Equity terms

Annualized Return: Investment return projected over a one-year period, compounded daily.

Asset-liability matching: involves managing or matching assets and cash flows to satisfy liability or debt obligations. It is a form of risk management in which an investor seeks to mitigate or hedge the risk of failing to meet liability obligations.

Beta: Quantitative measure of the Fund's volatility relative to the benchmark used.  A beta above 1 indicates the Fund is more volatile than the overall market, while a beta below 1 indicates a Fund is less volatile.

Bond ladder: a fixed-income strategy that involves systematically purchasing multiple bonds with staggered maturity dates. The general goal is to provide a consistent stream of predictable income while also preserving capital.

Barbell strategy: a fixed-income strategy that involves purchasing sets of bonds that mature in both the short-term and long-term. 

Bullet strategy: a fixed-income strategy that involves purchasing bonds, invested at different dates that possess the same target maturity.

Contrarian: An investment approach that tends to not follow market trends, such as buying securities that are not in favor with market participants.

Correlation: A statistical measure indicating the relationship between the movements of two variables.

Dividend Yield: Yield a company pays out to its shareholders in the form of dividends. Amount of dividends paid per share of stock over the designated time period divided by the stock's price. 

Expected Tracking Error: The forecasted amount by which the performance of a portfolio is expected to differ from that of the benchmark. (Source: SEI Investments).

Factor based investing: An investment approach that involves targeting quantifiable characteristics or factors that can explain differences in stock returns. 

Floating rate note: A bond that has a variable interest rate, equal to a money market reference rate, such as LIBOR or federal funds rate, plus a quoted spread. 

Fundamentals: Fundamentals: Refers to data that can be used to assess a country or company's financial health such as amount of debt, level of profitability, cash-flow, inventory size etc.

Master Limited Partnership (MLP): A business venture that exists in the form of a publicly traded limited partnership. It combines the tax benefits of a private partnership (profits are taxed only when investors receive distributions) with the liquidity of a publicly-traded company.

Median Forward Price to Earnings Ratio: Forecasted value (using median range of values -- the middle set of values in a distribution range) of the market capitalization divided by the after-tax earnings for the prior 12-month period.  The higher the P/E ratio, the more the market is willing to pay for each dollar of annual earnings (Source:  Russell).

Multi-strategy hedge: An alternative investment strategy that seeks to generate positive absolute returns with reduced correlation to conventional stock and bond markets. The strategy allocates its assets among a variety of investment strategies, such as directional or tactical, event-driven and arbitrage. 

Price to Book Ratio: Stock's capitalization divided by its book value, where book value is the value of an asset as it appears on a balance sheet, equal to cost minus accumulated depreciation.  The value is the same whether the calculation is done for the whole company or on a per-share basis.

Price to Earnings Ratio: Equal to market capitalization divided by after-tax earnings. The higher the P/E ratio, the more the market is willing to pay for each dollar of annual earnings. 

Quantitative easing: Refers to expansionary efforts by central banks to help increase the supply of money in the economy.

Socially Responsible Investing (SRI): An investment that is viewed as socially responsible due to the nature of the business the company conducts. SRI can be achieved through social screens which allow investors to prioritize their environmental, faith, social and corporate-governance convictions, which then translate into social-investment guidelines that are applied to each client’s account.

Standard Deviation: Statistical measure of historical volatility. A statistical measure of the distance a quantity is likely to lie from its average value. It is applied to the annual rate of return of an investment, to measure the investment's volatility (risk).  Standard deviation is synonymous with volatility, in that the greater the standard deviation the more volatile an investment’s return will be.  A standard deviation of zero would mean an investment has a return rate that never varies.

Technical: A reference to the use of statistical data in determining market or security forecast.   

Tracking Error: Quantitative measure of the extent performance of a variable differs or coincides with a benchmark.

Weighted Capitalization: The market price of an entire company, calculated by multiplying the number of shares outstanding by the price per share.

Fixed-income terms

Asset-Backed Securities (ABS): Securities created from pools of loans or accounts receivable such as credit cards, auto loans and mortgage loans.

Collateralized Bond Obligations (CBOs): Investment-grade bonds created from pools of riskier, high-yield bonds. The underlying bonds are typically not investment grade, but by pooling diverse high-yield issues, they offer enough diversification to be rated investment grade.

Collateralized Debt Obligations (CDOs): A type of structured asset-backed security (ABS) collateralized by a pool of underlying debt obligations which typically include bonds and loans. CDOs consist of multiple tranches, each with different degrees of risk and return. 

Commercial mortgage-backed securities interest only (CMBS IO): Coupons stripped from an underlying pool of commercial mortgages that represent a particular stream of interest-only payments (i.e., no mortgage principal payments). 

Convexity: A measure used to estimate the sensitivity of a bond’s price to a change in interest rates more precisely than duration alone.

Covered bonds: A type of corporate bond that provides the holder with recourse to a pool of assets that back or “cover” the security should the originator become insolvent.

Credit Default Swaps (CDS): Derivative securities in the form of swap contracts in which a buyer of credit protection (the long position in the swap agreement) makes a series of payments to the seller of the credit protection (the short position). In return for these payments, the buyer receives some type of payoff in the event the underlying referenced security or issuer goes into default. 

Credit quality of a fund's holdings: Derived using Moody’s as the ratings source. The purpose of the ratings is to provide investors with a simple system of gradation by which relative creditworthiness of a fund's securities may be noted. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest).

Duration: A measure of a security’s price sensitivity to changes in interest rates. Specifically, duration measures the potential change in value of a bond that would result from a 1% change in interest rates. The shorter the duration of a bond, the less its price will potentially change as interest rates go up or down; conversely, the longer the duration of a bond, the more its price will potentially change.

Glidepath: A formula that defines the asset allocation mix based on the number of years to the target date.

High-Yield bond: A bond that is rated below investment grade, indicating a higher level of risk to an investor as compared to a more highly rated bond. Investors are typically compensated for assuming a higher level of risk by receiving a higher yield. 

Interest Rate swap: An agreement between two parties to exchange interest rate payments. The exchange of interest rates typically involves the swap (exchange) of a fixed rate for a floating rate, or a floating rate for another floating rate.

Inflation swap: A financial instrument used to transfer inflation risk from one party to another, where one party typically pays a fixed rate and another pays a varying rate that adjusts to changes in the level of inflation as denoted by a benchmark.

Modern Portfolio Theory (MPT): A framework for how risk-averse investors can construct portfolios to maximize expected returns based on a given level of market risk. MPT suggests that an investment's risk and return characteristics should not be viewed in isolation, but should be evaluated by how the investment affects the overall portfolio's risk and return profile.

Mortgage-Backed Securities (MBS): Pools of mortgage loans packaged together and sold to the public. They are usually structured in tranches that vary by risk and expected return. 

Prepayment speed: The rate at which underlying borrowers service their debts ahead of schedule, such as mortgage prepayments due to refinancing. Prepayment speed impacts the timing and thus the present value of the expected cash flows associated with a security. 

Reverse-mortgage securities: Represent claims on certain cash flows arising from underlying pools of reverse mortgage agreements, which involve property owners selling equity over an extended period of time in exchange for a series of periodic payments. 

Securitized bonds: Bonds with interest and principal payments that are backed by the cash flow from a pool of other assets.

Short-duration bonds: Less price-sensitive to changes in interest rates. 

Spread: The additional yield, usually expressed in basis points (one basis point is 0.01%), that an index or security offers relative to a comparable duration index or security (the latter is often a risk-free credit, such as sovereign government debt). Spread sector generally includes non-government sectors where investors demand additional yield above government bonds for assumed increased risk. 

Structured securities: Hybrid securities created from pooling financial assets and instruments and re-packaging them in ways that result in different characteristics (for example, expected risk and return, cash flow schedule, credit quality, liquidity, etc.) from the individual securities making up the pool. 

Tail risk: The probability of extreme events, such as unusually large market movements or investment losses. 

Tax-lot accounting: A method of accounting for a securities portfolio in which the manager tracks the purchase, sale price and cost basis of each security. This allows the manager to “swap” a tax lot with a more tax advantageous lot that may have been purchased by a different manager at a different time.

Tax loss harvesting: A strategy of selling securities at a loss to offset a capital gains tax liability. It is typically used to limit the recognition of short-term capital gains, which are normally taxed at higher federal income tax rates than long-term capital gains, though it is also used for long-term capital gains

Tracking Error: A quantitative measure of the extent performance of a variable differs or coincides with a benchmark.

Treasurys: U.S. government debt obligations backed by the full faith and credit of the federal government. They are often used as a proxy for a risk-free asset for benchmarking and asset valuation purposes.

A tranche: A slice or a portion of a structured security. Each tranche may offer different cash flow, credit or risk characteristics that investors can use to meet their specific needs.

Yield: A general term for the expected return, in percentage or basis points (one basis point is 0.01%), of a fixed-income investment. Yield to Maturity (YTM) is the expected return of an index, portfolio or security if held to maturity with intermittent cash flows reinvested at the YTM rate. Yield to Call is the expected return if held to the next callable date. 

An indirect bid: A bid of significant size that does not go through the primary dealer community (the group of banks that are permitted to transact directly with the New York Federal Reserve); these bids are generally viewed as reflecting demand from foreign central banks.

The tail: The difference between the average auction yield and the yield implied by market trading prior to the auction.

The bid-to-cover ratio: The number of bids received divided by the number of bids accepted; a higher ratio means higher demand.

Option Adjusted Spreads: Estimate the difference in yield between a security or collection of securities and comparable Treasurys after removing the effects of any special features, such as provisions that allow an issuer to call a security before maturity. 

Economic / other terms

Beige Book: Beige Book refers to a report created eight times per year by the U.S. Federal Reserve (Fed). It consists of anecdotal information on current economic conditions in each of the Fed's districts.

Bear Market: A bear market refers to a market environment in which prices are generally falling (or are expected to do so) and investor confidence is low.

Bull Market: A bull market refers to a market environment in which prices are generally rising (or are expected to do so) and investor confidence is high. 

Core countries: Core countries are those with the largest economies.

Cyclical: Cyclical sectors, industries or stocks are those whose performance is closely tied to the economic environment and business cycle. Cyclical sectors tend to benefit when the economy is expanding.

Debt ceiling: The debt ceiling reflects the maximum amount of money that the U.S. government is allowed to borrow. Once the limit is reached, the government cannot borrow any more money and will fail to pay its bills, opening up the potential for the country to default on its debt obligations.

Deflation: Deflation is characterized by an environment of declining prices of goods, generally accompanied by reduced economic activity. 

Fiscal: Fiscal relates to government revenue, especially taxes.

Liquidity: the conversion of an asset into cash, with considerations to the impact of that transaction on a security’s price.

Long (position): long position is positioning to gain from future strength of a particular security or currency.

Peripheral eurozone countries: Peripheral eurozone countries are those countries in the eurozone with the smallest economies.

Short (position): A short position is positioning to gain from future weakness of a particular security or currency.

Quantitative easing: Quantitative easing refers to expansionary efforts by central banks to help increase the supply of money in the economy.

Index terms

The Barclays Credit Index: An unmanaged index composed of U.S. investment-grade corporate bonds.

The Barclays Global Aggregate Bond Index: An unmanaged market-capitalization-weighted benchmark that tracks the performance of investment-grade fixed- income securities denominated in 13 currencies.  The index reflects reinvestment of all distributions and changes in market prices.

The Barclays Municipal Bond Index: An unmanaged index composed of investment-grade municipal bonds with maturities of one year or more.

The Barclays U.S. Aggregate Bond Index: An unmanaged benchmark index composed of U.S. securities in Treasury, Government-Related, Corporate, and Securitized sectors.  It includes securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $250 million.

The Barclays U.S. Treasury Index: An unmanaged index composed of U.S. Treasuries.

The Barclays U.S. TIPS Index: An unmanaged index composed of all U.S. Treasury Inflation- Protected Securities rated investment grade, have at least one year to final maturity, and at least $250 million par amount outstanding.

The Markit CDX Investment Grade Index: A benchmark high-grade derivatives index that measures the cost of insuring a basket of U.S. investment-grade corporate debt against defaults. 

The S&P 500 Index: An unmanaged, market-weighted index that consists of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market. 

The TED spread: Calculated as the difference between the three-month T-bill interest rate and three-month Libor; it is an indicator of credit risk that exists in the broad market.

The when-issued level: Refers to the price of a bond when it is issued by the U.S. Treasury.