Investing

Absolute return funds

Absolute return funds aim to deliver results in both falling and rising markets, and, compared to traditional funds, are more inclined to use exotic management techniques. Their investment techniques may include – but are not limited to – futures, short selling, options, arbitrage, derivatives, unconventional assets and leverage. The creation of the first such fund,…

Beta

Beta indicates the sensitivity of a stock’s or a portfolio’s rate of return compared to the rate of return on the market as a whole. A beta higher than 1 indicates higher price volatility than that of the market, and a beta below 1 would indicate lower price volatility than that of the market. A…

Bottom-Up Investing

This investment strategy is best used when the investor is close to and familiar with the market. It is not a recommended strategy for those who make investments on a global scale. It considers factors that may affect individual companies, such as their financial situation, demand and supply, and other performance indicators over specific periods…

Venture Capital

Investing in venture capital goes against everything the text books recommend as an appropriate investment. Venture capital in Australia has a minimal track record, the funds are mainly illiquid and the risks inherent in the portfolio of companies chosen by venture capitalists are pretty well as high as you can get. Having said that, venture…

Listed Investment Company (LIC)

Australian investors are becoming less willing to pour money into costly managed funds when other investments such as listed investment companies (LICs) do the same thing for a fraction of the price. Both LICs and managed funds are share portfolios that are externally managed by a professional fund manager – the difference being that LICs…

Leveraging

If you have a spare $10,000 and invest it in shares which go up 10 per cent then you will have made $1,000. If instead you use not only your own $10,000 but also $40,000 of someone else’s money then you can buy shares costing $50,000 and if they go up by the same 10…

Dividend Reinvestment

Many companies offer their shareholders an alternative to receiving dividends in cash, allowing the shareholders at their option to enrol in a dividend reinvestment plan (DRP) and to take up newly created shares instead (or to take a mixture of cash and shares). When these plans first became popular such shares were generally offered at…

Risk free rate

When it comes to investing, there’s no such thing as a risk-free investment. Everything in life has some level of risk attached to it – even breathing. Nevertheless, returns on Government bonds (regarded as pretty darn safe) are often referred to as risk free.

Exchange Traded Funds (ETFs)

Traditional ETFs track an index, sector or geographic region. For instance an ETF that tracks the S&P/ASX 200 Index is simply tracking the performance of Australia’s top 200 companies. In other words, the manager of the fund will buy all stocks contained in the index and weight them according to each company’s market capitalisation. Any…