Bestinver - FAQs

"How has Bestinver's oldest equity fund performed after sizeable market drops by the market?"

BESTINFOND´S PERFORMANCE DURING STOCK MARKET CORRECTIONS
	Period	Net asset value	Drops	24 months later
			Higher than 10%	Performance
	may-94	9,90
	may-95	8,40	-15,15%	98,10%
	april-98	25,58
	october-98	21,72	-14,42%	25,51%
	february-99	27,34
	february-00	22,46	-17,85%	48,35%
	july-01	33,01
	september-01	28,03	-15,09%	59,61%
	may-02	37,75
	september-02	32,12	-14,91%	72,01%
	may-06	93,57
	june-06	83,81	-10,43%	-27,68%
*	12-nov-08

BASIC CONCEPTS

UNIT: the assets of mutual/pension funds are divided into a number of units, with a unit being similar to a share in a company which trades on the stock market.

NET ASSET VALUE: this is the price of a unit at any given time. This amount is calculated daily based on the price of the different financial assets in which the fund invests, so that it always reflects the unit's real value. It is important to note that this value is a net figure, after management and custodian fees have been deducted.

ASSETS: this is the amount of capital managed by the fund. The greater the amount, the more stable the fund, since it can better diversify its investments.

UNIT HOLDERS: the number of people who have deposited their savings in a particular mutual/pension fund. Ideally, the ratio between assets and unit holders will be as low as possible; in this manner, if a large number of unit holders sell, it will not affect the asset value of the mutual fund.

FUND MANAGER: the company which manages the assets deposited in the mutual/pension fund.

PORTFOLIO: this term refers to the group of financial assets in which the fund invests.

PRICE-EARNINGS RATIO (P/E): this indicates how cheaply or expensively a company trades. It is calculated by dividing a company's market capitalisation (stock market value) by its net profit. It thus represents how many times net profit goes into a company’s stock market value. The lower it is, the cheaper the company is.

STATISTICAL TERMINOLOGY I

VOLATILITY (Standard Deviation): This is a statistical method for evaluating to what degree a series of values deviate (move up and down) from their average. When we calculate a fund’s relative return volatility, we are measuring the consistency of a fund's returns in terms of whether they are higher or lower than the rest of the funds in its sector. The higher the volatility, the less consistent the fund's return will have been compared with the funds in its sector.

CORRELATION: The correlation coefficient measures the degree of similarity between two or more variables. There is said to be a statistical correlation when the coefficient is above 80%. When selecting a portfolio, if two or more stocks show a high degree of correlation, only one should be chosen, as its performance is likely to be similar to the others, so diversification would be merely theoretical.

ALPHA: A coefficient that measures to what degree the fund has performed better or worse than expected (relative to the benchmark index) given its risk, defined by its beta. It indicates the excess returns for a particular level of risk. A high alpha indicates a good relative performance compared with the market.

BETA: Measures the sensitivity of the fund’s returns relative to the market's returns. As the market has a Beta of 1, a Beta higher than 1 implies an aggressive portfolio, so the fund could outperform the market, but the risk would also be higher. The lower the Beta, the lower the expected returns compared to the market’s, but downside risk is also lower.

SHARPE RATIO: This measures a fund’s risk/return ratio; i.e. the reward for the risk (volatility) assumed. The higher the fund’s Sharpe Ratio, the better the better the reward for the risk assumed.

TRACKING ERROR: Measures the degree of fluctuation registered by the portfolio compared with its benchmark index. In active management, the decision to overweight or underweight moves the fund further from the benchmark index.

STATISTICAL TERMINOLOGY II

INFORMATION RATIO: Indicates the difference in a fund’s return with respect to its index and relates it to the tracking error, that is, to the fund’s relative risk vs. the index. The larger it is, the better indication of the manager’s skill.

R2: represents the percentage change in return of the dependent variable (in this case, the mutual fund’s return) which may be explained by the independent variable (the return on the index). If we take for example a fund which very closely tracks index X, and we carry out a regression on index X, we will obtain an R2 equivalent to 1, or, at least, very near to 1. This means that practically all of the fluctuations in the fund's returns can be explained by the performance of the index in question. This data is crucial to validating alpha and beta. The smaller the R2, the less valid the alpha and beta will be. The R2 may also be used as a diversification tool.

CO-MOVEMENTS WITH THE BENCHMARK:

BEGINNING OF THE WORST PERIOD: A) Calculate the historic return for all of the months of this period (last 1Y, 3Y, 5Y, 7Y and from the start). B) Identify the accumulated periods of maximum negative returns. C) Look for the month marking the start of this period.

NUMBER OF MONTHS WORST PERIOD LASTED: Number of months the worst period of negative returns lasted.

NUMBER OF MONTHS IT TOOK TO RECOVER: Number of months it took to recover the accumulated negative return.

EUROS WON FOR EVERY EURO LOST: For each period, the sum of positive returns is divided by the sum of negative returns (the value is always negative because the absolute value of the sum of negative returns is not used in the calculation).

WINNING /LOSING MONTHS: For each period, this is simply the ratio between the number of months with positive returns and the number of months with negative returns.

GENERAL TERMINOLOGY

HIGHWATER MARK: This is used to calculate the earnings commission. It is a system in which the manager only earns the commission when the fund’s value exceeds the previous maximum value.

EURIBOR: This is an acronym for “European Interbank Offered Rate”. This index is calculated with the data of the leading banks in the euro zone, and consists of the average spot interest rate for euro-denominated spot deposit transactions. This interest rate is applied to transactions between banks in Europe and is based on the offer prices of loans that 64 of the main European banks make to each other; in other words, this is the percentage a bank pays another bank for letting it borrow money.

LOCK-UP: Because of the nature of hedge funds, periods of time are habitually established in which the investor cannot request redemptions; these periods may last years.

LEVERAGE LIMIT: The concept of leverage (taking out a loan=going into debt) is a fundamental feature of hedge funds which distinguishes them from traditional funds. The rules regulating hedge funds indicate that they may take on debt up to a limit of five times their assets (500%). They have the advantage of being able to increase the potential return on an investment.