualitative) or if computer models (quantitative) are used. The volatility of hedge funds is lower than the one of traditional equity funds. More and more hedge funds are operating in accordance to UCITS and are therefore, like traditional funds, subject to the strict Investment Fund Act (InvFG 2011). However, a substantial part of a hedge fund is still subject to the Alternative Investment Fund Managers Act (AIFMG).

I

The investment approach describes the process used to manage an investment fund. It includes both investment style and criteria according to which assets are selected.

A large part of any fund assets consists of accrued or already collected income (interest, dividends, price gains, etc.), which form part of the calculated value, the issue price and the redemption price. When new unit holders invest in the fund, the issue price includes an amount for the income, consisting of interest, dividends and material assets, as posted on the date of issue.

An issuer is a legal entity that issues securities on the money or capital markets in order to raise capital. These securities are normally issued with the help of a credit institution.

An issuer (e.g. government, credit institution, company) “issues” securities such as, for example, bonds or shares, in order to raise capital. 

This is the price investors pay when purchasing units of an investment fund. The issue price comprises the net asset value and the front-end load as defined in the fund rules, and is published by the investment company on each market day.

An investment company (or management company) is a company that is authorised to manage investment funds in accordance with the InvFG 2011 based on a licence granted by the Austrian Financial Market Authority (FMA).

The International Securities Identification Number (ISIN) consists of 12 alphanumeric characters. It allows unique international identification of a security that is traded on the stock exchange.

The term “investment grade” refers to bonds with good to excellent creditworthiness. The term therefore covers all bonds that carry a minimum rating of BBB (Standard & Poor’s) or Baa (Moody’s). The highest level of creditworthiness is seen in bonds with ratings of AAA (Standard & Poor’s) or Aaa (Moody’s).

The “Federal Act on Investment Funds of 2011” is known as the 2011 Investment Fund Act (InvFG 2011). It regulates the details of fund transactions conducted in Austria, including tax treatment. The main concern of the InvFG 2011 is to protect the investor, which is why the aspects of security, risk management and disclosure requirements feature prominently in the Act.

Investment funds are pooling capital to invest in securities that are aligned to a specific strategy, e. g. single securities, money-market instruments, investment funds, sight deposits or callable deposits, and/or derivative instruments. In legal terms, investment funds are special assets consisting of securities selected according to the principle of diversification. The special assets are broken down into equal units co-owned by the unit holders and managed by the investment company

The information ratio (IR) is a ratio to assess an investment fund. The ratio is calculated by dividing the difference between the fund’s performance and the benchmark by the fund risk (expressed as tracking error). The tracking error shows the volatility of the deviation of fund performance from benchmark performance, and is an indicator of fund risk. The higher the information ratio, the more profitable is an investment strategy that deviated from the index (active management).

J

There is currently no term for this letter

K

In the case of accumulating units the fund’s income is kept in the fund and reinvested automatically, only capital gains tax is distributed. KESt-exempt non-dividend shares do not pay capital gains tax, therefore, they are not available in Austria (especially for private investors).

The Key Investor Information Document (KIID) is a document containing the key information on an investment fund in a clear and standardised format (e.g. objectives, investment policy and risk classification of the fund, current annual costs). It must be made available to investors before they reach any investment decision. KIIDs must be drawn up by investment companies for each mutual fund they manage, and their form and contents are governed by strict specifications.

L

There is currently no term for this letter

M

The market capitalisation (also: market cap) is the current market value of equity of a company. It is calculated by multiplying the number of shares by the share price. This measure is often used to compare the size of companies.

See Investment company.

A bond’s modified duration expresses the per-cent change in the value of its price in response to a 1% change in returns. It therefore measures the interest rate risk.

Mutual funds are investment funds for private and institutional investors. Units in public funds can usually be bought and sold at any time.

Retail funds can generally either be UCITS or AIF.

With regard to capital markets, a market cycle (phase) refers to the status of a capital market over a certain period of time. Three phases are possible: an upward phase (bull market), a downward phase (bear market) and a trading range phase.

The “Min/Max Performance” figures provided with the fund information by Erste Asset Management show the respective lowest and highest annual income in per cent. The Min/Max Performance refers to the given periods from the day of the fund’s issue.

See Recommended holding period.

The Maximum Drawdown (MDD) is a ratio shown in any fund information by Erste Asset Management as soon as a fund has existed for at least three years. It is calculated by Oesterreichische Kontrollbank AG based on monthly values and gives the maximum accumulated loss over a specified time period. The MDD is expressed in percentage terms.

The option of master-feeder structures was introduced in Europe with implementation of the UCITS IV Directive. Such structures comprise a master fund, which invests in securities, money-market instruments, investment funds, sight deposits or callable deposits and/or derivative instruments, as specified in the master fund’s investment strategy. There may be one or several feeder funds to the master fund. The feeder funds invest at least 85% of their fund assets in the master fund. Apart from investing in the master fund, feeder funds may only invest in sight deposits and callable deposits, as well as derivatives for hedging purposes.

This solution makes sense where:

  • smaller funds with identical investment strategies are combined into one fund and the original fund names are to be kept;
  • a fund is to be made available to clients in various countries and/or with various home currencies while avoiding the full replication of the fund in each country.

By using master-feeder structures the investment company can meet different client requirements more effectively. The securities portfolio of a master fund, which is bigger when compared with several smaller investment funds, can be managed more effectively and more cost-efficiently.

The chart exemplifies the master-feeder structure on the basis of the ESPA BOND EMERGING MARKETS CORPORATE IG* fund. It illustrates two forms of possible feeders.

 

*Important legal notice

The following is advertising information. Data source (unless otherwise stated): ERSTE-SPARINVEST Kapitalanlagegesellschaft m.b.H. Our languages of communication are German and English. The prospectus for UCITS funds (including any updates) is prepared in accordance with the provisions of the 2011 Investment Fund Act (InvFG 2011) as amended and published in the official gazette “Amtsblatt zur Wiener Zeitung”. For any alternative investment funds (AIFs) managed by ERSTE-SPARINVEST Kapitalanlagegesellschaft m.b.H. “Information for investors pursuant to Article 21 AIFMG” is prepared in accordance with the provisions of the Alternative Investment Fund Managers Act (AIFMG) in conjunction with the InvFG 2011. The current versions of the prospectus, the “Information for investors pursuant to Article 21 AIFMG” and the Key Investor Information Document (KIID) can be downloaded from the website www.erste-am.com and are available free of charge to any prospective investor at the head offices of the management company and the custodian bank. The exact date of the most recent publication of the prospectus, the languages in which the KIID is available, as well as any further places where these documents may be obtained can be found on www.erste-am.com. This document serves as additional information for our investors and is based on what was known to the authors at the time of preparation. Our analyses and conclusions are of a general nature and do not take account of our investors’ individual requirements with respect to income, tax situation or risk appetite. Past performance does not allow any reliable conclusions regarding the future development of a fund.

N

Dividend distribution per fund share prior to income taxes.

Near-money-market funds are investment funds which primarily invest in money-market instruments and securities with a short period of fixed interest rates.

The net asset value (also inventory value) is calculated by dividing the value of all the fund’s assets (less any liabilities) by the number of fund units issued. The NAV therefore equals the value of one fund unit. It is usually calculated and published on each market day .

Adding the front-end load to the net asset value results in the issue price. The redemption price is determined by deducting any redemption fees from the net asset value.

The face value of a security  must not necessarily equal the security’s market value. In the case of fixed-interest securities the par value is repaid to the creditor at the end of maturity, unless another redemption price has been determined. Interest payments (coupons) for bonds are also based on the nominal value.

O

Order to buy or sell securities.

Ordinary income refers to interest and dividends that are placed in the fund and that are usually paid out or reinvested less administrative fees (and, where applicable, after loss is offset). Ordinary income differs from extraordinary income (capital gains).

The OeKB method is the method OeKB (Oesterreichische Kontrollbank AG) uses to calculate their ratios. It is modelled on international examples, and represents a market standard for Austrian investment companies.

In the case of investment funds, the OeKB method is used to determine how performance is calculated, how risk and return analysis is carried out and how risk ratios are calculated.

 

OeKB is a specialised bank whose main objectives include issuing export credit guarantees and handling export financing, and providing information about the Austrian capital market.

OeKB acts as central securities depositary for nearly all Austrian securities, operates central data pools on Austrian securities, calculates financial ratios, issues national securities identification numbers (ISINs) and acts as reporting office in accordance with the Capital Market Act (KMG). In addition, OeKB offers information services regarding Austrian and international equity, bond and fund data, and provides nearly all major market participants with financial data and ratios.

P

The price/earnings ratio is defined as the ratio of share price to earnings per share. A low PER suggests an attractive share price, whereas a high PER means the share is expensive. However, important fundamental reasons (e.g. low profits, bad management) may cause a low PER. The ratio is calculated according to the following formula: PER = share price / earnings per share.

Portfolio management is to construct and to manage a portfolio of securities with the aim of achieving a specific goal. The objective may be to maximize return (based on a certain risk budget) or to minimize risk (given a specific return objective).

The prospectus contains all the information relevant to assess the investment, such as the fund rules as approved by the Financial Market Authority and explanations regarding the investment fund’s risk profile. If any material aspects of the particular investment fund change, the prospectus will be updated.

All prospectuses for the mutual funds of Erste Asset Management can be found on our website at www.erste-am.com.

All of the securities taken together and held by a company or person usually in line with a specific investment strategy are considered their portfolio.
A fund is also a portfolio and consists of several different assets (e.g. bonds, equities, funds, sight deposits, etc.), which the fund manager selects in line with the fund rules and the fund strategy.

 

Performance measures how an investment or portfolio has performed over a certain period of time. In the case of investment funds this is usually the change of the net asset value (NAV) expressed as a percentage. The calculation method of Österreichische Kontrollbank AG (OeKB) is the method commonly used in Austria. Accordingly, performance is the change in the fund’s unit price over a certain period of time. The calculation is based on the “calculated value” of a fund, as provided by the investment company, with distributions being considered. Taxes and costs that are not included in the calculated value are not taken into account.

 

Q

There is currently no term for this letter

R

A repurchase agreement (“repo”) is the purchase of an asset with simultaneous agreement of the repurchase at a later date. The term of a repurchase agreement is usually between one day and one year.

Return on equity (ROE) is the ratio of earnings divided by equity, with earnings referring to net profit for the year and equity to the book value of equity at the beginning of the fiscal year. It is a ratio that illustrates the earnings power or profitability of a company (or a credit institution) and expresses the profit for the year in terms of capital employed.

Economic indicator for the profitability of capital employed. It is the result of the operating profit before or after tax and total capital less short-term liabilities and liquid assets. The return on investment (ROI), on the other hand, describes the total return on capital.

The risk profile is the result of a comprehensive analysis of an investor’s financial situation, investment horizon and risk appetite. Often a differentiation is made between low, medium and high risk, or the investor is classified as averse or neutral to risk or willing to take risks.

The recommended (or minimum) holding period is a legally required item of information to be included in the KIID. For investment funds of Erste Asset Management and ERSTE-SPARINVEST it derives directly from the Synthetic Risk and Reward Indicator (SRRI indicated in the KIID.

  • SRRI of 1 or 2 (volatility according to KIID Regulation < 2.0% p.a.): recommended holding period: two years minimum
  • SRRI of 3 to 6 (volatility according to KIID Regulation >= 2.0% p.a. and < 25.0% p.a.): recommended holding period: six years minimum
  • SRRI of 7 (volatility according to KIID Regulation >= 25.0% p.a.): recommended holding period: eight years minimum

This means that a longer holding period is recommended for a fund when the risk increases. It is crucial to understand that the SRRI and the holding period alone do not suffice for a complete picture of any possible risks. They always need to be looked at together with the prospectus, the “Information for investors pursuant to Article 21 AIFMG” and the KIID.

A rating is the assessment of the creditworthiness of a company or country by specialised credit rating agencies (CRAs). The most well-known CRAs are Standard & Poor’s (S&P), Moody’s and Fitch Ratings.

A credit rating is usually expressed by letters and is intended to provide creditors and bond buyers with an appraisal of the likelihood that interest payments will be made and the capital be repaid. It is regularly renewed and, where necessary, adjusted.

In the case of S&P, the best possible credit rating is an AAA, which may subsequently be downgraded to AA, A, BBB, BB, B, CCC, CC, C and lastly D. Ratings of AAA up to BBB are considered investment grade, below which many institutional investors are not allowed to purchase. A company or country with a rating of BB or lower is considered speculative. They are called non-investment grade or high-yield.

S

The SRI is a standardised risk indicator that takes the volatility of a financial instrument (market risk) and the creditworthiness of the issuer (credit risk) into account.

This combination results in a ranking on a scale that runs from 1 to 7, with 1 being the lowest and 7 being the highest risk.

Only the market risk is taken into account for an investment fund because the credit risk is distributed in a fund portfolio. One exception to this is guarantee funds, for which the rating of the guarantor is also taken into account.

Bonds of subordinated seniority, or subordinated bonds, or junior bonds, are serviced only after all other senior debt (i.e. debt that is not subordinated or junior such as loans and senior bonds) has been serviced. In the event of the liquidation of an issuer (e.g. in a bankruptcy), all senior debt is redeemed first. Only then does the liquidator ascertain whether and how much the holders of the subordinated bond receive. Due to this risk of capital loss, the coupon of subordinated bonds is higher than that of senior bonds.

The spread measures the yield differential of a bond with default risk in comparison with a risk-free bond with the same maturity (i.e. a bond without default risk).

 

The securities identification number comprises six alphanumeric characters and serves to identify securities. Its international equivalent ISIN is also commonly used.

A ”Spezialfonds” is an investment fund as referred to in the InvFG, which is primarily acquired by legal entities, usually institutional investors such as insurance companies, foundations, banks, etc. In addition, natural persons, i.e. private investors, may also acquire a special fund provided they invest a minimum amount of EUR 250,000. The ”Spezialfonds” must not be owned by more than ten unit holders known to the management company. 

Investment funds as referred to in the InvFG are issued as so called “Sondervermögen”. The unit holders’ capital paid in through the issue of investment units by the investment company and any assets purchased with it are managed by the investment company and held in custody by an independent depositary. The investment company acts in its own name and for the account of the unit holders. Unit holders are thus protected from losing their assets in the event that the investment company becomes insolvent.

Socially responsible investment (SRI) refers to an investment approach that is used for sustainable investments and, besides economic investment objectives, also takes ethical values into consideration.

 

 

The single-security risk is the risk entailed in a single security (e.g. bond, share). By investing in investment funds, this type of risk is reduced through diversification.

A share certificate is a security that represents the share of co-ownership in a specific investment fund held by the unit holder.

A security is a certificate that certifies a right under civil law such as co-ownership of a company (e.g. a share). The prerequisite for exercising the property right is the possession of a certificate. Securities that are traded on a stock exchange are also known as stocks.

The synthetic risk and reward indicator (SRRI) is used to classify investment funds into one of three different risk categories (low risk, medium risk, high risk). It is calculated on the basis of Austrian and European regulatory requirements. This indicator forms an integral part of the Key Investor Information Document (KIID) and gives the historical volatility of the fund unit price on a scale from 1 to 7.

Investment funds with a low SRRI typically exhibit fewer price fluctuations and therefore a lower probability of temporary capital losses. Funds with a high SRRI experience greater fluctuations and also a greater risk of capital loss.

  • The fund category is not a reliable indication of future performance and may change in the course of time.
  • A category 1 rating should not be construed as indicating that the investment is free of any risk.
  • The risk indicator (SSRI) is indicated separately for each of the funds on our website, in the fact sheet and in the KIID.

 

Methodology for the calculation of the SRRI

The volatility is calculated using the weekly past returns of the investment fund over the last five years. Where the investment fund’s returns history is too short, the performance of a representative portfolio model or other methodologies stipulated by legislators for SRRI calculation may be used. Any distribution of income should be taken into account. Volatility and SRRI as risk indicators do not differentiate the direction of fluctuations but only give the general inclination to fluctuate. A volatility of 3.0% means that the value of the relevant investment fund fluctuated on average by up to plus/minus 3.0% annually over the last five years.

With a short position, a security that is not physically held by the seller is sold (shorted). The seller profits if the price of the short-sold security falls, as it can then be repurchased at a cheaper price.

The Sharpe Ratio is a ratio that puts the return achieved in relation to the risk incurred. To this end, the risk-free rate (which you would get with a risk-free investment such as a savings book) is subtracted from the achieved return, and this reduced income is divided by the investment’s volatility.

The result is the income per risk unit. The greater the value of the ratio, the more likely that the risk accepted will pay off. A negative value means that the risk-free rate was not surpassed and results in a limited comparability.

The s Fonds Plan is a type of investment strategy where a pre-defined amount is paid into a certain investment fund (specified by the investor) on a regular basis (e. g. monthly).

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The management company (i.e. investment company) prepares a report on activities for each accounting year of an investment fund. The contents of the report are prescribed by the Investment Fund Act (InvFG) and the Alternative Investment Fund Managers Act (AIFMG). This way investors can get a clear picture of how the investment fund was managed in the past year. In addition, the report on activities includes the auditor’s report, the fund manager’s report and information about the tax treatment of each unit class.

An investment fund may issue different share certificate types with different ISINs (International Securities Identification Numbers). The share certificate typescan differ with regard to the amount of the fee charged (i.e. fee share certificate type for institutional clients) as well as with regard to the currency of the share certificate type. Furthermore, each fee and currency share certificate type may have different types of revenues (distributing units are indicated with the abbreviation A., accumulating units with T. and fully accumulating units with VT.)

T

The InvFG 2011 and the General Civil Code (ABGB) define which investments are eligible for guardianship trusts. Such legal investments are particularly secure investments in which trust money (cash assets that form part of the assets of a minor under guardianship) may be invested.

Transaction costs cover any expenses incurred by an investment fund when buying or selling securities.

The tracking error gives the extent of the deviation of a fund’s return from a defined benchmark and is an indicator of an investment fund’s active risk. The higher the tracking error, the greater the deviations from a benchmark and the more actively the fund is managed.

Technical indicators are metrics for the analysis of securities, which are used to determine trends or “optimum” entry (buy) and exit (sell) points.

U

UCITS stands for undertakings for collective investments in transferable securities and denotes an investment fund in compliance with Directive 2009/65/EC. UCITS have the same features in all countries and may be sold in all of Europe.

V

The term “volatility” is used in statistics to refer to fluctuations within time series. In the financial industry it is used as a measure of an investment’s risk. It is calculated based on the historical deviations from the average monthly performance of a fund. The greater the deviations, the higher the volatility.

The VaR calculation yields an estimate of the loss potential (value-at-risk) of a portfolio or an investment fund. Specifically, loss potentials are linked with probabilities for certain holding periods. A typical statement would be: “At a probability of 99% the invested portfolio will not incur a loss of more than EUR XX.XX (VaR) within a period of 20 days.”

The date on which a transfer is credited to or debited from an account. Interest is paid to an account’s credit balance or charged to the debit balance as of the value date.

W

With a withdrawal plan, the investor receives regular payments from certain investment assets. The amount to be disbursed is financed by the sale of the corresponding number of units. Investors can choose to be paid their capital plus income over a fixed period (withdrawal plan with capital depletion) or they withdraw only the investment income for an unlimited period of time (withdrawal plan with capital preservation). Withdrawal plans are particularly suited for supplementary retirement pensions. Additional contributions, additional withdrawals or termination of the investment account are possible at any time.

X

There is currently no term for this letter

Y

The yield (on maturity) shows the annual income, expressed as a percentage, an investor achieves when buying a bond at the current market price and receiving all interest payments (reinvesting them immediately at the original rate of return), and redemption at maturity is 100%. This allows comparisons of bonds of a similar grade (credit quality) but with different features (term, coupon, price, etc.).

The average yield of the securities in a bond portfolio gives an indication of the possible return of the securities in the portfolio.

Z

There is currently no term for this letter