Mutual Fund Terms and Definitions for Physicians

A “Need-to-Know” Glossary for all Medical Professionals

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[ME-P Staff Writers] 

ADV: A two-part form filed by investment advisors who register with the Securities and Exchange Commission (SEC), as required under the Investment Advisers Act. ADV Part II information must be provided to potential investors and made available to current investors.

Alpha: A measure of the amount of a portfolio’s expected return that is not related to the portfolio’s sensitivity to market volatility. A benchmark that uses beta as a measure of risk, a benchmark and a risk free rate of return (usually T-bills) to compare actual performance with expected performance.

For example, a fund with a beta of .80 in a market that rises 10% is expected to rise 8%.

If the risk-free return is 3%, the alpha would be –.6%, calculated as follows: (Fund return – Risk-free return) – (Beta x Excess return) = Alpha   (8% – 3%) – [.8 × (10% – 3%)] = (–) .6%   

Note: A positive alpha indicates out-performance while a negative alpha means underperformance. 

Asset allocation: Strategic asset allocation refers to the long-term targets for allocation of a percentage of a portfolio among different asset classes. In contrast, tactical asset allocation refers to short-term targets.

Average maturity: The average weighted maturity of the bonds in a portfolio providing an indication of interest rate risk.

Benchmark: An index, managed portfolio, or fund used to compare performance characteristics with the targeted portfolio or fund.

Beta: A statistically computed measure of the portfolio’s relationship to changes in market value. If, compared to the S&P 500, a fund has a beta of .80; it is expected to underperform a rising market by 20% and outperform a falling market by 20%. 

Bond: Publicly traded debt instruments that are issued by governments and corporations. The issuer agrees to pay a fixed amount of interest over a specified time period and to repay the principal at maturity.

Closed-end mutual fund: An investment company that registers shares in accordance with SEC regulations and is traded in securities markets at prices determined by investments. 

Diversification: Buying a number of different investment vehicles to protect against default of a single vehicle, thereby reducing the risk of the portfolio.

Duration: A more technical calculation of interest rate risk exposure that uses the present value of expected cash flows to be returned to the bond holder over the term of the bond. 

Fundamental analysis: An analysis of a company’s stock that focuses on the economic environment, the industry the company is in, and the company’s financial situation and operating results.

Mutual fund: A regulated investment company that manages a portfolio of securities for its shareholders.

Net asset value (NAV): The value of fund assets fewer liabilities divided by outstanding shares. 

Open-end mutual fund: An investment company that invests money in accordance with specific objectives on behalf of investors. Fund assets expand or contract based on investment performance, new investments and redemptions.

Portfolio manager: The person(s) who is/are responsible for managing the portfolio in accordance with the objectives dictated by an investor or a fund’s prospectus.

Prospectus: A disclosure document filed with the SEC and made available to prospective and current investors. The prospectus covers sales charges, expenses, investment objectives and restrictions, management fees, financial highlights, and other information. 

R-squared (R2): Relationship of a fund or portfolio’s performance to a benchmark index.

For example, a fund R-squared of .5 means only 50% of its return is explained by the index. Other factors are responsible for the balance of performance. 

SEC yield: A standardized calculation of yield over a 30-day period, sometimes quoted as the “30-day yield.” It takes into account yield-to-maturity rather than current dividends. 

Standard deviation: A statistic that looks at a series of returns and expresses the average deviation from the mean return.

Statement of additional information: A disclosure document filed with the SEC that supplements the prospectus. It is made available to investors upon request. 

Technical analysis: An analysis that focuses on trends in financial markets generally.

For example, a technical analyst may view an entire industry’s group of stocks to be declining. Although the analyst may be correct about the group of stocks as a whole, there may be exceptions represented by specific, individual companies.

Total return: The combination of investment return from income, such as dividends and interest, and appreciation or depreciation in the value of the investment (Income returns plus capital return.) 

Turnover: Under SEC rules, a figure computed that indicates how often securities in the portfolio are bought and sold. For example, if turnover is 100% over a one-year period, the securities (on average) were replaced once. 

12b-1 fee: The maximum annual fee payable from fund assets for distribution and sales costs as allowed by the SEC. 

MORE: Glossary Terms Ap 3

Library

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MARK CUBAN’s: “Cost Plus Drugs”. com

By Staff Reporters

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Mark Cuban: The billionaire owner of the Dallas Mavericks just launched an online pharmacy for generic drugs that looks to cut out middlemen and combat pharmaceutical industry price gouging by offering steep discounts.

Set up as CostPlusDrugs.com with 100 generic drugs to treat conditions like diabetes and asthma. Cost Plus will not accept health insurance but claims its prices will still be lower than what people would typically pay at a pharmacy.

“All drugs are priced at cost plus 15%!” Cuban tweeted.

READ: https://medicalexecutivepost.com/2022/01/23/podcast-the-mark-cuban-cost-plus-drug-co-mccpdc/

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The Market Technicians

Technical Analysis – Defined

[By Julia O’Neal; MA, CPA with Staff writers]

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Technical market analysis focuses on the historical price and volume changes that occur as a stock trades, and it attempts to predict the stock’s future behavior based on prior patterns.

Technical analysis is not concerned with the financials of a company; it assumes that fundamental factors are already reflected in the market behavior of a stock and that the history of that behavior gives a strong clue to the future. The focus on price and volume in technical analysis could also be considered a study of supply and demand. 

Technical analysis applies technical market theories to stock market data on stock prices, indexes, and trading. Technicians identify market trends and try to predict future movements.  

Theoretically, technical and fundamental analysis exist in opposition to each other, but in reality, most fundamental analysts sneak a look at the charts from time to time and technical analysts pay attention to some fundamentals. 

Both schools of thought are based on the possibility of predicting the future using the past. Market psychology, which does not always follow rhyme or reason, can prove both types of analysis wrong.

Technical analysis involves discovering patterns that repeat themselves. Patterns can exist for an individual stock or for an index, and stocks can be compared to their respective indexes. 

Stocks (and indexes) are said to trade in a range. When prices go above this range, they often encounter selling pressure. This is called an area of resistance, and stocks are characterized as “overbought.” 

Conversely, a decline below a level of support will instigate buying, because the stock seems cheap or “oversold.” 

When a breakout occurs above a resistance level – or below a support level – technical analysts predict the stock will stay on the new course.  

Methods for taking advantage of anticipated upward trends include buying stop orders or call options at a level slightly above the resistance level.  To profit from downward trends, physician investors would enter a sell-stop order, sell short, or purchase put options at a price slightly below the support level.  

  • Accumulation areas occur when medical buyers are accumulating stock and the support level is moving up.  
  • Distribution areas occur when physician selling is occurring and the stock is considered weak.  
  • A sideways movement (the stock continues to be bought and sold at the same price for some time) is called an area of consolidation. 

Technical analysis

Other technical patterns:

A head and shoulders pattern may be either above (“head and shoulders top”) or below (“head and shoulders bottom”) a constant trend line. This theory assumes that after a top there will be a reverse; after a bottom, there will be a move back to a top.  

Rising bottoms and ascending tops/falling bottoms and descending tops.  A rising trend in the low prices of a security shows higher and higher support levels. Combined with ascending tops, this would be a bullish indicator. The reverse would be bearish. 

Double top and double bottom show resistance and support levels.  A double bottom shows the stock could break below support levels and reach new lows; a stock with a double top pattern might be expected to move on to a new high.

Assessment

What kind of physician investor are you; fundamental or technical?

Conclusion

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Health Dictionary Series: http://www.springerpub.com/Search/marcinko

Practice Management: http://www.springerpub.com/product/9780826105752

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Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Hospitals: http://www.crcpress.com/product/isbn/9781439879900

Physician Advisors: www.CertifiedMedicalPlanner.org

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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SURVEY: Primary Care Doctor Trust or NOT?

By Staff Reporters

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75% Trust Their Primary Care Physicians

 •  Primary care physicians: 75%
 •  Specialty care physicians: 66%
 •  Pharmacies: 59%
 •  Hospitals and clinics: 58%
 •  Health insurance company: 51%
 •  Government: 24%

Source: Health Sparq, “2022 Annual Consumer Sentiment Benchmark Report,” January 2022

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