Glossary

This glossary contains terms which may appear throughout the brochure and other official documentation in relation to the Fund. The definitions below are provided for background purposes only and you should seek professional investment advice before making any decision to invest in the Fund. The terms set out below may be used differently in the Prospectus, Simplified Prospectus/Key Investor Information Document (KIID), Articles of Association or any other official documentation (together, the "Official Fund Documentation") in relation to the Fund and should not be relied on when reading such Official Fund Documentation. In particular, in the event of any contradiction between the definitions below and those set out in the Official Fund Documentation of the Fund, the definitions contained in the Official Fund Documentation shall prevail in respect of the Fund.

 

 

Absolute Return

The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock - achieves over a given period of time.

Acceptable Counterparty

The Acceptable Counterparty in this instance is the party with whom the Sub-Fund enters into the Financing Transactions or Swap. This party must meet both minimum standard requirements and pledge collateral to ensure that any financial exposure is kept below defined limits. Further details are in the Prospectus.

Accumulation Share

A share in the relevant Sub-Fund where any net income is re-invested internally within such Fund.

Administrator

An administrator serves as an independent third party that protects the interests of investors. The main function of a third-party administrator is to independently calculate the net asset value of the fund. Another responsibility of an administrator is to ensure fair pricing of each security that has been traded.

Administrative and Operating Fee

A fee charged by the fund sponsor (Merrill Lynch International) for expenses incurred in the administration of the Sub-Fund, which may include services such as record keeping, auditing, and preparing and printing statements and reports.

Alpha

A measure of performance delivered by a strategy that is not explained as a result of the directional move in a stock, market index or Futures contract.

Arbitrage

The practice of taking advantage of a price difference between two or more markets.

Backwardation

The situation where futures prices are progressively lower the later their time to expiry.

Banking Day

Means a full day on which banks are open for business.

Bankruptcy Liquidation

 Bankruptcy or insolvency is a legal status of a person or an organisation that cannot repay the debts owed to creditors.

Bankruptcy Reorganization

 Reorganization is an attempt to extend the life of a company facing bankruptcy through special arrangements and restructuring in order to minimize the possibility of past situations reoccurring.

Beta

A quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market. Specifically, the performance the stock, fund or portfolio has experienced in the last 5 years. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile.

Bottom-Up

An investment strategy in which companies are considered based simply on their own merit, without regard for the sectors they are part of or the current economic conditions. Only a company’s management, history, business model, growth prospects and other company characteristics will be considered, not general industry and economic trends. Followers of this strategy believe that some companies are superior to their peer groups, and will therefore outperform regardless of industry and economic circumstances. The purpose of bottom-up investing is to identify such companies.

Commodity

A physical substance, such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts. The price of the commodity is subject to supply and demand. Risk is actually the reason exchange trading of the basic agricultural products began. For example, a farmer risks the cost of producing a product ready for market at sometime in the future because he doesn't know what the selling price will be.

Commodity-Futures

Contracts to buy or sell a commodity at a specific price and on a specific delivery date.

Concentration Risk

Probability of loss arising from heavily lopsided exposure to a particular group of counterparties.

Contango

The situation where futures prices are increasingly higher the longer their time to expiry.

Counterparty Exposure

Within the UCITS rules, there is a Counterparty exposure limit of 10% of NAV for a credit institution, and 5% of NAV for a non-credit institution.

Correlation

A relationship between two variables. In the world of finance, a statistical measure of how two securities move in relation to each other.

Credit

 Companies that are restructuring their balance sheets create capital structure arbitrage opportunities.

Credit Strategy

Credit strategy targets debt-oriented investment opportunities that are generated during the various phases of the credit cycles. (The credit cycle is the expansion and contraction of access to credit over the course of the business cycle).

CTA

Commodity Trading Advisor. An individual or firm which advises others about buying and selling futures and/or futures options. Classic CTA strategies seek to capture directional trends in markets, and possess the ability to trade in more than 100 liquid markets worldwide, typically the futures and currency forward markets.

Custodian

An agent, bank, trust company, or other organization which holds and safeguards an individual's, mutual fund's, or investment company's assets for them.
 

 

Distribution Fee

The fee payable by the relevant Sub-Fund to the Distributor of such Fund in respect of each Sub-Fund, as further described in the relevant Prospectus and each Supplement’.

Distressed

A security of a company undergoing or expected to undergo bankruptcy or restructuring in an effort to avoid insolvency. As investments, distressed securities are usually very risky because the company might not recover.

Divestures

The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy.

EONIA®

EONIA® (Euro OverNight Index Average) is an effective overnight rate computed as a weighted average of all overnight unsecured lending transactions in the interbank market initiated within the euro area by the contributing panel banks.

Event-Driven Strategies

An event-driven investment manager is typically looking to invest in situations where there is some form of corporate activity or catalytic change taking place. Corporate activity can include mergers and takeovers, restructuring, reorganisations, spin-offs, asset sales, liquidations, bankruptcy and many others.

When companies are involved in corporate activity the prices of the securities of the companies involved can become artificially inflated or depressed as the market in general finds it more difficult to evaluate and value securities subject to corporate activity. By specialising in building strong knowledge-based or sophisticated models of corporate events and complementing this with deal- and company-specific research, an event-driven investment manager seeks to identify mispriced situations where he believes he can achieve superior risk adjusted returns.

Event Equities

 An investment manager investing in event equities is looking to identify undervalued equity stakes in healthy companies positioned to benefit from lender negotiations and debt restructurings or to enter into short positions in weak companies with over-levered balance sheets.

Exchange Offer

An offer by a firm to exchange its own securities for those of another firm or for a different series of the same firm’s securities. For example, a firm may offer a new bond issue in exchange for an older series currently outstanding.

Future

A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price.

FX

Forex. An over-the-counter market where buyers and sellers conduct foreign exchange transactions. Also called foreign exchange market.
 

 

Gate

A restriction placed on a hedge fund limiting the amount of withdrawals from the Sub-Fund during a redemption period. The implementation of a gate on a hedge fund is up to the hedge fund manager. The purpose of the provision is to prevent a run on the Sub-Fund, which could cripple its operations, as a large number of withdrawals from the Sub-Fund would force the manager to sell off a large number of positions.

Global Macro

A strategy used with hedge funds whereby its holdings are based on the overall political and economic views of various countries. These holdings may be either long or short positions in equity, fixed income, futures, and currency markets. This strategy is based on the principles of microeconomics.

Hedging

An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.

High Watermark

A provision serving to ensure that a fund manager only collects incentive fees on the highest net asset value previously attained at the end of any prior fiscal year, or gains representing actual profits for each investor. For example, if the value of an investor’s contribution falls to, say, $750,000 from $1 million during the first year, and then rises to $1.25 million during the second year, the manager would only collect incentive fees from that investor on the $250,000 that represented actual profits in year-two.

Hostile Offer

A hostile offer is one that is made despite the opposition to it expressed by the directors of the target (the company that would be taken over).

Hurdle Rate

The minimum return necessary for a fund manager to start collecting incentive fees. The hurdle is usually tied to a benchmark rate such as Libor or the one-year Treasury bill rate plus a spread. If, for example, the manager sets a hurdle rate equal to 5%, and the fund returns 15%, incentive fees would only apply to the 10% above the hurdle rate.

Industry Consolidation

 Consolidation occurs when businesses serving one particular market merge together, rather than compete for profits.

Investment Management Fee

The fees charged by an investment manager for their services.

Investment Manager

The Investment Manager enters into an agreement with the Sub-Fund to make investment decisions on its behalf, usually on a discretionary basis, in return for a management fee and a performance fee. An investment manager would deal with the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate).
 

 

Litigation

 A controversy before a court, or a lawsuit.

Leverage

Refers to the net exposure to an investment, i.e. 5 times leverage implies a sensitivity to the price of the investment of 500%, e.g. a 1% increase in the investment will result in a 5% gain for the investor and a 1% decrease will result in a 5% loss for the investor.

Long / Short

A “Long” position will generate positive investment returns when the underlying holding rises in value. A “Short” position will generally generate a positive investment return when the underlying holding falls in value.

 

Net Asset Value (NAV)

The combined total value of a funds assets and liabilities.

Net Exposure

Net exposure takes into account the benefits of offsetting long and short positions and is calculated by subtracting the percentage of the Sub-Fund’s equity capital invested in short sales from the percentage of its equity capital used for long positions. For example, if a fund is 125% long and 50% short, its net exposure would be 75%.

Optimization

Putting together a portfolio in such a way that return is maximized for a given risk level, or risk is minimized for a given expected return level.

Options

A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).

Call options give the option to buy at certain price, so the buyer would want the stock to go up.

Put options give the option to sell at a certain price, so the buyer would want the stock to go down.
 

 

Performance Fees

The fees charged by the investment manager based on their performance, which are calculated taking into account the performance of a share class of a fund. They are typically based on high water mark levels and are calculated daily, but paid annually.

Portable Alpha Strategy

A portfolio management strategy which requires separating alpha from beta by eliminating market risk (beta). When the portfolio manager is able to remove the risk, their returns will be based purely on their skill and ability (alpha), and it will not be affected by the performance of the market. If done successfully, this is called a portable alpha because the alpha has been disassociated from the beta and is now portable, non-dependent upon the beta.

Prospectus

The current prospectus of BofAML Invest Funds plc, Merrill Lynch Investment Solutions or Torrus Funds, as the context requires.

Relative Value

A measurement of one investment or financial instrument’s value relative to another’s.

Restructurings

 When a company is having trouble making payments on its debt, it will often consolidate and adjust the terms of the debt in a debt restructuring.

Ring-fenced assets

The practice of a company creating a legal entity separate from itself in order to protect certain assets.

Risk Arbitrage

The purchase of stock in a corporation that appears to be the target of an imminent takeover in the hope of making large profits if the takeover occurs.

Risk Free Rate

The return on a 3-month US treasury bill. This is considered risk free as it is a short-term direct obligation of the US government.

Risk Premia

The reward for holding a risky investment rather than a risk-free one.

 

 

 

Sharpe Ratio

A commonly used measure of risk reward. It is calculated as the average return of an investment, less the Risk Free Rate, divided by the volatility (standard deviation as a measure of return variation).

Shorting

Shorting a stock or going short is the selling of something not yet owned. People will often go short if they think the price of the underlying instrument is likely to decrease.

Stress Test

A simulation technique used to determine reactions to different financial situations. Stress-testing is a useful method of determining how a portfolio will fare during a period of financial crisis.

Sub-Fund

A separate portfolio of assets established for one or more Classes of Shares of the respective Fund which is invested in accordance with a specific investment objective. The specifications of each Sub-Fund will be described in their relevant Supplement.

Subscription Charge

A fee charged by the fund distributor to investors for the subscription of investment funds as set out in the relevant Prospectus.

SWOT

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.

Top-Down

An investment strategy which first finds the best sectors or industries to invest in, and then searches for the best companies within those sectors or industries. This investing strategy begins with a look at the overall economic picture and then narrows it down to sectors, industries and companies that are expected to perform well.

Transfer Agent

An agent employed by a corporation or mutual fund to maintain shareholder records, including purchases, sales, and account balances.

UCITS

An acronym for undertakings for collective investment in transferable securities authorised in accordance with the UCITS Directive - Directive 2009/65/EC of the European Parliament and of the Council of 13th July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, as amended from time to time The UCITS Directive aims to establish standardised rules for the operation of collective investment schemes. Additionally, it includes scope of funds authorised by any member state to operate and be marketed across the union.

 

Value at Risk (VaR)

A commonly used measure of the expected risk from an investment, based on historically observed price movements in that investment.

Value Equities

 Mispriced securities relative to their long-term earnings prospects when financial markets react to near-term events.

Vanilla Strategy

An approach to investing or to business decision-making that is basic and common.

Volatility

A commonly used measure in finance of the relative rate at which the price of an investment moves up and down. It is calculated as the annualised standard deviation of daily price changes.
 

“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a registered broker dealer and a member of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.

 

Investment in the funds described on this website carries a substantial degree of risk and places your capital at risk. There can be no assurance that the investment objectives of the fund will be achieved and investment results may vary substantially over time. The price and value of investments can go down as well as up and an investment in the fund may be subject to sudden and large falls in value.You may not get back the original amount invested and you may lose all of your investment. Investment in the funds described on this website is not suitable for all investors. If you are in any doubt as to the suitability of an investment in a fund for you, you should consult an independent financial advisor. The offering documents for the funds contain risk warnings which are specific to each fund and you should only invest in a fund once you have carefully read and understood the prospectus and simplified prospectus/Key Investor Information Document (KIID)for the fund. The prospectus, the simplified prospectus/KIID and the latest periodic reports for each fund are also available free of charge (contact details of the facilities where such documents are available are set out on the web-page of the relevant fund).

 

The information on this website does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in any security including, but not limited to, shares in the funds.

 

Tax treatment depends on your individual circumstances and may be subject to change in future.