Mutual Funds

The division of foreign markets into developed and emerging segments dates back to 1981, when Antoine van Agtmael, an economist at the World Bank, referred to third-world countries as emerging markets. In a 2011 performance study, the Aperio Group looked at 10 years of return data (12/31/2000 to 12/31/2010) from all active emerging markets mutual funds.

“Market neutral” and long-short funds have the objective of protecting investors when the market drops. Management typically engages in short selling (betting stocks are going down) coupled with traditional long-term investments. Whenever you buy a security, you are going “long;” selling “short” is the opposite of going long. Selling short is the selling of a security the seller does not own in the belief it can be bought back at a lower price. The short seller is betting the security is going to later drop in price (when it is bought back by the short seller).

Sometimes referred to as life-cycle funds, target retirement funds are promoted as “one investment choice for a lifetime.” At first glance, all target retirement funds look similar. They consist of a series of funds from the same fund family. Each fund is identified with a specific retirement year, such as 2020 or 2030. The fund managers allocate monies among stocks, bonds, and cash equivalents. As the target date approaches, the composition becomes more conservative, favoring bonds and cash.

There is no universal definition for value investing. One thing value fund managers have in common is they are looking for stocks believed to be worth moderately or significantly more than their current share price. How a manager defines value will determine the portfolio and, ultimately, its performance. There are years when some value funds have high double-digit returns while others have negative returns, even though all of the value funds may be small, mid, or large cap.

The most frequently used measurement of investment risk is standard deviation. The measurement is used in math and science; it is calculated using a series of numbers. The first step in computing standard deviation is to calculate the mean or average. The second step is to determine the range of returns of the numbers, measured from the mean or average.

Alpha measures the difference between expected and actual returns of a mutual fund, based on its beta. A positive alpha, no matter how small, is considered good. A negative alpha is considered bad or slightly below average, depending on how negative the number is. 

FHFA is the federal agency regulating Fannie Mae, Freddie Mac, and 12 Federal Home Loan Banks. The index below represents home sales throughout the U.S. NAREIT is a real estate investment trust trade group. The index is comprised of all publicly traded equity REITs in the U.S. The largest real estate mutual fund oversees $6 billion.