Home Glossary – BNP Paribas Wealth Management

Glossary – BNP Paribas Wealth Management

1-YEAR ANALYSIS

Expense Ratio: The Expense Ratio includes ETF costs known ex-ante, i.e. administration and management fees (on an annual basis). However it does not includes additional transaction costs nor swap fees (when the ETF replication methodology is synthetic).

Index Annualized Performance: The official index (tracked by the ETF) annualized performance, compounded over the given period and annualized over 365 calendar days.

ETF Annualized Performance: The ETF annualized performance based on the official Net Asset Value (NAV), compounded over the given period and annualized over 365 calendar days.

Tracking Difference: The difference between the ETF annualized performance based on the official Net Asset Value (NAV) and the official replicated index annualized performance, over the given period.

Worst 1-Year Cumulative Return Difference: This provides a statistic on a one year long investment. It corresponds to the lowest (i.e. worst) cumulative return difference recorded between the ETF and its corresponding tracked index over a period of 365 consecutive calendar days, within the given period.

Best 1-Year Cumulative Return Difference: This provides a statistic on a one year long investment. It corresponds to the highest (i.e. best) cumulative return difference recorded between the ETF and its corresponding tracked index over a period of 365 consecutive calendar days, within the given period.

Daily Analysis

Expense Ratio: cf. previous section

Tracking Error: This indicator of relative risk corresponds to the annualized volatility of the daily return difference between the ETF and its corresponding tracked index over the given period. The volatility is annualized using a 260 days basis (daily volatility multiplied by the square root of 260).

Average Daily Return Difference: The average of the daily return difference between the ETF and its corresponding tracked index over the given period.

Worst Daily Return Difference: The lowest daily return difference between the ETF and its corresponding tracked index over the given period.

Execution Depth

Market Capitalization: The Market Capitalization calculated at the end of the given period: it is equal to the total number of available ETF shares multiplied by the official ETF NAV at the last date of the given period.

One-Year Variation Of Market Capitalization: The difference between the Market Capitalization calculated at the last date of the given period and the Market Capitalization calculated one year before.

One-Month Variation Of Market Capitalization: The difference between the Market Capitalization calculated at the last date of the given period and the Market Capitalization calculated one month before.

One-Year ADV: The Average Daily Volume (ADV), i.e. average daily number of traded shares, over the last year, on the six following European market places: London Stock Exchange, NYSE Euronext Paris, NYSE Euronext Amsterdam, Deutsche Börse, SIX Swiss Exchange, Borsa Italiana.

One-Month ADV: The Average Daily Volume (ADV), i.e. average daily number of traded shares, over the last month, on the six following European market places: London Stock Exchange, NYSE Euronext Paris, NYSE Euronext Amsterdam, Deutsche Börse, SIX Swiss Exchange, Borsa Italiana.

Due Diligence – Keywords

Securities lending: The practice by an ETF manager to lend some of the owned securities to one or more third parties in exchange for a given fee and a posted collateral. This can provide an additional return to the ETF performance, at the cost of additional counterparty risk.

NAV: Standing for Net Asset Value, it is the value per share of an ETF, calculated daily at the close of the market as (assets – liabilities) / number of outstanding shares. An ETF’s price can diverge from its NAV and trade above it (at a premium) or below it (at a discount).

Physical replication: Physical replication occurs when a passive ETF tracks the underlying index by directly buying the securities composing such index. Physical replication can come in the form of Full Replication or of Optimised Sampling.

Synthetic replication: As opposed to physical replication, synthetic replication by a passive ETF aims at tracking the performance of the underlying index through derivatives and swap agreements signed with a third party. These swaps can be Unfunded, Fully Funded, or a mix of the two.

Collateral: Generally speaking, a collateral is any property or asset that a borrower offers to the lender in order to secure the loan, i.e. to reduce the lender’s losses in the case of the borrower’s default.

Single / multi-swap model: When an ETF tracks an underlying index using synthetic replication, it can do so either by entering a single swap agreement with one counterparty, or by entering multiple swap agreements with more than one counterparty, thus mitigating counterparty risk.

Counterparty: A counterparty is the “other party” that participates in a financial transaction. Any transaction must have a counterparty in order to be completed.

Pre-trade reporting: It refers to the legal requirement for operators of trading venues to increase the pre-trade transparency of available information, for example by making public bid and offer prices and the depth of the order book. Pre-trade reporting practices have been intensified by Mifid II.

Order book depth: Also referred to as Depth of Market (DOM), it is a measure of the number of open buy and sell orders for a financial security at different prices, hence providing an indication of the liquidity for that security.

Bid-ask spread: It is the amount by which the ask price exceeds the bid price, namely the difference between the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept for a given asset.