What Is An Asset-Backed Security? Asset-backed securities (ABS) are fixed-income instruments similar to bonds that are collateralised by a pool of loans, the payments on which are channeled to the holders of the securities in the form of interest payments. When the loans are paid off, holders of the ABS receive their principal back. ABS issues are structured by a lender or investment firm using different types of loans. The…

What Is A Target Date Fund? A target date fund is a mutual fund designed for retirement that automatically rebalances the fund's assets as the investors in the fund draw closer to retirement age. In the years prior to retirement, the fund is more aggressive and heavily invested in growth stocks, but as the holders near retirement the fund becomes more conservative. At this point, its allocation shifts to include…

The Glass-Steagall Act was a 1933 U.S. law signed by President Franklin Roosevelt shortly after he took office that effectively separated commercial banking from investment banking. The act is named for its sponsors, Sen. Carter Glass, D-Virginia, a former Treasury secretary, and Rep. Henry Steagall, D-Alabama, the chairman of what was then called the House Banking and Currency Committee. Glass-Steagall was largely repealed in 1999 by the Gramm-Leach-Bliley Act, which…

What Is A Master Limited Partnership? Master limited partnerships (MLPs) are exchange-traded vehicles that invest primarily in energy and other natural resource projects, particularly oil and gas storage, transportation, exploration, development and pipelines. MLPs are popular with some investors for their very high yields, but they tend to track the price of oil, which means they can be volatile. Also, their share prices have been depressed in recent years, reducing…

What Is Venture Capital? Venture capital (VC) is a form of private equity (PE) financing in which investors buy stakes mostly in young companies in need of financing. Unlike PE funds, which typically invest in more established companies, VC firms invest mainly in startups, particularly in technology, biotechnology, financial services, payments and other businesses that show promise for growth. VC firms operate the same way as PE firms in that…

What Is A Mid-Cap Stock? Mid-cap stocks are generally considered to be those companies with a market capitalisation—the stock price multiplied by the outstanding number of shares—between US$2 billion and US$10 billion. They fall between large cap stocks, which have market caps above US$10 billion, and small caps, which are valued at between US$300 million and US$2 billion. Generally speaking, mid-cap stocks are slightly more risky than large caps, which…

What Is A Robo-Advisor? A robo-advisor is an automated, online platform that creates investment portfolios and financial plans for individuals. Roboadvisors compete with traditional human financial advisors but provide their services at a far lower cost with much lower minimum investment requirements and greater convenience. Robo-advisors have been around since 2008, but they have attracted a growing number of clients and share of assets under management. Indeed, several large traditional…

What Is A Hedge Fund? A hedge fund is a private pool of money managed by professional managers whose main goal is to maximize returns for investors as quickly as possible in both up and down markets. Hedge funds are similar to mutual funds but have some very different characteristics. For example, hedge funds are generally open only to large institutions or to "accredited" investors who must meet certain high…

What Are Small-Cap Stocks? Small-capitalisation, or small-cap, stocks are generally considered to be those with a market value of between US$300 million and US$2 billion. Market capitalisation is the price of the company's stock multiplied by the number of shares outstanding. Small-caps should not be confused with start-ups. Small-caps have generally "graduated" from the start-up phase and have established themselves enough to sell their shares to the public. Many are…

What Are Private Equity Funds? Private equity (PE) funds are alternative investment vehicles that use a pool of money from investors to make direct investments in companies, usually with the goal of making improvements to sell them later at a much higher price. Although PE funds have some similarities with hedge funds, they are quite different in the way they use their money, their risk levels, and their investment time…

What Are Capital Expenditures? Capital expenditures (CapEx) are long-term investments that a company makes to expand or improve its business. Investors and analysts generally view an increase in CapEx as a positive sign because it indicates that a company's business is growing. Similarly, rising CapEx for the entire economy is a positive macroeconomic indicator and generally a bullish signal for stocks. Capital expenditures include such things as the addition or…