Absolute Return
Strategies in which there is not an explicit market benchmark in which to measure performance or risk.  The objective of absolute return strategies is to add positive returns, regardless of market changes.

Active Investment Management
Active managers construct portfolios designed to exceed the return of the market, which is usually defined by an index like the S&P 500® index or the Lehman Brothers Aggregate Bond index. Active managers rely on research, market forecasts, and their own investment models and experience in deciding whether to buy or sell securities.

Agency Bonds
Debt (bonds) issued by local, state, and federal agencies for various uses. Although U.S. agency bonds are not a direct obligation of the U.S. Treasury, they are often AAA-quality rated.


Alpha
A measure of performance excluding the market related (beta) return.  Alpha can also be defined as the return of a portfolio less the benchmark return. 

Appreciation
The increase in value of an asset.

Asset-Backed Securities
Type of fixed income security that is derived from a pool of assets of collateralized by the cash flows from a specified pool of underlying assets.

Asset Class
Various types of investments that are classified together based on their common characteristics (e.g., the equity asset class includes large cap stocks, international stocks, small cap stocks, etc.).

Average Coupon
The average annual interest payment on bonds within a portfolio.

Average Maturity
The average length of time until the principal of the bonds within a portfolio is scheduled to be repaid to investors.

Banker’s Acceptance
A money market asset consisting of an order to a bank by a customer to pay a sum of money at a future date.

Beta
A statistical measure of the price volatility of a security or portfolio in relation to the volatility of a market.

Bond (Fixed Income/Debt Instrument)
A certificate of debt issued by a corporation or a government guaranteeing payment of the original investment plus interest to the purchaser by a specified date.

Call Provision
A provision that gives an issuer the right to retire debt (a bond), fully or partially, before the scheduled maturity dates. A call provision is detrimental to investors who could lose a high-coupon bond when interest rates decline.

Capital Gains (Capital Losses)
The difference in the purchase price of a security versus the sale price of the security. If a security is sold at a higher price than the price at which it was purchased, the owner nets a capital gain. If a security is sold at a lower price than the price at which it was purchased, the owner nets a capital loss.

Capitalization
Capitalization indicates the market value of a company. A company ’s capitalization is the number of shares outstanding in the market multiplied by the current price of the stock.

Commercial Paper
Short-term unsecured debt issued by banks and large corporations (typically ranging in maturity from
1 to 270 days).

Common Stock
A security representing ownership rights in a public corporation. Stockholders are entitled to share in the company's profits, some of which may be paid out as dividends. Stockholders are also affected by the price movements of the stock.

Corporate Bond
A direct obligation of a corporation that has promised timely payment of both interest and principal to the investor. Maturities are from 1 to 100 years, but most are 10 years or less.

Correlation
In finance, correlation measures how closely different securities move in relation to each other. For example, if the values of a stock and a bond move in the same direction, the securities are said to have a close correlation. The goal for an index fund is to be closely correlated to the benchmark that the fund is imitating.

Coupon Rate
A bond’s coupon is the periodic interest payment made to owners during the life of the bond.

Currency
A unit of exchange, facilitating of the transfer of goods and services, and is one form of money within
a country or region.

Derivative
A financial contract whose value/return is linked to ("derived" from) an underlying asset, such as a group of stocks or bonds (e.g., an index). Futures contracts and options are examples of derivatives.

Depreciation
A decrease in the value of an asset..

Discount Rate
The interest rate used in determining the present value of a security based on what the value is expected to be in the future.

Dividend
Payment to a shareholder of income generated by securities.

Duration
Duration reflects a bond’s price sensitivity to changes in interest rates. It represents the average time (in years) necessary to receive the present value of all future payments (coupon plus principal repayment).

Earnings Forecast
Analysts’ estimates of a stock’s future earnings.

Earnings Predictability
The extent to which a stock’s actual earnings match the consensus estimate of those earnings.

Equitize
To create market exposure through futures, options, swaps, and forwards instead of holding physical securities. 

Financial Futures
A derivative contract entered into now that provides for the delivery of a specified asset in exchange for the selling price at some specified future date.

FX
Foreign exchange.

Index
An unmanaged group of securities whose overall performance is used as a standard to measure investment performance of a managed group of securities typically within the same asset class. Often referred to as a “benchmark” for comparison purposes.

Index Fund
A pooled fund that seeks to match the performance of a specific index.

Investment Advisor
An organization that manages the investment decisions for its clients based on stated objectives.

Investment-Grade Bond
A bond rated BBB- or above by Moody’s rating service or rated Baa- or above by Standard & Poor’s rating service. A bond rating considers default risk, liquidity, basic characteristics of the fixed income instrument, and solvency of the issuer. Investment -grade bonds are considered to have lower default risk than non-investment grade bonds.

Investment Return (Total Return)
A percentage change, over a specified period, in the value of a fund, taking into account all gains/losses and cash flows, including contributions to and withdrawals from the fund, dividend reinvestment, and realized capital gains, as well as appreciation of the underlying securities.

Liquidity
The speed and ease with which an asset can be converted to cash. For example, normally a large company’s stock is more liquid than a piece of real estate.

Money Market Instruments
Short-term, liquid investments (usually with a maturity of 13 months or less), which may include U.S. Treasury bills, bank certificates of deposit, repurchase agreements, commercial paper, and banker’s acceptances.

Mortgage-Backed Security
A type of fixed income security (bond) backed by mortgages on real estate.

Optimization
The process of seeking to determine the ideal securities or asset classes in which to invest to provide the highest return with the lowest risk.

Passive Investment Management (Indexing)
A generally low-cost investment strategy typically designed to replicate the performance and characteristics of a specific stock or bond market index. Also called “indexing.”

Payout Ratio
The rate at which an investment pays income relative to the actual earnings.


Portable Alpha
Alpha that is isolated from the market risk or beta, it can be combined with another unrelated and uncorrelated strategy.  Portable alpha refers to the transportability of the alpha source to any strategy or benchmark.

Price/Book Ratio
The current stock price divided by the corporation’s book value per share.

Price/Earnings Ratio
The current price of a stock divided by its earnings per share.

Private Placements
Securities or investments, including hedge funds, that can be sold only to certain sophisticated investors and are not publicly registered.

Principal (Initial Investment)
Fixed Income Investment: The amount invested on which interest is collected. Equity Investment: The amount of money paid to purchase a stock.

Quantitative
An approach to data analysis that uses advanced econometric and mathematical valuation models.

Rating
A classification of a bond made by an independent rating agency. The classification reflects the creditworthiness, or ability to pay, of the bond issuer. AAA is the highest rating a bond can receive.

REIT (Real Estate Investment Trust)
A corporation that invests in real estate and is required to distribute 90% of their income to investors for tax purposes.

Replication
Investment approaches, such as indexing, that try to duplicate the performance or characteristics of
an index.

Repurchase Agreement
A contract in which a financial institution sells securities and agrees to repurchase the securities on
a specific date (normally the next business day) and at a specific price.

Reset Rate Date
The date on which a bond’s coupon rate is redefined (reset) based on a predetermined benchmark. For example, a bond may be issued with a reset rate date of every six months at a rate equal to the yield on a six-month Treasury security. Thus, every six months, the bond’s coupon rate would be reset to equal that of the six-month Treasury security.

Risk Factor Model
A computer model that evaluates and analyzes the characteristics of securities to determine how risky they are as compared with other securities.

Risk Premium
The compensation (measured in terms of total return) for the risk taken in an investment.

Securities
Securities are fungible, negotiable instruments representing financial value. Securities are broadly categorized as debt or equity securities like common stocks and bonds, and includes participating units in investment vehicles, like bank-maintained collective funds and mutual funds.

Settlement Date
The day on which a security transaction is completed (i.e., proceeds from sales are released).

Stock
See Common Stock.

Tactical Asset Allocation (TAA)
An approach that allows active departures from a static asset mix in a portfolio to new asset mixes, with the goal of allocating into better performing asset mixes as valuation changes from time to time.

Total Return
See Investment Return.

Tracking Error
A measure of how closely a fund or separate account follows the index for the strategy. Tracking error
is measured as the standard deviation of the difference between the portfolio and index returns.

Turnover
The amount of buying and selling of securities in a portfolio.

Unit Value
A proportionate undivided interest in a fund that shares the income, profits, losses, and expenses of the fund on a pro rata basis.

U.S. Treasury
A negotiable debt obligation (bond) of the U.S. government secured by its full faith and credit and issued at various schedules and maturities.

Valuation
The appraisal of an asset/security.

Volatility
Fluctuations in the price of a security. The greater the volatility, the greater the difference between the high and low prices of the fund or security. Often referred to as a measurement of risk.

Yield (Dividend: Stocks)
The current annualized dividend paid on a share of common stock, expressed as a percentage of the current market price of the common stock.

Yield (Interest: Bonds)
In the bond market, there are many ways to determine/describe the investment return on a bond, such as current yield, yield to call, yield to maturity, and yield to worst. See the definitions of each below.

Yield to Call The return on a bond assuming the bond will be redeemed by the issuer at the first call date. See Call Provision for details on a callable bond. Yield (Current) The ratio of a bond’s coupon to its price. Yield to Maturity The return earned on a fixed income security based on the current market price and cash flows to the maturity date. (Yield to maturity provides a more accurate description of a bond’s investment return than current yield.) Yield to Worst The lower of the yield to call and yield to maturity.