ETF Dictionary

Updated: Oct 12, 2021

List of terms used in the app and articles on ETFtracker as well as those seen amongst various ETF discussions online (and amongst my retail trading friends).


Use this to help you decipher the jargon. We will be adding to this with more definitions over time.


ETFtracker Data Terms

The following terms come from the app and are based on data that comes from the ASX and Chi-X exchanges.


Performance

  • 1-month and 1-year total returns - this is the Total Price returns from Bloomberg for the month being measured and takes into account dividends being reinvested. The ASX and Chi-X provide this on a 1-year basis as well.

  • 3-Year and 5-year total returns - these are also provided in the app but refer to the annualised total returns on a 3 and 5-year basis where those ETFs have that data available.

Size

  • FUM - Known as funds under management (and also called assets under management), this is the total amount of investments held in a particular ETF.

  • Net Inflows - refers to the money going in and flowing out of an ETF. The ASX and Chi-X report the net figure here so if it is positve then more money came than left and vice versa if negative. This takes into account primary and secondary market transactions.

Transactions

  • Number of Trades - Refers to how many times the ETF was traded during the month.

  • Transaction Volume - Refers to how many shares of the ETf changed hands across those trades. If transaction volume was 3 million and there were 1,000 trades then each trade had 3,000 shares of that ETF traded on average.

  • Transaction Value - Similar to transaction volume but this is the dollar value. If the transacted volume for the month was $1 million across those 1,000 trades then the average trade was $1,000 in size.

Tradability

Quality

  • Distribution Yield - sum of dividends over the last 12 months from the relevant date /last price for the last business day of the relevant month.

Costs

  • Management Expense Ratio (MER % )- MER is an expression of the total costs for investing in the ETF. The user does not pay this out of pocket. Rather, the fees are deducted as part of the users investment. More details can be seen at Rask Australia with a dedicated page on this topic.


Other common ETF terms

Active vs Passive ETFs - these are the 2 different ways that ETFs can be managed and they have some similarities but quite a few differences too. Passive will typically track a benchmark and replicate those whilst active are built to find some sort of outperformance. That said, passive ETFs have outperformed active but there are opportunities for both in a portfolio. More on this topic from Magellan for ETFs (Active ETFs and Passive ETFs - What's the difference?) and Investopedia on active vs passive investing in general (Active vs Passive Investing).


Brokers - brokers are the various providers you use to buy ETFs and other investments from. The biggest in Australia is CommSec (part of CBA and full name Commonwealth Securities). The major banks all have facilities for their customers to invest but there are also a number of independent brokers such as Pearler, Stockspot, Raiz, Six Park, Open Markets to name a few.


ETF Issuers - Issuers are the firms that create or bring ETFs to market. These include companies like Vanguard, BetaShares. ETF Securities, eInvest and more. Some companies provide their ETFs under a brand name like BlackRock and its iShares brand for the ETFs it has on market. Other ETF Issuers will partner with other firms to create an ETF brand such as Fidante's ActiveX partnerships with Ardea and Kapstream or VanEck partnering with Morningstar for its economic moat series.


Core-Satellite Strategy - This relates to portfolio construction and is the idea that you have a core set of assets where you are invested, typically index funds and typically tracking broad investments like the ASX 200 or S&P 500. The core is hardly touched. The satellites are more active investments and can be in thematics or sectors like robotics or technoology. Vanguard have a great guide on Core-Satellite strategies so take a look (Vanguard's Guide to Core-Satellite Investing)


Portfolio Composition File (PCF) - see Holdings. The PCF is typically what is referred to when looking for the holdings file. Active ETFs can be non-transparent or semi-transparent and thus may not necessarily provide this file or showcase it in detail.


Rebalancing - the process of ETFs changing their holdings typically as a result of the benchmark being tracked changing its holdings too. Typically done on a quarterly or 6-monthly basis.


Sharpe Ratio - The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Volatility is a measure of the price fluctuations of an asset or portfolio. Higher Sharpe Ratios are positive. More on this here: Investopedia - Sharpe Ratio


Sortino Ratio - Sharpe Ratio variation with a twist as it differentiates between good and bad volatility. More details here: Investopedia - Sortino Ratio


Tracking Error - per Investopedia, "Tracking error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark." More here: Investopedia - Tracking Error


Transparency - typically refers to how much information about the underlying holdings of the ETF is available. For example, passive ETFs typically publish their holdings data on a daily basis and this is their full holdings. For active ETFs this is not always the case and may even be delayed. These are actively managed so there is a disadvantage to managers if they publish daily.





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