Glossary of tactical investing and ETFs: momentum, canary, drawdown and more
Short definitions of the terms we use on the site. If you want to go deeper, each one links to the relevant guide.
A–C
Accumulating ETF
An ETF that reinvests dividends or interest inside the fund instead of paying them out. Its counterpart is the distributing ETF.
Backtest
A simulation of how a strategy would have performed with historical data. It does not guarantee future results. See risks of backtesting.
CAGR
Compound annual growth rate: the average yearly return that, applied year after year, would give the same final result. See how to read the metrics.
Canary asset
An asset watched as a market alarm: if its momentum is negative, the strategy switches to defensive mode. HAA uses TIP. See what a canary asset is.
D–M
Distributing ETF
An ETF that pays investors the dividends or interest it receives. The investor decides whether to reinvest them.
Drawdown (maximum)
The largest loss from a peak to the subsequent low. It measures how far your portfolio would have fallen at the worst moment.
ETF
An exchange-traded fund that tracks an index and is bought and sold on an exchange like a share.
Expense ratio (TER)
The fund's total annual cost, expressed as a percentage of assets. It is deducted from the ETF's value without appearing as a separate charge.
ISIN
A 12-character code that uniquely identifies each security or fund. It distinguishes, for example, the accumulating share class from the distributing one of the same ETF.
Momentum
The tendency of an asset to keep moving in the direction it has recently moved. It is measured by past return. See how it is calculated.
Momentum, absolute
Compares an asset with its own past or with cash: if it has not risen enough, it is avoided.
Momentum, relative
Compares assets against each other and chooses those with the best recent performance.
P–Z
Rebalancing
Adjusting the portfolio to return to target weights. In monthly strategies it is done every month according to the signal. See the calculator.
Sharpe ratio
Return above that of cash divided by volatility. Higher means more return per unit of risk taken.
Spread
The difference between the buying and selling price of an ETF at a given moment. It is an execution cost. See the real cost of rotating.
Tracking difference
The difference between the ETF's return and its index's return. It includes the expense ratio and other factors.
UCITS
The European framework for harmonised investment funds. UCITS ETFs are those a European retail investor can buy; US-listed ETFs are generally not available to them.
Volatility
A measure of how much the returns of an asset or portfolio fluctuate. High volatility means larger swings.
Wash sale
In the US (and with similar rules elsewhere), a loss on a sale may be disallowed if you buy back the same or a substantially identical security within a short window around the sale.
Withholding tax
Tax deducted from dividends in the country where they are paid, before they reach the investor.