In this new era of investing, there are new terms to get to know. Below is a glossary of some of those terms, along with some important terms that have been around awhile.
(Definitions for Morningstar's mutual fund categories discussed throughout this section are on pages S14-S17.)
* Actively managed funds. A mutual fund in which the fund manager is allowed to use his or her discretion to buy, sell or hold investments in the portfolio. Most funds are actively managed.
* Balanced funds. Sometimes called "hybrid" funds, balanced portfolios are a type of mutual fund that invests in a combination of stocks and bonds. They are considered safer and more conservative than pure equity funds.
Traditionally, balanced funds invest approximately 60% of their assets in stocks while keeping the remaining 40% in bonds. Many balanced funds have upped their exposure to stocks, however.
* B2B funds. "Business-to-business" funds. Expected to be available shortly, these will be a specialized form of technology sector fund that primarily seeks out Internet companies working on business-to-business solutions.
* Basket securities. An umbrella term used to describe new types of securities that give investors exposure to an entire portfolio of stocks through a single purchase--much like a mutual fund. As a result, many view basket securities as competitors to funds.
Unlike traditional open-end funds, though, basket securities are exchange-traded. That means investors can buy or sell shares throughout the day--not just once a day at the market closing price. To invest in a basket security, you must have access to a brokerage account and pay a commission. Basket securities trade on the American Stock Exchange. (See Diamonds, HOLDRs, WEBS and SPDRs.)
* Blue chips. A nickname for big, established companies.
* Concentrated funds. Also referred to as "focused" funds. Concentrated funds tend to invest in relatively few stocks in hopes of generating outsize gains. Whereas the average domestic stock fund invests in 143 stocks, a concentrated fund may invest in only 20 to 40 of the fund manager's "best ideas."
* Diamonds. (Ticker symbol: DIA) A nickname for a type of investment trust, or basket security, whose holdings represent all 30 blue-chip stocks in the famed Dow Jones industrial average. At any moment in time, shares of Diamonds will be priced at about 1/100th of the value of the Dow industrials.
