403(b) Plan: a retirement plan that is offered by nonprofit organizations, such as universities and some charitable organizations, rather than corporations. Contributions can grow tax-deferred until withdrawal, at which time the money is taxed as ordinary income.
457 Plan: a nonqualified, deferred compensation plan established by state and local governments, tax-exempt governments and tax-exempt employers. Eligible employees are allowed to make salary deferral contributions to the plan. Earnings grow on a tax-deferred basis, and contributions are not taxed until the assets are distributed from the plan.
Annual turnover: the percentage of a fund's holdings that have been sold or replaced with other holdings ("turned over") during a 12-month period.
Asset allocation: an investment strategy that spreads an investor's assets across several different investment styles and asset classes. The objective is to reduce long-term risk and capture potential profits across various asset classes.
Asset-backed securities: fixed-income securities issued by a trust or other legal entity established for the purpose of issuing securities and holding certain assets--such as credit card receivables or auto leases--that pay down over time and generate sufficient cash to pay holders of the securities.
Automatic asset accumulation: an investment program that allows an investor to purchase shares of Nationwide Funds via automatic monthly deductions from his or her bank account.
Automatic asset transfer: an investment program that allows an investor to set up automatic monthly or quarterly transfers from one Nationwide Fund to another.
Average annual total return: a hypothetical rate of return that would have produced the same cumulative total return if fund performance had been constant during the given period.
Bottom-up strategy: an investment strategy that involves considering companies on their own merit, without regard to their given industries/sectors or current economic conditions.
Bonds: debt obligations that are issued by corporations, governments and other issuers.
Callable bonds: debt obligations that the issuer may redeem prior to the bonds' scheduled maturity (the date when the principal amount of a bond is set to be repaid). When the bonds are called, the issuer typically pays a premium to the bonds' owners. A significant decline in interest rates usually prompts issuers to save money by calling their current bonds and reissuing them at a lower interest rate. Callable bonds are also known as "redeemable bonds". Contingent deferred sales charge (CDSC): a fee that mutual fund investors pay when selling fund certain classes of shares within a specified number of years of the date on which they were originally purchased. This fee is also known as a "back-end load" or "back-end sales charge."
Commercial paper: short-term debt instruments, usually unsecured, that are issued by banks and corporations in order to finance their short-term credit needs, such as accounts receivable or inventory, and that are acquired either at a discount or are interest bearing.
Commodity: a physical substance, such as food, grains and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts. More generally, a commodity is a product that trades on a commodity exchange; this would include foreign currencies as well as financial instruments and indexes.
Commodity-linked derivatives: a contract with its value based on an underlying commodity.
Common stock: a security representing shares of ownership in a corporation.
Consumer Price Index (CPI): an index published monthly by the U.S. Bureau of Labor Statistics that is widely used as a cost-of-living benchmark. The index measures the weighted average of prices of a fixed basket of consumer goods and services, including food, transportation, shelter, utilities, clothing, medical care and entertainment. The CPI is often used to identify periods of inflation or deflation. A large rise in CPI during a short period of time denotes inflation; conversely, a large drop indicates a period of deflation.
Convertible securities: corporate securities (usually preferred stocks or bonds) that are exchangeable at the discretion of the holder for a fixed number of other securities (usually common stocks) at a set price or formula.
Core portfolio: an investment portfolio that is designed to form the foundation of an asset allocation program. A core portfolio usually features growth, value, blend, balanced and fixed-income funds.
Corporate bonds: debt securities issued by corporate issuers, as distinct from fixed-income securities issued by a government or its agencies or instrumentalities.
Coverdell Education Savings Account (CESA): a type of tax-deferred trust account created by the U.S. government to assist families in funding educational expenses for beneficiaries aged 18 years or younger. While more than one CESA can be set up for a single beneficiary, the total maximum contribution per year for any single beneficiary is $2,000.
Derivative: a contract whose value is based on the performance of an underlying financial asset, index or economic measure.
Diversification: a risk-management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
Dividend payout ratio: the percentage of earnings paid to shareholders in dividends. It is calculated by dividing the yearly dividend per share by the earnings per share or, dividends divided by net income.
Dividend yield: a percentage measurement of the amount of cash flow an investor receives for each dollar invested in an equity security. It is calculated by dividing a company's annual dividends per share by the price per share.
Dollar cost averaging: the technique of investing a fixed dollar amount into a fund on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. This results in an average cost per share that is lower than the average price per share.
Duration: the percentage change in value of a bond that will result from a 1% change in interest rates. Duration is stated in years. The higher the duration, the greater the change (i.e., higher volatility) in relation to interest-rate movements.
Emerging market countries: Developing and low- or middle-income countries as identified by the International Finance Corporation or the World Bank; these countries may be found in regions such as Asia, Latin America, Eastern Europe, the Middle East and Africa.
Equity securities: Securities that represent an ownership interest in the issuer. These include common stock, preferred stock, securities that are convertible into common stock or securities (or other investments) with prices linked to the value of common stocks, foreign investment funds or trusts and depository receipts. These may also include interests in real estate investment trusts.
Exchange-traded funds (ETFs): passively managed financial instruments which represent baskets of stocks that reflect a wide variety of sector-specific, country-specific and broad-market indexes. ETFs do not have end-of-trading day net asset values; rather, their prices fluctuate, based on supply and demand. ETFs may be bought or sold on a stock exchange throughout the trading day and incur a commission cost with each transaction.
Federal funds rate: the interest rate that a bank with excess reserves at a Federal Reserve district bank will charge another bank to provide overnight loans to meet the other bank's reserve requirements. The Federal Open Market Committee is responsible for setting a target for this rate, but the rate itself is set daily by the market and serves as a highly sensitive indicator of the future direction of interest rates.
Fixed-Income Securities: Securities, including bonds and other debt securities, that represent an obligation by the issuer to pay a specified rate of interest or dividend at specified times.
Gross domestic product (GDP): a commonly used indicator of a country's economic health. GDP is a number that represents the market value of all the goods and services produced within the geographic boundaries of a country (regardless of the producers' nationality) during a specific time period (usually one year). GDP is calculated by adding the value of all private, public and government spending, investments, and exports minus imports that occur within the defined region.
Growth style: a style of investing in equity securities of companies that a Fund's management believes have above-average rates of earnings growth and which therefore may experience above-average increases in stock price.
High-yield bonds: fixed income securities rated below investment grade by nationally recognized statistical rating organizations, including Moody's, Standard & Poor's and Fitch or unrated securities that Fund management believes are of comparable quality. They generally offer investors higher interest rates as a way to help compensate for the fact that the issuer is at greater risk of default. These bonds are often referred to as "junk bonds".
Inflation: the rate at which the general level of prices for goods and services rises. As prices rise, purchasing power falls. In other words, when inflation increases, every dollar buys a smaller percentage of a good or service.
Interest-rate swaps: an activity involving companies that desire an interest-rate structure that other companies can provide at a lesser cost. The companies will agree to enter into interest-rate swaps, which are customized contracts between two or more parties. The transactions involve the exchange of one set of cash flows or streams of future periodic interest payments for another (based on certain principal amounts and interest-rate specifications). Interest-rate swaps also benefit companies by limiting or managing exposure to fluctuations in interest rates.
Intermediate bonds: bonds that will reach maturity (the date when the principal amount of a bond is set to be repaid) within three to 10 years.
Investment grade: the four highest rating categories of nationally recognized statistical rating organizations, including Moody's, Standard & Poor's and Fitch.
Large-cap companies: companies that have market capitalizations similar to those of companies included in the Russell 1000® Index, an unmanaged index that measures the performance of the 1,000 largest companies representing approximately 92% of the market capitalization of the Russell 3000 Index.
Leverage: Leverage is using borrowed assets to make additional investments.
Leveraged buyout (LBO): refers to one company's takeover of another company by using a significant amount of borrowed money to cover the cost of acquisition. Typically, the target company's assets are used by the acquiring company as security for the loans it takes out, which are then repaid from the target company's cash flow. Several individual investors also may engage in an LBO by using their own assets as collateral for funds that they borrow from banks in order to take over a firm. Most LBOs result in public shareholders receiving a premium above current market value for their shares in the target company.
Long position: a security owned by a fund in anticipation that its price will increase.
Market capitalization: a common method of measuring the size of a company based on the price of its common stock multiplied by the number of its outstanding shares.
Market-capitalization weighted index: an index in which the weighting of each security is based on the issuing company's market capitalization. Changes in the stock price of a company with a large capitalization affect the level of the index more than changes in the stock price of a company with a smaller capitalization.
Maturity: the length of time until the principal amount of a debt instrument (such as a bond) is scheduled to be repaid to the holder of that instrument.
Micro-cap companies: companies that have market capitalizations similar to those of companies included in the Russell Microcap™ Index, an unmanaged index that measures the performance of the microcap segment, representing less than 3% of the U.S. equity market.
Mid-cap companies: companies that have market capitalizations similar to those of companies included in the Russell Midcap® Index, an unmanaged index that measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 Index.
Mortgage-backed securities: fixed-income securities that give the holder the right to receive a portion of principal and/or interest payments made on a pool of residential or commercial mortgage loans, which in some cases are guaranteed by government agencies.
Municipal obligations: fixed-income securities issued by, or on behalf of, states, cities, and other local governmental entities, to pay for construction and other projects. They are loans that investors make to a governmental entity; the governmental entity gets the cash it needs to complete its project and the lenders earn interest payments and get their principal back. Municipal obligations that qualify pay interest that is generally exempt from federal income taxes, although certain investors may nonetheless be subject to federal alternative minimum tax.
Net asset value (NAV): The dollar value of a single mutual fund share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding. The NAV is calculated at the end of each business day.
Noncallable bonds: bonds that cannot be called (redeemed) by the issuer prior to their scheduled maturity (the date when the principal amount of a bond is set to be repaid). Investors usually receive lower yields for noncallable bonds due to their reduced risk.
Operating margin: a ratio that measures a company's pricing strategy and operating efficiency. It is calculated as operating income divided by net sales. The operating margin indicates the proportion of a company's revenue that remains after variable costs of production such as wages and raw materials are paid. An increasing operating margin means that a company is earning more per dollar of sales; the higher the margin, the better.
Pension plan: a type of retirement plan, usually tax exempt, where an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.
Personal Consumption Expenditures (PCE) Price Index: The PCE is a nationwide indicator and measure of average price changes for all domestic personal consumption of goods and services that are targeted toward and consumed by individuals. The PCE is part of the personal income report produced by the Bureau of Economic Analysis of the Department of Commerce and includes actual and imputed household expenditures as well as data on durables, nondurables and services. The PCE serves as the basis for an inflation index.
Price-to-cash-flow ratio: a ratio similar to the price-to-earnings ratio that is calculated by dividing share price by cash flow per share. This ratio indicates relative value and the market's expectations of a firm's future financial health.
Price-to-earnings (P/E) ratio: a valuation ratio calculated by taking a company's current stock price per share and dividing it by its earnings per share. The P/E ratio helps investors to know how much they are paying for a company's earning power. Investors expect greater earnings growth from companies whose P/E ratio is high.
Quantitative Techniques: mathematical and statistical methods used in the investment process to identify securities of issuers for possible purchase or sale by a Fund.
Real estate investment trusts (REITs): securities that are traded like stocks on the major exchanges and invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Roth IRA: a type of individual retirement account (IRA) which allows taxpayers, subject to certain income limits, to save for retirement while allowing the savings to grow tax-free. Taxes are paid on contributions, but withdrawals, subject to certain rules, are not taxed.
Rule 12b-1 Fee: a fee assessed to help mutual fund companies recoup the sales and marketing expenses associated with their funds. This fee can range from 0.25% to 8.50% of the offering price (the maximum allowed by the Financial Industry Regulatory Authority (FINRA)).
SEC 30-day yield: a mandatory yield calculation for bond funds that is essentially a "yield to maturity" for a fund's entire portfolio. The calculation is standardized, so it provides a good measure of comparison for funds. Because bond funds actively trade and prices fluctuate, this yield is not a good indicator of future results.
Short Sale: the selling of a security a fund does not own, but must borrow to complete the sale, in anticipation of purchasing the same security at a later date at a lower price.
Simplified employee pension (SEP) IRA: an individual retirement account (IRA) program for self-employed people or owners of companies with less than 25 employees, which allows them to defer taxes on investments intended for retirement. This plan also allows employers to contribute on behalf of eligible employees. All contributions are tax-deductible as a business expense and can be integrated with Social Security contributions.
Small-cap companies: companies that have market capitalizations similar to those of companies included in the Russell 2000ý Index, an unmanaged index that measures the performance of the stocks of small-capitalization U.S. companies; includes the smallest 2,000 U.S. companies in the Russell 3000ý Index.
Specialty asset investments: investments in a particular industry, sector, type of security or geographic region. Examples may include micro caps, emerging markets, market-neutral funds, commodities, REITs, TIPS and international bonds.
Top-down strategy: an investment strategy that involves examining a country's economy and determining the industries and sectors within it that will perform well under current economic conditions. The most attractive stocks from those industries and sectors are then selected for investment.
Total return: investment return that reflects both capital appreciation or depreciation (increase or decrease in the market value of a security) and income (i.e., interest or dividends).
Traditional IRA: a tax-deferred individual retirement account (IRA) that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59ý or later (earlier withdrawals invoke a 10% penalty).
Trail: an annual commission paid to a broker for as long as his or her client continues to own a fund.
Treasury Inflation-Protected Securities (TIPS): these are Treasury notes or bonds that are considered ultra-safe investments and that offer investors protection from inflation because the real rate of return (the growth of purchasing power) is guaranteed. The investments' coupon payments and underlying principal are automatically increased to compensate for inflation as measured by the Consumer Price Index (CPI). Also known as "inflation-indexed securities," TIPS pay interest every six months and pay the principal upon maturity. Because of the safety TIPS provide, however, they offer a low return.
U.S. government agency securities: debt securities issued and/or guaranteed as to principal and interest by U.S. government agencies, U.S. government-sponsored enterprises and U.S. government instrumentalities that are not direct obligations of the United States. Such securities may not be supported by the full faith and credit of the United States.
U. S. government securities: debt securities issued and/or guaranteed as to principal and interest by the U. S. government that are supported by the full faith and credit of the United States.
Valuation: the process of determining the current worth of an asset or company.
Value style: a style of investing in equity securities that a Fund's management believes are undervalued, which means that their prices are less than Fund management believes they are worth, based on such factors as price-to-book ratio, price-to-earnings ratio and cash flow. Companies issuing such securities may be currently out of favour or experiencing poor operating conditions that Fund management believes to be temporary.
Volatility: a statistical measure of the variation in returns that is possible with a given security or market index. Volatility refers to uncertainty or risk about the size of changes in the value of a security. Higher volatility indicates that a security's value can rise or fall dramatically during a short period of time; conversely, lower volatility indicates that the value does not change dramatically but rather at a steady pace. Typically, securities with higher volatility are considered riskier.