The Exchange-Traded Funds Manual, Second Edition

Glossary

Most of the terms in this glossary are fund- and portfolio-related terms from the Dictionary of Financial Risk Management¹⁹³ and other words used in connection with ETFs. In some cases the more comprehensive formal definition has been modified to focus on funds. I have omitted some terms that are discussed in greater depth in the text than is possible in a brief formal definition. If you do not find a term of interest in this list, check the index.

 

12(d)(1) limit: Section 12(d)(1) of the Investment Company Act of 1940 limits the ability of registered investment companies to invest in other investment companies. Without specific exemptions from this section, no registered investment company may acquire more than 3 percent of the outstanding stock of another investment company, or acquire securities from a single investment company with an aggregate value of more than 5 percent of its total assets, or acquire securities from multiple investment companies with an aggregate value in excess of 10 percent of its total assets. For example, a fund could not hold more than 3 percent of all outstanding 500 SPDRs or QQQQs. Certain funds of funds have obtained exemptions from these limits.

12b-1 fee: A mutual fund fee (named for the SEC rule that permits it) used to pay for distribution costs, such as advertising and trailer commissions paid to brokers. If the 12b-1 fee exceeds 0.25 percent of assets, the fund is characterized as a load fund.

’40 Act: See Investment Company Act ...