Important Terms to Understand

Mutual Fund

A pooled vehicle that combines the assets of many investors. It can invest in almost any type of security such as stocks, bonds, real estate, etc. It does not trade on an exchange and investors buy and sell at the end of the day at the net asset value (NAV) of all of the securities in the portfolio. They tend to be higher cost than their ETF counterparts due to higher administrative and distribution costs.

ETF

 An Exchange Traded Fund is also a pooled vehicle that combines the assets of many investors. It can invest in almost any type of security such as stocks, bonds, real estate, etc. It trades on an exchange, so unlike a mutual fund, investors buy and sell at a market price, which may or may not be different from the NAV of the underlying securities. ETFs tend to have a tax advantage in that many do not distribute capital gains.

Beta

We try to minimize our usage of technical terms, but beta is an important term that is often misused. Some use it to refer to "the market" (i.e. the S&P 500, etc.). Others use it to refer to risk.  Beta is actually a measure of sensitivity to something else. For example, a growth fund might have very high beta to the S&P 500 while a bond fund might have very low beta to it. This would be true because most bond movements are less sensitive to stock movements.

Fiduciary

The term fiduciary means that we have a fundamental obligation to act in the best interests of our clients and to provide investment advice as such. We will always strive to know your complete financial picture so that our advice does not cause you undue risk. We cannot and will not offer you investment products that pay us a commission and therefore entail a conflict of interest.

Active

The term active traditionally refers to a style of investing. It has been the domain of investment managers who make active bets about what securities will outperform a given benchmark (think market index like the S&P 500). However, with the proliferation of factors and factor-based indexes, active can refer to anything that is trying to beat the aforementioned benchmark. That is the way we prefer to think of it because the world has evolved and active tends to cost more.  Why pay a higher fee for something if it doesn't generate a higher return?

Passive

Passive is a concept that used to be simple and has become a bit more complex. Historically, passive meant not active, i.e. just invest in the benchmark or index that the active manager was trying to beat. However, as indexes have evolved beyond simple markets, one can passively invest in an index that is designed to beat the market. So now an investor can be passively active. While it sounds complicated, it is central to how portfolios are invested at Metric. Please see our link on factor investing to learn more.