Financial Glossary

The net assets of a fund represent the total value of its holdings (stocks, bonds, cash, etc.), after deducting all debts and fees. It is the fund's "net wealth", reflecting what investors collectively actually own.

Financial asset on which a derivative product (option, warrant, futures contract, etc.) is based. It is the reference asset that determines the value of the derivative. For example, an option on Total stock has Total stock as its underlying asset.

Strategy of dividing an investment portfolio among different asset categories (stocks, bonds, real estate, money market, etc.) to optimize the risk/return profile based on the investor's profile and horizon.

AUM represent the total value of financial assets managed by an asset management company or fund. It is a key indicator of the size and importance of a fund or management company in the market.

Beta measures the sensitivity of a fund to its benchmark index movements. It indicates whether the fund amplifies, follows, or dampens market variations. A beta greater than 1 means the fund amplifies market movements, a beta equal to 1 means it follows the market, and a beta less than 1 means it dampens variations.

The Calmar ratio compares a fund's annualized return to its max drawdown (worst historical loss). It favors funds that deliver good performance while limiting extreme losses. The higher the Calmar ratio, the better the trade-off between return and maximum loss risk.

A fund category groups a broad set of funds with similar strategies, defined by their asset class (equities, bonds, allocation, alternatives) and geographic zone. For example: "European Equities" or "Global Bonds". The category allows comparison of funds with comparable investment universes.

Wealth Management Advisor. Independent or affiliated professional who assists clients in the overall management of their financial, real estate, and tax assets. They analyze the asset situation, propose adapted investment strategies, and provide ongoing monitoring.

The most used tax and legal wrapper in France, allowing investment in various financial products (guaranteed capital euro funds, unit-linked funds in UCITS, ETFs, REITs, etc.) while benefiting from inheritance and tax advantages. Life insurance offers great flexibility: free contributions, partial withdrawals possible at any time, and an advantageous tax framework after 8 years of holding (annual tax allowance on gains). In case of death, capital is transferred to designated beneficiaries under favorable tax conditions (€152,500 allowance per beneficiary for contributions made before age 70).

There are two types of supports within a life insurance contract: the euro fund (capital guaranteed by the insurer, moderate returns) and unit-linked funds (invested in markets, potentially higher returns but capital not guaranteed).

Tax wrapper similar to life insurance in its operation (same investment supports, same tax treatment on withdrawals), but without a beneficiary clause in case of death. The capitalization contract can be transferred through donation or inheritance as a standard asset, without losing its tax seniority. It can be subscribed by individuals or legal entities (companies, associations).

Unlike life insurance, the capitalization contract is part of the estate and is subject to standard inheritance tax. However, it can be donated while keeping the original tax opening date, which is a unique advantage.

Tax wrapper dedicated to retirement planning, created by the PACTE law in 2019. Voluntary contributions are tax-deductible from taxable income (within certain limits), providing an immediate tax advantage. Savings are locked until retirement, except in exceptional cases of early withdrawal: purchase of primary residence, disability, death of spouse, over-indebtedness, expiration of unemployment benefits, cessation of self-employment.

There are three compartments: individual PER (voluntary contributions), collective PER (employee savings), and categorical PER (mandatory contributions). At retirement, the exit can be as a lump sum, life annuity, or a mix of both.

Bank or financial institution independent from the management company, responsible for safekeeping a fund's assets and verifying the regularity of its operations. The custodian verifies that management decisions comply with the prospectus and regulations. Its main role is to ensure asset security and transparency of fund operations.

The currency in which the net asset value (NAV) of a fund share is expressed for the investor. A single fund can offer multiple share classes denominated in different currencies (EUR, USD, CHF, GBP, etc.). Important: the share currency does not necessarily indicate in which currencies the fund actually invests.

The intermediary that offers and sells fund shares to investors, created and managed by asset management companies. The distributor doesn't create the fund: their role is to make shares available to the public, often through investment platforms, banks, insurance companies, or wealth managers. They generally receive compensation in the form of retrocession fees on management fees.

Strategy of spreading investments across different asset types (stocks, bonds, real estate), economic sectors (technology, healthcare, energy), or geographic areas (Europe, US, Asia) to reduce overall portfolio risk. The principle: don't put all your eggs in one basket. If one asset falls, others may compensate.

Official document required by regulation, describing the operation of an investment fund completely and transparently. Its purpose: to inform investors of their rights, risks, and fund characteristics. The main legal documents are the Prospectus (most comprehensive), the PRIIPs KID (standardized 3-page summary), and the Factsheet (monthly management report).

Technique of using debt or derivatives to increase a portfolio's exposure beyond its equity. The objective is to amplify potential gains, but it also amplifies losses. A fund with 2x leverage has double exposure relative to its net assets: if the market rises by 5%, the fund gains about 10%, but if it falls by 5%, the fund loses about 10%.

Not all funds are eligible for all tax wrappers. Each wrapper has its own rules: eligibility depends on regulations and the insurer or platform's approved fund list. For example, the PEA only accepts funds invested at least 75% in European equities. Life insurance depends on each insurer's approved fund list.

Legal and tax framework defining how your investments are taxed. It is not a financial product itself, but a "shell" in which you place investments (funds, stocks, bonds, etc.). Each wrapper has its own rules for operation, taxation, and withdrawal conditions.

The main tax wrappers in France are: Life Insurance (most popular, advantages after 8 years), PER (retirement savings, tax-deductible), PEA (European equities, tax-exempt after 5 years), CTO - Ordinary Securities Account (no tax advantage but no investment constraints).

Environmental, Social, and Governance. Extra-financial criteria used to evaluate the sustainability and ethical impact of investments. The "E" covers climate and environmental issues, the "S" covers working conditions, diversity and human rights, the "G" covers transparency, executive ethics and corporate governance.

Commercial and educational document, published regularly (usually monthly) by the management company. The factsheet provides a concise, up-to-date view of the fund: recent performance over different periods, portfolio composition (Top 10 positions, geographic and sector allocation), key risk indicators, manager commentary on strategy and outlook.

Financial product that pools money from multiple investors to invest collectively in different assets (stocks, bonds, real estate, money market, etc.). The advantage: accessing professional and diversified management, even with a small amount invested. In France, there are two main legal forms:

SICAV (Open-ended Investment Company): the investor is a shareholder of the fund. FCP (Mutual Fund): the investor holds units (co-ownership). In both cases, the operation is similar for the investor. The generic term is OPC (Collective Investment Scheme).

Investment fund that doesn't directly buy stocks or bonds, but invests in other investment funds. The objective is to quickly diversify across multiple strategies and managers, and benefit from the expertise of several specialists. Disadvantage: fees accumulate (fund of funds fees + underlying fund fees).

Investment fund that automatically replicates the performance of a market index (benchmark), without trying to beat it. The manager does not make active selection: they simply buy the same securities as the index, in the same proportions. Fees are generally much lower than an actively managed fund (often 0.1% to 0.5% vs 1% to 2.5% for an active fund). ETFs (Exchange-Traded Funds) are exchange-listed trackers, buyable and sellable in real-time like a stock.

All recurring fees borne by a fund over a year (excluding exceptional fees like performance commissions). They include management fees, administrative fees, custodian and audit fees. It is the most representative indicator of the real annual cost for the investor. Ongoing charges are published annually in the PRIIPs KID and are expressed as a percentage of net assets.

Fees charged when an investor buys fund shares. They immediately reduce the amount actually invested. For example, if you invest €10,000 with 2% entry fees, only €9,800 is actually placed in the fund. These fees generally compensate the distributor (bank, wealth manager, platform). Some funds have no entry fees ("clean share" funds or ETFs).

Costs charged by the management company to administer and manage an investment fund. They are expressed as an annual percentage of assets under management and are automatically deducted from the fund's NAV. The investor does not pay them directly: they are integrated into the fund's net performance.

There is a notable difference between active and passive funds. Active funds have higher management fees (1% to 2.5% per year) because a manager actively makes investment decisions. Passive funds (ETFs, trackers) have much lower fees (0.1% to 0.5%) because they simply replicate an index.

Fees applied when an investor sells (redeems) their fund shares. They are deducted from the sale amount. These fees sometimes aim to discourage early withdrawals and protect remaining investors. Some funds apply decreasing exit fees: the longer you stay, the less you pay (for example 3% in the first year, 2% in the second, 0% after 3 years).

Person or team making investment decisions for a fund. Their role: analyze markets, choose which assets to invest in (stocks, bonds, etc.), decide when to buy or sell them, and define portfolio allocation. The manager must respect the framework defined by the fund's prospectus (investment universe, risk limits, benchmark).

Duration for which an investor plans to hold their investments before selling or needing them. The investment horizon determines the acceptable risk level: the longer the horizon, the more one can afford to invest in risky assets (equities) as there is time to recover from potential downturns. Short-term: less than 2 years (favor money market). Medium-term: 2 to 5 years (bond/equity mix). Long-term: more than 5 years (larger equity allocation possible).

Standardized reference point for evaluating the performance of a fund or portfolio. It represents the performance an investor would have achieved by investing passively in a given market. The most well-known benchmarks are the CAC 40 (French equities), Euro Stoxx 50 (Eurozone equities), S&P 500 (US equities), MSCI World (global equities).

Official certification or classification guaranteeing that a fund meets certain criteria related to responsible investment, environment, social issues, and/or governance (ESG). These labels are awarded by independent organizations after auditing the fund's investment process.

Main labels in France and Europe: ISR Label (Socially Responsible Investment) - the most widespread in France. Greenfin Label - dedicated to green finance, excludes fossil fuels. Finansol Label - dedicated to solidarity finance. LuxFLAG Label - Luxembourg label covering ESG, environment and microfinance.

Ability to quickly convert an asset into cash without significant loss of value. An asset is "liquid" if it can be easily and quickly bought or sold on the market. Listed stocks generally have good liquidity. Real estate, on the other hand, is illiquid (it takes time to sell a property). For a fund, liquidity determines how often investors can subscribe or redeem their shares (daily, weekly, monthly).

The max drawdown (maximum loss) represents the largest decline observed between a high point (peak) and the subsequent low point (trough), over a given period. It indicates the worst historical loss scenario an investor could have suffered if they had invested at the peak and sold at the trough.

EnvestBoard's proprietary methodology that evaluates a fund's behavior across different market cycles, going beyond traditional ratings based solely on risk-adjusted returns. It analyzes how the fund reacts in four distinct market phases:

1) Stable market: does the fund deliver consistent returns? 2) Unstable period: does the fund withstand turbulence well? 3) Crisis: does the fund limit losses during shocks? 4) Post-crisis recovery: does the fund rebound effectively? This approach identifies truly resilient funds, not just those that were lucky during a favorable period.

Rating assigned by specialized agencies (e.g., Morningstar, Lipper) to compare funds within the same category. It is generally based on risk-adjusted historical returns, compared to a peer universe over 3, 5, and 10 years. The Morningstar rating uses a star system (1 to 5 stars), where 5 stars means the fund is among the best in its category in terms of risk-adjusted return.

Fund share actually marketed and used by investors in a given geographic area. It may differ from the primary share by listing currency (EUR, USD, CHF), fee type (with or without retrocession), or income distribution method (accumulation or distribution). A single fund can have many active shares targeting different markets.

Fund share that automatically retains and reinvests all generated income (dividends, interest coupons). The share value increases as gains are reinvested, creating a snowball effect through compound interest. No income is paid directly to the investor: everything is reinvested in the fund.

Fund share that directly and regularly pays out generated income (dividends, coupons) to the investor. The share value may remain more stable or drop slightly at the time of dividend detachment, as gains are distributed instead of reinvested. Suited for investors who wish to receive regular income from their investments.

Fraction of the total assets of an investment fund. When an investor puts money into a fund, they receive a number of shares proportional to their investment. A share's value is given by the NAV (net asset value). For example, if a fund has net assets of €100 million and 1 million shares outstanding, each share is worth €100.

Share category that serves as the default reference for a fund in financial databases and comparisons. Usually the oldest, most widely distributed share, denominated in the fund's local currency. It is the one used by default to calculate fund performance and risk indicators.

Country where a fund is registered and authorized to be marketed to investors by the local regulator. A fund can be domiciled in one country (e.g., Luxembourg or Ireland for regulatory and tax reasons) but distributed in many other European countries through the UCITS passport.

Regulated savings account in France for investing in European stocks and funds (at least 75% in European securities) with significant tax advantages. The contribution cap is €150,000. After 5 years of holding, capital gains and dividends are exempt from income tax (only social contributions of 17.2% remain due). Before 5 years, any withdrawal triggers plan closure and 30% flat tax.

Measurement of the gain or loss of an investment over a given period, expressed as a percentage of the initial value. Performance can be calculated over different periods: YTD (year-to-date), 1 year, 3 years, 5 years, 10 years, or since fund inception.

Expresses the average annual return of an investment, taking into account the compounding effect (compound interest). It allows comparison of investments over different periods by bringing them to a common annual basis.

Where R_total is the total return over the period and n is the number of years.

The PRIIPs KID (Key Information Document), formerly called KIID (Key Investor Information Document), is a short and standardized European regulatory document (3 pages max). It presents in a simple and comparable way: fund objectives and investment policy, risk profile (SRI indicator from 1 to 7), performance scenarios (favorable, intermediate, unfavorable, stress), detailed fees (entry, exit, ongoing, performance), and recommended holding period.

The SRI (Summary Risk Indicator) is a regulatory indicator evaluating a fund's risk level on a scale of 1 to 7. It is mandatory in the PRIIPs KID and is based primarily on the historical volatility of the fund's NAV.

SRI 1 = very low risk (money market funds). SRI 2-3 = low to moderate risk (bonds, cautious diversified funds). SRI 4-5 = medium to high risk (balanced funds, defensive equities). SRI 6-7 = high to very high risk (emerging market equities, sectoral, leveraged funds).

The most comprehensive legal document of an investment fund, mandatory before any marketing. It exhaustively details: investment strategy and investment universe, all applicable fees (management, entry, exit, performance), fund-specific risks, subscription and redemption terms (frequency, deadlines, minimum amounts), operating rules (distribution policy, NAV calculation), and information about the management company and custodian.

The information ratio measures the consistency of a fund's outperformance relative to its benchmark, by relating it to the deviation risk taken (tracking error). The higher the ratio, the more consistent and reliable the outperformance. An information ratio above 0.5 is considered good, and above 1 as excellent.

These two ratios measure the asymmetric behavior of a fund relative to its benchmark. The upside capture ratio measures the fund's ability to capture market upswings. The downside capture ratio measures how much the fund suffers from market downturns.

Estimate of the average future return of an investment, calculated by weighting possible returns by the probabilities of each market scenario. It is a statistical projection, not a guarantee. Expected return is used in modern portfolio theory to optimize asset allocation.

Where p_i is the probability of scenario i and R_i is the return in that scenario. For example: 30% chance of 15% gain, 50% chance of 5% gain, 20% chance of -10% loss. Expected return = 0.30 × 15% + 0.50 × 5% + 0.20 × (-10%) = 4.5% + 2.5% - 2% = 5%.

European regulation on sustainability-related disclosures in financial services (Sustainable Finance Disclosure Regulation). Effective since March 2021, it requires management companies to classify their funds according to their degree of ESG criteria integration:

Article 6: standard funds without particular ESG commitment. Article 8 ("light green"): funds that promote environmental or social characteristics, without making it their primary objective. Article 9 ("dark green"): funds that have an explicit sustainable investment objective (e.g., contributing to CO2 emission reduction).

The Sharpe ratio is one of the most widely used indicators in finance. It measures the excess return (above the risk-free rate) obtained per unit of risk (volatility). The higher the Sharpe ratio, the better the fund's risk/return profile. A Sharpe above 1 is considered good, above 2 as excellent.

Where R_fund is the fund's annualized return, R_f is the risk-free rate (often the short-term government rate), and σ_fund is the fund's volatility (standard deviation).

Company authorized by the regulator (AMF in France) that creates, administers, and markets investment funds. It employs fund managers and provides them with human, technical, and regulatory resources to manage portfolios effectively. The largest asset management companies in the world (BlackRock, Vanguard, Amundi, etc.) manage trillions of euros.

More precise subset of a fund category. The sub-category refines comparison by grouping only funds with the same asset class, geographic zone, and a common investment factor or style. For example, within the "European Equities" category, there can be sub-categories like "European Equities Growth", "European Equities Value", "European Equities Small Cap".

Description of how an investment fund selects and manages its investments. The strategy defines the framework within which the manager operates. It can be based on asset type (equities, bonds, balanced), sectors or themes (technology, healthcare, climate), management style (growth, value, momentum), and approach (active = manager selects, passive = index replication).

Gross alpha (or outperformance) represents the return difference between a fund and its benchmark index over a given period. A positive alpha means the manager did better than the market. A negative alpha means they did worse.

Tracking error measures the dispersion (standard deviation) of the return differences between a fund and its benchmark over a given period. It quantifies how much the fund deviates from its benchmark. A high tracking error means the fund takes significant bets relative to its benchmark (active management). A low tracking error means the fund closely follows its index (passive or index management).

Regulatory distinction between different investor profiles, determining access to financial products, regulatory protection level, and available fund share types. The main distinction is between retail (individual) investors who benefit from maximum protection (information obligations, regulatory documents, suitability tests), and institutional (professional) investors who have access to reserved funds, shares with lower fees, but less regulatory protection.

UCITS (Undertakings for Collective Investment in Transferable Securities) is the European standard that regulates investment funds accessible to the general public. A UCITS fund must comply with strict rules designed to protect investors:

Mandatory diversification: no more than 10% of the fund in a single issuer. Liquidity: investors must be able to redeem their shares at least twice a month (usually daily). Transparency: regular publication of NAV, PRIIPs KID, and factsheet. Limited leverage: capped maximum exposure. Thanks to the "European passport", a UCITS fund approved in one EU country can be marketed in all other member states.

The Net Asset Value is the price of an investment fund share on a given date. It is calculated by dividing the total value of the fund's portfolio (all assets valued at market price, minus debts and fees) by the total number of outstanding shares. The NAV is published regularly (daily for most UCITS funds) and serves as the basis for subscriptions and redemptions.

Value at Risk (VaR) estimates the maximum possible loss of a portfolio or fund, for a given time horizon and chosen statistical confidence level. It is a widely used risk measurement tool by financial institutions and regulators.

Where μ is the expected average return, z is the quantile of the normal distribution corresponding to the confidence level (1.65 for 95%, 2.33 for 99%), and σ is the portfolio's volatility (standard deviation).

Investment strategy of borrowing a security (stock, bond) from another investor to sell it immediately on the market, hoping to buy it back later at a lower price to return it to the lender. The objective is to profit from an anticipated price decline. The profit equals the difference between the initial selling price and the buyback price.

Volatility measures the magnitude of variations in a fund's value around its average return over a given period. It is the most common risk indicator in finance. The higher the volatility, the greater the fund's fluctuations, meaning higher risk but also greater potential for gain (or loss). It is expressed as an annualized percentage.

Where r_i is the return of period i, r̄ is the average return, and n is the number of periods. Annualized volatility is obtained by multiplying daily volatility by √252 (number of trading days per year) or monthly volatility by √12.