Reference

Glossary

The terms you'll meet on fund pages and in ETF Facts, in plain language.

Covered call: The fund owns stocks and sells the right to buy them at a set price. It collects a fee (premium) for that right, which is paid out as income. In exchange, big rises in the stocks are partly given up.
Call coverage: The share of the fund's holdings it has sold call options on. At 50%, calls are written on half the portfolio: more coverage means more income now and more of any rise given up.
Yield: A year of distributions divided by today's unit price. A high yield is not a high return: if the price falls as much as you were paid, you have gained nothing.
Total return: Price change plus all distributions, assuming distributions are reinvested. This is the number that tells you whether the payout was earned.
Price return: Price change only. If it is steadily negative, the fund is paying you partly out of its own capital.
MER: Management expense ratio: the fund's yearly management fee and operating costs as a share of its value, already taken out of returns. Trading costs come on top, as the trading expense ratio (TER) in the fund's ETF Facts; the score's fee measure adds the two.
Distribution cut: A reduction in the regular payment. We count a drop of more than 2% from the prior payment. In the score a cut counts by its size, so a 40% cut weighs far more than a 3% trim.
Return of capital (ROC): A part of the payout that is treated as your own money coming back. It is not taxed right away, but it lowers your cost base, so you may owe more tax when you sell.
Tax breakdown of distributions: How a fund's distributions for the year were taxed, as the fund company reports them on the T3 slip each February or March: eligible Canadian dividends (which get the dividend tax credit), capital gains (only part of which is taxed), foreign income, other income such as interest (taxed like salary), and return of capital. It matters in a non-registered account; inside a TFSA or RRSP you pay no Canadian tax on distributions, though foreign tax withheld still applies. Each fund page shows every year the fund company has published, per unit.
Worst drop (maximum drawdown): The biggest fall from a high to a later low, in total return, so paying out a distribution does not count as a fall. A fund that fell 30% needs a 43% gain to get back.
Risk rating: The fund company's own rating of the fund, as published in its ETF Facts. Every Canadian ETF uses the same five steps (Low, Low to medium, Medium, Medium to high, High) and the same regulated method, based on how much the fund's returns have varied over up to 10 years. It describes past ups and downs, not the chance of a future loss, and a fund rated Low can still lose money. A new fund's rating is the company's estimate.
Volatility: How much returns bounce around, measured as an annualized standard deviation. Higher means a bumpier ride. It counts rises as well as falls, so the score uses downside deviation instead.
Downside deviation: Like volatility, but only the losing months count: gains count as zero. A covered-call fund gives up part of its rallies, which lowers its volatility without making its falls any smaller. Downside deviation is not fooled by that.
Beta: How far the fund tends to move when the S&P 500 moves, over the last 36 months. A beta of 0.7 means it moved about 0.7% for each 1% move in the index.
Up and down capture: How much of its own benchmark's gains (up) and losses (down) the fund took over the last 36 months. The benchmark is what the fund holds without the options: its uncovered sibling ETF or an ETF of its index (BMO Equal Weight Banks for a Canadian bank fund), or its one stock for a single-stock fund; funds with no clear one use the S&P 500. Down capture under 100% means the calls cushioned the falls; leverage pushes both above 100%. Each fund page names the benchmark and also shows capture against the S&P 500.
Correlation to S&P 500: How closely the fund's monthly returns have moved in step with the S&P 500 over the last 36 months, on a scale from -1 to 1. Near 1 means it adds little variety if you already own US stocks.
Leverage: The fund borrows to hold more than 100% of its value in stocks (for example 1.25x). It increases income and risk.
Liquidity: How easily you can buy or sell without moving the price. The tables rate it Very high, High, Medium, Low or Very low by the average dollars traded per day, and each fund page also shows the average units traded: over $1,000,000 a day is Very high, $500,000 to $1,000,000 High, $100,000 to $500,000 Medium, $25,000 to $100,000 Low, and under $25,000 Very low. Thinly traded funds can have wide gaps between the buying and selling price; use limit orders.
Net assets: The total value of everything the fund holds. Very small funds are more likely to be closed or merged, and are often thinly traded.
Top 10 weight: The fund's 10 largest holdings, as a share of its net assets, from the issuer's latest holdings list (cash and options left out). A higher number means a more concentrated fund that depends more on a few companies. A leveraged fund invests borrowed money too, so it can pass 100%. For a fund of funds, the holdings are usually other ETFs, so the number says less.
Currency hedged: The fund aims to cancel out moves in the US dollar against the Canadian dollar.
Single-stock fund: A fund tied to one company. It can pay a lot, and it can fall a lot.
Fund of funds: A fund that holds other ETFs. Fees can stack, so check the total.
Dividend ETF: A fund that holds companies picked for their dividends, with no options. It keeps all of the upside and pays a lower yield than a covered-call fund on the same stocks.
Preferred share: A share that pays a set dividend ahead of the common shares, somewhere between a bond and a stock. Its price moves with interest rates and with the credit of the company. A rate-reset preferred changes its dividend every five years.
REIT: Real estate investment trust: a company that owns property and pays out most of the rent it collects. REIT distributions are often part return of capital and part income taxed like interest.
Split share: A split share corporation holds a portfolio of dividend stocks and issues two listed shares on it: preferred shares, which get a fixed dividend and their $10 back first, and Class A shares, which get the rest. The preferreds make the Class A shares leveraged, so they rise and fall two to three times as much as the portfolio.
CLO: Collateralized loan obligation: a floating-rate bond backed by a pool of business loans, in slices from AAA (paid first) to riskier ones (paid last). Its interest rate moves with short-term rates.
HISA ETF: A high interest savings ETF: a fund that holds deposits at Canadian banks and pays the interest out. Its yield follows the Bank of Canada rate. Units are not a bank deposit in your name and are not covered by CDIC insurance.