Beta
How sensitive an ETF is to broad equity-market moves. Beta is useful for portfolio balance, not as a quality score.
By the UK Tax Drag editorial team · Reviewed
Core metrics
Risk-adjusted return
Sharpe ratio
Return per unit of total volatility. Helpful for comparing broad funds with similar jobs, less useful across very different sleeves.
Downside focus
Sortino ratio
Like Sharpe, but cares more about bad volatility than total volatility. Useful when the drawdown profile matters more than the wiggles.
Cost
OCF
Ongoing Charges Figure. A good starting cost metric, but not the whole ownership cost once spread and tracking difference matter.
Cashflow
Distribution yield
Useful only when the income stream is the real job. Never treat a high yield as proof that the fund is better.
Bond risk
Duration
How sensitive a bond ETF is to interest-rate moves. Longer duration usually means more rate sensitivity.
Structure and implementation terms
Tracking
Tracking difference
The real gap between the fund return and the index return. In practice this often matters more than obsessing over a tiny OCF difference.
Tracking
Tracking error
How consistently the fund deviates from the benchmark over time. Relevant when precision is the job.
Structure
Physical vs synthetic
Physical funds hold the assets directly or through sampling. Synthetic funds use swaps. Neither is automatically bad; the question is whether you understand the structure.
Currency
Hedged vs unhedged
Hedging changes the ride. It is not a free lunch: you are trading currency noise for hedging cost and a different return path.
Cashflow
Accumulating vs distributing
Share-class choice changes cashflow handling, tax admin and rebalancing convenience, even when the underlying portfolio is similar.
Fund scale
AUM
Assets under management. Bigger is not always better, but tiny specialist funds deserve a closure-risk check.
Cost and trading metrics
The headline OCF is only part of what owning an ETF costs. These are the frictions that show up on the contract note or quietly inside the fund's return.
Trading cost
Bid–offer spread
The gap between the buy (offer) and sell (bid) price on-exchange. It is a one-off cost on every trade. Tiny on a large, liquid fund; on a niche fund it can quietly exceed a whole year's OCF, so it matters most if you trade often or hold in small size.
Pricing
Premium / discount to NAV
An ETF's market price can drift slightly above (premium) or below (discount) the net asset value of the underlying holdings. Authorised participants normally arbitrage this away, but it can widen in stressed markets or for funds holding illiquid assets — a sign to trade with limit orders, not at market.
Total cost
Total cost of ownership
OCF plus the spread you pay, plus or minus tracking difference, plus any platform fee. Two funds with identical OCFs can cost very different amounts to own once these are added up. This is the number that actually leaves your pocket.
Income source
Securities lending
Many physical ETFs lend out holdings to earn extra income, some of which is returned to the fund and can improve tracking. Generally collateralised and low-risk, but not zero-risk. The annual report shows whether lending is used and how the revenue is split between fund and manager.
Income (stated)
Distribution yield
Income actually paid out over the past 12 months as a percentage of price. On a distributing share class this is cash in hand; on an accumulating class it is reinvested. Useful only when income is the real job — never read a high yield as proof of a better fund.
Income (look-through)
Underlying yield
The income the fund's holdings generate before charges, sometimes shown as the SEC or running yield on bond funds. Comparing it with the distribution yield reveals how much cost and timing are eroding the income that actually reaches you.
Risk, return and bond-specific metrics
Numbers that describe how bumpy the ride has been and how a fund might behave when conditions change. All are backward-looking unless stated otherwise.
Volatility
Volatility / standard deviation
How widely returns have swung around their average, usually annualised. Higher means a rougher ride. It treats upside and downside swings equally, which is why downside-focused measures exist alongside it.
Worst case
Maximum drawdown
The largest peak-to-trough fall the fund has suffered before recovering. A blunt but honest gauge of the worst pain an investor would have had to sit through — often more decision-useful than volatility, because it is the loss people actually panic-sell into.
Regulated indicator
Summary Risk Indicator (SRI)
The 1-to-7 score on the Key Information Document, driven mainly by past volatility. A broad equity fund typically sits around 4–6. It ranks funds against each other; it is not a forecast of loss, and it can understate tail risk after calm years.
Bond risk
Duration
How sensitive a bond ETF's price is to interest-rate moves. A duration of 7 implies roughly a 7% price fall if rates rise one percentage point (and a similar rise if they fall). The single most important number on a bond factsheet.
Bond income
Yield to maturity
The total annualised return a bond fund would deliver if every holding were held to maturity at today's prices, before charges. A better guide to expected bond return than the distribution yield alone.
Diversification
Correlation
How closely two holdings move together, from +1 (in lockstep) to −1 (opposite). Genuine ballast comes from sleeves with low or negative correlation to equities — though, as 2022 showed, bonds and equities can fall together.
Structure, domicile and UK tax terms
Labels that are not really performance metrics but decide how a UK investor is taxed and protected. Skipping these is where lazy ticker-level comparisons go wrong.
Replication
Replication method
Physical full replication holds every constituent; physical sampling holds a representative subset; synthetic uses a swap with a bank. Synthetic adds counterparty risk but can reach awkward markets cheaply. The question is whether you understand the structure you are buying.
Tax (location)
Domicile
Where the fund is legally registered — for UK investors almost always Ireland or Luxembourg. An Ireland-domiciled fund suffers 15% US withholding tax on US dividends under the US–Ireland treaty, versus up to 30% for a poorly-domiciled fund. Invisible on the chart, but it compounds.
Regulation
UCITS
The EU fund standard most UK-listed ETFs follow, bringing diversification rules and a standardised Key Information Document. Practically, it is the framework that makes an ETF available to UK retail investors on most platforms.
Tax (HMRC)
UK Reporting Status
HMRC's confirmation that a non-UK fund reports its income, so gains are taxed as capital gains (with the annual CGT allowance) rather than as income. Without it, gains can be taxed at higher income-tax rates as an "offshore income gain". Worth checking before any GIA holding.
Cashflow
Excess reportable income
On a reporting fund, income earned but not distributed (typical of accumulating share classes) that you may still owe tax on in a GIA, even though no cash was paid. Sheltered inside an ISA or SIPP. It appears on the consolidated tax voucher.
Share class
Currency-hedged share class
A version of the same fund that strips out currency movement between the assets and your base currency. It removes a source of volatility (valuable on bond sleeves) but carries a small hedging cost and a different return path. Not a free lunch.
How to use this glossary: match the metric to the question. For a long-term equity core, lead with index, domicile and tracking difference. For a bond sleeve, lead with duration and yield to maturity. For anything you trade often or hold outside a wrapper, lead with spread, fund size and reporting status.
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