Alpha
Alpha is a measure of a fund's over- or under-performance by comparison to its benchmark. It represents the return of the fund when the benchmark is assumed to have a return of zero, and thus indicates the extra value that the manager's activities have contributed: if the Alpha is 5, the fund has outperformed its benchmark by 5%, and the greater the Alpha, the greater the outperformance. A further aspect of Alpha emerges when it is taken in conjunction with Beta. Assuming that a strong R-Squared correlation exists, the Beta will show how volatile the fund is compared to its benchmark, and thus indicate how much extra risk the manager has taken on in order to get that high-Alpha performance. Negative Alpha in conjunction with 1+ Beta is an indication of poor performance: managers are subjecting funds to volatility that is higher than the benchmark, while achieving returns that are lower than the benchmark attained. So, if Alpha indicates better/worse performance compared with the index, Beta shows higher/lower risk.
Accumulation Unit
This is a type of unit in a unit trust where the income is reinvested automatically, thereby increasing the unit price. With income units, the income is given to the unitholders.
Active Management
An active fund manager tries to outperform stock market indices by selecting stocks, as opposed to the passive manager, who buys everything (or a representative portion) in any particular index in order to closely track its performance.
Annual Management Fee
This is a charge you pay to a company for managing your investments, whether it is a fund manager, stockbroker or financial adviser. Annual charges vary depending on the level of service provided and the type of product.
Annuity
Usually when you retire you use your pension fund to buy an annuity - an annual amount paid to you for the rest of your life. You can delay buying the annuity until you're 75 and there are several options available. For example, you could choose to have the annuity increase in line with inflation each year and to have it paid to your spouse on your death.
Asset Allocation
The process of dividing investments among different types of assets, such as stocks, bonds, property and cash, to diversify risk based on the specific needs of an individual or institution.
