Exchange traded funds (ETF)

Exchange-traded fund is similar to a conventional mutual fund in that it represents a basket of stocks that can be bought or sold in a group. An ETF is traded like an individual stock. While mutual funds can only transact business at the end of the trading day, exchange traded funds can be bought or sold at any time. Each share of an ETF represents a portfolio of stocks and their resulting composite value. ETF offers investors immediate diversification, as even the smallest of investments is distributed throughout a variety of stocks. That strength is not merely numeric -- since ETFs include a broad range of stocks, many cut across a number of sectors and companies, providing diversity throughout different types of industries. An ETF is not actively managed but many ETFs are designed to mirror an index or some other grouping of stocks, which results in relatively light portfolio turnover. An investor can buy/sell an ETF similarly to an individual stock. This offers investors a greater range of choice in how an exchange-traded fund can be employed in an overall investment strategy.

Offshore fund

An investment fund with its legal domicile in a country which offers tax exemption or tax breaks (such as the Bahamas, Bermuda). In Switzerland only offshore funds from countries which have comparable fund supervision to Switzerland’s are allowed to be sold publicly.

Securities fund

An investment fund that invests in securities and loan-stock rights that are traded on a stock exchange or on another regulated market open to the public.

Equity funds

Investment funds which invest their assets primarily in equities. The main categories are country and regional funds, emerging market funds, small and mid cap funds, sector and theme funds, index funds.

Sector fund

An investment fund which invests its assets solely in securities of companies in a specific sector of the economy.

Bond funds

Investment funds which invest in bonds and other fixed or variable interest securities. Bond funds generally have a specific reference and investment currency.

High-yield funds

Bond funds which invest in bonds issued by borrowers with lower credit ratings. Such bonds offer higher rates of interest, but at the same time there is also a higher risk of default, i.e. that interest payments will not be paid or that the principal will not be repaid.

Index fund

An investment fund which replicates a chosen stock market index in its stock selection and weightings as exactly as possible.

Umbrella fund

An investment fund which comprises several subfunds. Together the subfunds form one single legal entity, meaning that only the umbrella fund needs to be submitted for authorisation. The subfunds are governed by the same fund regulations and prospectus. Once the umbrella fund has been approved, other subfunds can be created. Not to be confused with fund of funds.

Subfund

A compartment of an umbrella fund. For investment funds with different subfunds, investors are only entitled to the assets and income of the subfund in which they hold units. Subfunds are also called compartments or segments.

Asset allocation funds

Investment funds which replicate the official investment strategies of the providers for the various risk classes. Asset allocation funds invest worldwide in various instruments, depending on the risk category equities or bonds are overweight. Also known as strategy funds, portfolio funds, investment objective funds, asset management funds or mixed funds.

Fund-linked life insurance

In the case of fund-linked life insurance, the portion of insurance contributions which are normally invested in the unearned premium reserve (savings portion) is used to acquire fund units. There are life insurance policies which allow the policyholder to choose from a range of funds, as well as policies which allow the policyholder to simply select an investment focus (bonds, equities, real estate, etc.).

Open-end fund

An investment fund with variable capital which can continually issue new units but which must also redeem the units issued upon request at their net asset value. Swiss investment funds are open-end funds.

Closed-end fund

An investment fund in the form of a company (normally a stock company) with fixed capital. A closed-end fund is not obliged to redeem issued units at the request of the unitholder. As opposed to an open-end fund, units of this type of investment fund may not be sold publicly under Swiss law.

Fund of funds

An investment fund which restricts its investments to units of other investment funds. Not to be confused with an umbrella fund.