Key Investment Terms: a Glossary

Related articles: View all of the advice and commentary from this special supplement on endowments
Absolute-return funds:

Funds that aim to deliver positive returns in both rising and falling markets.

Dogs of the Dow: An investment strategy of buying the 10 highest-yielding stocks in the Dow Jones industrial average. Over one-year periods, the 10 stocks tend to outperform all 30 stocks in the Dow combined because investors are buying them at depressed prices and earning the highest yields, and the stocks tend to bounce back.

Domestic equity: Investment in companies based in the United States.

Fixed-income funds: Securities that pay a fixed rate of return — such as government, corporate, or municipal bonds, which pay a fixed rate of interest — as well as preferred stock, which pays a fixed dividend.

Fund of funds: A mutual fund that invests in other mutual funds. A fund of funds provides greater diversification but adds an extra layer of management and fees.

Hedge funds: Lightly regulated investment partnerships owned by wealthy individuals and institutions. The funds use a wide range of investments designed to protect, or hedge, against changing market conditions. They typically pay their managers 20 percent of profits.

International equity: Investment in stocks issued by companies based abroad.

Long-short equity funds: A popular hedge-fund strategy. Long-short funds use a dual approach, betting on some investments in a portfolio to gain value and others to pay off when the value of selected equities declines, thereby hedging the portfolio’s bets.

Pooled funds: Any fund in which multiple investors contribute assets and hold them as a group, such as unit trusts. Similar to mutual funds, pooled funds typically have lower fees.

Present value: The value today of a future payment or stream of income. Also called time value of money, present value takes into account the effect of interest on financial assets.

Short positions: Investments that make money when a security or stock declines in value.

Socially responsible investments: Funds that use social and environmental impact as a critical factor in investment decisions. Such funds often use screens to avoid investing in companies believed to be harmful or to identify companies believed to be progressive.

Social screens: see above.

Total return: Annual return on an investment that takes into account all gains, including interest, dividends, and appreciation.

Uniform Management of Institutional Funds Act: Statute that establishes guidelines for the management and use of investments held by nonprofit institutions and funds.

http://philanthropy.com
Section: Endowments
Volume 16, Issue 16, Page B22