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The ETF Book: All You Need to Know About Exchange-Traded Funds, Updated Edition by Richard A. Ferri

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Glossary

12b-1 fee An annual fee charged by some mutual funds to pay for marketing and distribution activities. The fee is taken directly from fund assets, which reduces a shareholder’s total return.

accumulated dividends Dividends paid per ETF share, net of expenses, through and including the previous day’s close. Stocks pay dividends throughout the quarter while ETFs pay dividends only once per quarter.

active management An investment strategy that seeks to outperform the average returns of the financial markets. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.

alpha A measure of performance in percentage above or below what would have been predicted by risk as suggested by its beta. Positive alpha means a fund performed greater than its risk would suggest, while negative alpha means the fund underperformed. An ETF of alpha 1.5 outperformed its index by 1.5 percent as predicted by its beta.

annual turnover Percentage of value of stocks in a portfolio that are sold and replaced with new stocks each year.

annualize To make a period of less than a year apply to a full year, usually for purposes of comparison. For instance, a portfolio turnover rate of 36 percent over a 6-month period could be converted to an annualized rate of 72 percent.

AP See authorized participant.

asked price The price at which a security is offered for sale. For a no-load mutual fund, the asked price is the same as the fund’s ...

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