Glossary of Terms

A

Actively Managed Fund

A fund that attempts to out-perform the applicable benchmark by deviating from the benchmark weights in securities, sectors, countries and/or asset classes.

Alpha

The difference between a portfolio’s actual return and its expected performance, given its level of market risk, as measured by beta. A positive alpha indicates the portfolio performed better than its beta would predict. A negative alpha indicates the portfolio has underperformed given the expectations set by its beta.

Analyst

An investment professional who provides research on companies and/or industries to portfolio managers.

Annual Return

The rate of return that a fund achieved over a 12-month period.

Annualized Return

The rate of return for a period greater than one year, converted to a yearly rate.

Asset Allocation

The breakdown of a portfolio’s holdings by asset class. Also, the process of distributing a portfolio’s holdings by asset class. The frequency and amount of change in allocation can vary and is usually described as passive, conservative or active.

Asset Allocation Value Added

See attribution.

Asset Class

A broad group of investment type, such as domestic equities, foreign equities, fixed income or short-term securities. These broad asset classes can further be broken down into small-capitalization, mid-capitalization, large capitalization, specialty, international and various types of fixed income.

Asset Mix

See asset allocation.

Assets Under Management

The total value of assets managed by a firm.

Attribution

A process that attempts to determine the value added from asset allocation, sector allocation and security selection decisions to a portfolio’s rate of return.

 

B

Balanced Fund

A fund that invests in a combination of equities, fixed income, and short-term securities.

Benchmark

An index or a combination of indices used to gauge a fund’s performance.

Beta

A measurement of a portfolio’s volatility in comparison to the market as a whole. A beta of 1 indicates the price will move with the market. A beta of more than 1 indicates the price will  be more volatile than the market. A beta of less than 1 indicates the price will be less volatile than the market.

Blend Investment Style

An investment style that uses more than one style (e.g. a combination of growth and value investment styles).

Bond

See fixed income.

Bond Swapping Investment Style

An investment style that identifies mispriced bond securities, sells an existing over-priced bond and buys the under-priced bond.

Bottom-Up

An investment process that uses company-specific analysis to assist in the security selection process.

 

C

Capitalization

See market capitalization.

Cash

See money market security.

Commercial Paper

Short-term fixed income securities issued by a corporation. Typically, these securities have a term to maturity of 30 or 90 days.

Core Investment Style

An investment style that typically maintains similar industry weights as the relevant index and tries to add incremental value through security selection.

Credit Rating

A rating agency, such as Standard & Poors, determines the likeliness of repayment or default for a company’s debt obligation and assigns a grade accordingly.

 

D

Diversification

The process of distributing assets over several different investments to minimize exposure to any one source of risk. This can be done at many different levels, including diversification by asset class, capitalization, country, sector, style and investment manager.

Downside Volatility

See semi-standard deviation.

Duration

A measure of a bond’s price sensitivity to interest rate changes.

 

E

Emerging Markets

Underdeveloped countries.

Earnings-per-share growth (EPS)

Earnings per share is adjusted income available to common shareholders (based on Generally Accepted Accounting Principles – GAAP) for the trailing 12 months divided by the trailing 12-month primary weighted average number of shares outstanding.

Equity Security

Ownership of a corporation. Also called a stock or a share.

Excess Return

See value added.

 

F

Fixed Income Security

A security which obligates the issuer to repay the holder the initial principal at a pre-specified time. The issuer may also be obligated to make regular interest payments (also called coupon payments) during the life of the bond.

Foreign Content

The percentage of foreign investments in a portfolio. In Canada this amount is currently limited to 30% for domestic registered investors by the Canada Customs and Revenue Agency. Foreign content is measured by the purchased (book) value, rather than its current value.

Foreign Pay

A fixed income security issued by a domestic entity that is denominated in a foreign currency.

Fundamental Analysis

Focuses on the balance sheet and income statements of companies in an attempt to forecast future stock price movements. Fundamental analysis considers past records of assets, sales, earnings, products, management and markets. On a portfolio level, fundamental analysis refers to the monitoring and classification of securities within the portfolio.

 

G

Global Equity

A security in a developed country anywhere in the world.

Gross Return

The rate of return before investment management fees have been deducted.

Growth Investment Style

An investment style that purchases securities with a greater than average growth potential. A key characteristic of a growth stock is a high Price to Earnings (P/E) ratio.

 

H

Index

A benchmark against which financial or economic performance is measured, such as the TSE 300 or the S&P 500.

Index Fund

See passively managed fund.

Information Ratio

The excess return divided by the tracking error. This ratio can also be considered to be a reward-to-risk measure relative to a benchmark.
What this means:  This ratio can also be considered to be a reward-to-risk measure relative to a benchmark. The higher the information ratio, the more excess return you are receiving for the amount of relative volatility in the fund. Therefore, a high information ratio is desirable.

Interest Rate Anticipation Investment Style

An investment style that adjusts the duration of the fixed income portfolio based on forecasted movements in the interest rate.

International Equity

A security in a developed country outside of North America. Typically, this covers countries in Europe, Australia and the Far East.

Investment Management Fee

A fee collected by the fund provider to cover the cost of investment management and administration.

Investment Style

Refers to the types of stocks typically found in a portfolio. The three main types are: (1) Growth: stocks that have above-average earnings growth and are expected to continue growing faster than the overall market; (2) Value: stocks that appear undervalued relative to their peers; (3) Blend: a portfolio that may contain both growth and value stocks. See also Core Investment Style, Sector Rotation Investment Style and Interest Rate Anticipation Investment Style.

 

L

Large Cap

A security with a relatively high market capitalization.

 

M

Market Capitalization

The total value of all outstanding shares. Mathematically it is the current market price multiplied by the total number of outstanding shares. This is used to measure the size of a company.

Market Value

The expected sale price of an investment if offered for sale in a fair market.

Maturity

See term to maturity.

Mean

The average of a group of data.

Median

The mid-point of all results when listed from smallest to largest. Mathematically, the median is the 50th percentile.

Mid Cap

A security with a moderate market capitalization.

Money Market Security

A fixed income security with a term to maturity typically less than one year. Money market securities consist of government bonds, treasury bills and commercial paper.

MSCI EAFE

A Morgan Stanley Capital International (MSCI) index that measures the overall performance of international equity securities
(i.e. equity securities in Europe, Australia, and the Far East).

MSCI World

A Morgan Stanley Capital International (MSCI) index that measures the overall performance of global equity securities.

 

N

Nesbitt Burns Capped 10

Nesbitt Burns’ Canadian equity index containing 300 stocks (the same stocks as in the TSE 300), limiting the value of any one company to 10%.

Net Return

The rate of return of a fund after all fees have been deducted.

 

P

Passively Managed Fund

Also called an Index Fund, this is a fund in which the investment manager tries to replicate the performance of the benchmark. This can be accomplished through purchasing a  proportionate weight of every security in the benchmark, or through purchasing alternate securities/vehicles to be used as proxies for securities in the benchmark.

Percentiles

Calculated by equally distributing data, from highest to lowest (or lowest to highest) into one hundred groups.
For example, five per cent of the data values are above the fifth percentile.

Performance

See rate of return.

Portfolio

A combination of securities or funds managed for an individual or institution.

Portfolio Manager

An investment professional who makes asset allocation and security selection decisions which may be based upon input from analysts.

Portfolio Turnover

The percentage of securities that were bought or sold over a specific time period. Adding or subtracting from an existing position is included in this statistic.

Price-to-earnings (P/E) Ratio

The ratio of a stock’s current price to its per-share earnings over the past year.
For a portfolio, the ratio is the weighted average P/E of the stocks it holds.

 

Q

Quality (of a bond)

See credit rating.

Quantitative Analysis

An investment process that utilizes numeric inputs in a statistical or mathematical model to select securities.

Quartiles

Calculated by equally distributing data, from highest to lowest (or lowest to highest) into four groups.
For example, the top twenty-five per cent of the data values are in the first quartile.

 

R

Rate of Return

The percentage by which an investment appreciates or depreciates over a given period of time.

Returns-based Performance Attribution

This process attempts to explain a portfolio’s performance in broad terms. It breaks the performance into style and selection. The style return is the systematic return – the return that that is explained by the exposure the portfolio has to certain asset classes. The selection return is the unsystematic return – the return that is generated by the skill of the manager in finding investments.

Risk-adjusted Performance

The return of a particular investment that has been adjusted in order to determine whether the return is compensating the investor for the risk she/he assumes.

Risk Characteristics

Statistical measures that are used to analyse the volatility of returns, relative volatility of returns and the tradeoff between volatility and return. Typically, this includes standard deviation, semi-standard deviation, tracking error and the information ratio.

R-squared

A measure of how much of a portfolio’s performance can be explained by the returns from the overall market (or a benchmark index). If a portfolio’s total return matched that of the overall market or index exactly, its R-squared would be 1. If a portfolio’s return bears no relationship to the market’s return, its R-squared will be zero.

 

S

S&P 500

Standard & Poors’ large capitalization U.S. equity index containing 500 stocks covering ten economic sectors.

S&P/TSE 60

Standard & Poors’ large capitalization Canadian equity index containing sixty stocks covering ten economic sectors.

SCMU

Scotia Capital Markets Universe Bond index composed of Canadian fixed income securities.

Sector Allocation Value Added

See attribution.

Sector Allocation

The breakdown of a portfolio’s holdings by sector. Also, the process of distributing a portfolio’s holdings by sector, typically through over and under-weighting sectors relative to a benchmark.

Sector Selection

See sector allocation.

Sector Rotation Investment Style

An investment style that purchases securities in industries or sectors expected to perform well over the forecasted economic environment. As economic forecasts change, the portfolio’s sector weightings are adjusted accordingly.

Security

A general term for an investment vehicle (e.g. stock, bond, treasury bill, etc.).

Security Selection Value Added

See attribution.

Semi-Standard Deviation

A statistical measure that calculates the volatility over a period of time when the rate of return is below a prespecified target. This target may take the form of a zero return, a benchmark’s return, or the mean of the return series.
What this means:  A higher semi-standard deviation indicates a higher level of volatility of returns below a prespecified target. This measure focuses on the volatility of under-performing periods. In other words, it does not measure the volatility during out-performing periods. This measure is also known as downside volatility. Higher semi-standard deviation indicates more volatility in under-performing periods. Therefore, a lower semi-standard deviation is more desirable.

Sharpe Ratio

A measure of risk-adjusted return. To calculate the Sharpe Ratio, a portfolio’s excess returns (I.e. its return in excess of the return generated by risk-free assets such as Treasury bills) is divided by the standard deviation of portfolio’s excess returns.

Share

See equity security.

Small Cap

A security with a relatively low market capitalization.

Standard Deviation

A statistical measure of volatility over a period of time.
What this means:  A higher standard deviation indicates a higher level of volatility. The standard deviation should be used in conjunction with the return for the fund. That is, a fund with a high return may also exhibit a high standard deviation. This demonstrates a trade-off between high volatility for a higher return.

Stock

See equity security.

Style Analysis

Analysis of a portfolio based on its investment style, peer group and index. Style analysis typically involves defining the investment universe, performance evaluation and performance attribution.

Style Drift

The straying of a portfolio from its investment style as stated in the prospectus, often illustrated on a style map. A typical style map for domestic equity portfolios includes: large-value, large-blend, large-growth, mid-value, mid-blend, mid-growth and small-value, small-blend, small-growth.

 

T

Tactical Asset Allocation

A fund that shifts the portfolio’s asset allocation over very short periods of time to take advantage of forecasted changes in the economic environment.

T-Bills

See Treasury Bills.

Team Leader

The lead portfolio manager of a fund.

Term to Maturity

The length of time from a bond’s date of issue to when the principal is repaid from the issuer to the holder.

Top-Down

An investment style that uses economic analysis to assist in the asset allocation process.

Total Return Index

The rate of return yielded on the index with dividends reinvested.

Tracking Error

A measure of volatility of returns relative to a benchmark. Mathematically, it is the standard deviation of excess returns.
What this means:  A measure of volatility of returns relative to a benchmark. A higher tracking error indicates a higher volatility of excess returns. The tracking error should be used in conjunction with the excess return for the fund. That is, a fund with a high excess return may also exhibit a high tracking error. This demonstrates a trade-off between high relative volatility for a higher excess return.

Treasury Bills

Short-term fixed income securities issued by governments. Typically, these securities have a term to maturity of 30, 91, or 182 days.

TRI

See Total Return Index.

TSE 300/TSE 300 Capped

An index of the 300 largest companies (by asset value) listed on the Toronto Stock Exchange. The TSE 300 capped is comprised of the same companies as the TSE 300, but limits the value of any one company to 10% of the index.

Turnover

An indication of trading activity during the past year. Portfolios with high turnover rates incur higher transaction costs and are more likely to distribute capital gains. Calculated by dividing total purchases or sales of portfolio securities (whichever is lower) by the portfolio’s net assets.

 

U

Universe

A broad term used to describe a group of funds with a similar mandate.

Upside/Downside Capture

Indicates how much, according to historical measures, a portfolio will participate in rising or declining markets. Investors typically favour portfolios with higher upside capture and lower downside capture, participating more in rising markets and less in declining markets.

 

V

Valuations

Values placed on a company or an asset. The valuation of a company’s stock is based on several factors including the outlook for earnings and the market value of the assets on its balance sheet.

Value Added/Lost

The difference between the rate of return achieved by a fund and the corresponding benchmark.

Value Investment Style

An investment style that purchases securities with market prices cheaper than their corresponding price from a valuation model. Value securities typically have assets, cash flows and earnings selling at a discount relative to the market.

 

Y

Yield Curve

A graph depicting the yield to maturity versus the term to maturity of fixed income securities with a similar credit rating or issuer.

Yield Curve Forecasting Investment Style

An investment style that forecasts the change in relationship between yield to maturity and term to maturity and positions the portfolio accordingly.

Yield to Maturity (YTM)

The rate of return achieved by a fixed income security if held to maturity

Ask Us Anything. We Can Help You.

Full Name

Phone Number

E-Mail Address

Service

Your Message

Please leave this field empty.

Financial Planning is Critical for Your Next Home Purchase

Financial Planning is Critical for Your Next Home Purchase

There are several points in life in which financial planning will be a critical step on your journey to success, one of which is the process of buying a home. Whether you are buying your first home or you have […]

Read More