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- 401(k) Plans
401(k) Plans are retirement plans to which employees can make contributions from his or her paycheck before taxes are taken out. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan. There are four different types of 401(k) plans: traditional 401(k), safe harbor 401(k), SIMPLE 401(k), and automatic enrollment 401(k). (Source: US Department of Labor)
- A-Shares
China A-shares are the stock shares of mainland China-based companies that trade on the two Chinese stock exchanges, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). Historically, the shares were only available for purchase by mainland citizens due to China’s restrictions on foreign investment. However, since 2003, select foreign institutions have been able to purchase these shares through the Qualified Foreign Institutional Investor (QFII) system. Established in 2002, the QFII program allows specified licensed international investors to buy and sell on mainland China’s stock exchanges. A-shares are also known as domestic shares because they use the Chinese renminbi (RMB) for valuation. (Source: […] - Accredited Wealth Management: Advisor (AWMA®)
Individuals who hold the AWMA® designation have completed a course of study encompassing wealth strategies, equity-based compensation plans, tax reduction alternatives, and asset protection alternatives. Additionally, individuals must pass an end-of-course examination that tests their ability to synthesize complex concepts and apply theoretical concepts to real-life situations. All designees have agreed to adhere to Standards of Professional Conduct and are subject to a disciplinary process. Designees renew their designation every two-years by completing 16 hours of continuing education, reaffirming adherence to the Standards of Professional Conduct and complying with self-disclosure requirements.(Source: CFPdesignations.com) - Active
Active investing (or Active Management) is an investment strategy involving ongoing buying and selling actions by the fund manager or investor seeking to outperform a benchmark index. Active investors purchase investments and continuously monitor their activity in order to exploit profitable conditions. Active investing is highly involved. Unlike passive investors, who invest in a stock when they believe in its potential for long-term appreciation, active investors will typically look at the price movements of their stocks many times a day. Typically, active investors are seeking short-term profits. (Source: Investopedia) - After Tax Return
The return from an investment after all income taxes have been accounted for and deducted. The SEC has adopted a number of rule and form amendments requiring mutual funds to disclose standardized after-tax returns. The amendments require a mutual fund to disclose standardized after-tax returns for 1-, 5-, and 10-year periods in the risk/return summary of the prospectus. (source ETFGuide). - Alpha
Alpha is an analyst’s estimate of its potential price increase based on the rate at which the company’s earnings are growing and other aspects of the company’s current performance. For example, if a stock has an alpha of 1.15, that means the analyst expects a 15% price increase in a year when stock prices in general are flatOne investment strategy is to look for stocks whose alphas are high, which means the stocks are undervalued and have the potential to provide a strong return. A stock’s alpha is different from its beta, which estimates its price volatility in relation to […] - Alta Trust
AltaTrust is an innovative financial services firm that acts as trustee for collective investment funds that feature unique money managers. Alta Trust works with retirement plan professionals to provide cutting-edge retirement plan products to stay ahead of a challenging global economy. (Source: 401khelpcenter.com) - Alternative Investment
An investment that is not one of the three traditional asset types (stocks, bonds and cash). Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, limited regulations and relative lack of liquidity. Alternative investments include hedge funds, managed futures, real estate, commodities and derivatives contracts. Many alternative investments also have high minimum investments and fee structures compared to mutual funds and ETFs. While they are subject to less regulation, they also have less opportunity to publish verifiable performance data and advertise to potential investors. Alternative investments are favored mainly because their […] - American Depository Receipt (ADR)
Receipt for the shares of a foreign based company held in the vault of a U.S. bank. Shareholders of ADRs are entitled to receive all dividends and capital gains. Individuals that want to own a foreign company without buying it on an overseas market can purchase an ADR listed on U.S. exchanges. (Source: ETFGuide) - AP (see Authorized Participant)
- Arbitrage
Arbitrage is the technique of simultaneously buying at a lower price in one market and selling at a higher price in another market to make a profit on the spread between the prices. Although the price difference may be very small, arbitrageurs, or arbs, typically trade regularly and in huge volume, so they can make sizable profits. But the strategy, which depends on split-second timing, can also backfire if interest rates, prices, currency exchange rates, or other factors move in ways the arbitrageurs don’t anticipate. (Source: Yahoo! Finance) WP Glossary Term UsageAsset Class Matrix - Asset Allocation
Asset allocation is a strategy, advocated by modern portfolio theory, for reducing risk in your investment portfolio in order to maximize return. Specifically, asset allocation means dividing your assets among different broad categories of investments, called asset classes. Stock, bonds, and cash are examples of asset classes, as are real estate and derivatives such as options and futures contracts. (Source: Yahoo! Finance) WP Glossary Term UsageModel Construction ConceptsOverview - Asset Backed Security
A financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt. An ABS is essentially the same thing as a mortgage-backed security, except that the securities backing it are assets such as loans, leases, credit card debt, a company’s receivables, royalties and so on, and not mortgage-based securities. (Source: Investopedia) - Authorized Participant (AP)
An entity chosen by an exchange-traded fund’s (ETF) sponsor to undertake the responsibility of obtaining the underlying assets needed to create an ETF. Authorized participants are typically large institutional organizations, such as market makers or specialists. The authorized participant plays a critical role in the construction of an ETF’s creation unit (large blocks of the ETF’s underlying shares of equity or other assets). After acquiring all the underlying stocks that will form the ETF, the authorized participant will often need to transfer the shares to a custodian bank. (Source: Investopedia) - AWMA® (see Accredited Wealth Management: Advisor)
- Bachelor’s Degree
WP Glossary Term UsageProfessional Expertise - Barclays Capital Aggregate Bond Index
The Barclays Capital U.S. Aggregate Bond Index is to fixed income investors what the Dow Jones Industrial Average (DJIA) or S&P 500 is for stock traders. It is the most commonly used benchmark for determining the relative performance of bond or fixed income portfolios. It is also a major indicator for the overall health of the fixed income investing market. (Source: InvestingAnswers, Inc.) WP Glossary Term UsageModel Construction ConceptsWhite PapersGlobal Fixed Income Model - Basis Point
Measurement used to quote bonds. One basis point is equal to 0.01%, or one one-hundredth of one percent. 100 basis points is equal to 1%, whereas 50 basis points would equal one half percent, or 0.50%. (Source ETF Guide) - Benchmark
An investment benchmark is a standard against which the performance of an individual security or group of securities is measured. For example, the average annual performance of a class of securities over time is a benchmark against which current performance of members of that class and the class itself is measured. When the benchmark is an index tracking a specific segment of the market, the changing value of the index not only measures the strength or weakness of its segment but is the standard against which the performance of individual investments within the segment are measured.For example, the Standard & […] - Beta
Beta is a measure of an investment’s relative volatility. The higher the beta, the more sharply the value of the investment can be expected to fluctuate in relation to a market index. For example, Standard & Poor’s 500-stock Index (S&P 500) has a beta coefficient (or base) of 1. That means if the S&P 500 moves 2% in either direction, a stock with a beta of 1 would also move 2%. Under the same market conditions, however, a stock with a beta of 1.5 would move 3% (2% increase x 1.5 beta = 0.03, or 3%). But a stock with […] - Bond ETF
A type of exchange-traded fund (ETF) that exclusively invests in bonds. Bond ETFs are very much like bond mutual funds in that they hold a portfolio of bonds and can differ widely in strategies, ranging from U.S. Treasuries to high yields, from long-term to short-term. Bond ETFs trade like stocks and are passively managed. A bond ETF trades throughout the day and is therefore more liquid than a mutual fund, which only trades at one price a day according to its net asset value. The drawback to this is that a broker fee is incurred when trading in an ETF, […] - Buyback
The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake. A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns. Buybacks can be carried out in two ways: Shareholders may be presented with a tender offer whereby they have the option to […]
- CAIA® (see Charted Alternative Investment Analyst)
- Call
In the bond markets, a call is an issuer’s right to redeem bonds it has sold before the date they mature. With preferred stocks, the issuer may call the stock to retire it, or remove it from the marketplace. In either case, it may be a full call, redeeming the entire issue, or a partial call, redeeming only a portion of the issue. When a bank makes a secured loan, it reserves the right to demand full repayment of the loan — referred to as calling the loan — should the borrower default on interest payments. Finally, when the term […] - Capital Structure Arbitrage
Investment strategy in which an undervalued security is bought and the same firm’s overvalued security is sold. Its objective is to profit from the pricing inefficiency in the issuing firm’s capital structure with the expectation that the pricing disparity between the two securities will cancel out (converge). (Source: WebFinance, Inc) WP Glossary Term UsageHedge Fund of Funds Model - Certified Financial Planner (CFP®)
The CFP legal team has provided its official definition, along with trademarks: CFP and Certified Financial Planner marks are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements. Those wanting to become a CFP professional must take extensive exams in the areas of financial planning, taxes, insurance, estate planning and retirement. Attaining the CFP designation takes experience and a substantial amount of work. CFP professionals must also complete continuing education programs each year to maintain their certification status. It is […] - CFA® (see Charted Financial Analyst)
- CFP® (See Certified Financial Planner)
- Charted Alternative Investment Analyst (CAIA)
A professional designation given out by the Chartered Alternative Investment Analyst Association to establish an educational standard for individuals that specialize in the area of alternative investments (such as hedge funds, venture capital, private equity and real estate investment). In order to receive the designation, individuals must have at least one year of professional experience, a U.S. bachelor’s degree and must pass two levels of curriculum that include topics ranging from qualitative analysis, trading theories of alternative investments, to indexation and benchmarking. Because the realm and scope of alternative investments is dramatically different from conventional investments such as stocks, bonds, […] - Charted Financial Analyst (CFA)
A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management and security analysis. Before you can become a CFA charterholder, you must have four years of investment/financial career experience. To enroll in the program, you must hold a bachelor’s degree. The CFA charter is one of the most respected designations in finance, considered by many to be the gold standard in the field of investment analysis. (Source: Investopedia) - Chartered Alternative Investment Analyst (CAIA®)
WP Glossary Term UsageProfessional Expertise - Chartered Financial Analyst (CFA)
WP Glossary Term UsageProfessional Expertise - CIF (see Collective Investment Fund)
- CIT (Collective Investment Trust -see Collective Investment Fund)
- Closed-End Fund
Closed-end funds, or “CEFs” issue a fixed number of shares through an initial public offering and often use leverage to magnify their performance. Closed-end funds are bought and sold just like stocks and their share price often trades at a noticeable discount or premium to the fund’s net asset value. (Source: ETF Guide) Note- ETF Model Solutions uses CEFs on a limited basis in certain of our allocations. - Collective Investment Fund (CIF)
Collective Investment Fund (CIF) is also called a Collective Fund or Collective Investment Trust (CIT) is a bank maintained fund that is exempt from registration under the Investment Advisers Act of 1940. Collective Funds and mutual funds look and act very much alike. The main difference is the regulating body. Banking regulations govern Collective Funds and the SEC governs mutual funds. As a result Collective Funds are only available to qualified retirement trusts such as 401k, Profit Sharing, Defined Benefit Plans, etc. CIFs have been around since the 1930’s. These “bank maintained” funds have also been known as Common Trust […] - Collective Investment Trust (see Collective Investment Fund)
- Commodities
Commodities are bulk goods and raw materials, such as grains, metals, livestock, oil, cotton, coffee, sugar, and cocoa, that are used to produce consumer products. The term also describes financial products, such as currency or stock and bond indexes. Commodities are bought and sold on the cash market, and they are traded on the futures exchanges in the form of futures contracts. Commodity prices are driven by supply and demand: When a commodity is plentiful — tomatoes in August, for example — prices are comparatively low. When a commodity is scarce because of a bad crop or because it is […] - Convertibles (Convertible Securities)
Convertibles (Convertible Securities) are usually bonds or preferred shares that can be converted into common stock. Convertibles are most often associated with convertible bonds, which allow bond holders to convert their creditor position to that of an equity holder at an agreed upon price. Other convertible securities can include notes and preferred shares, which can possess many different traits. Convertibles are ideal for investors demanding greater potential for appreciation than bonds provide, and higher income than common stocks offer. Convertible bonds, for instance, will typically offer a lower coupon than a standard bond. However, the optionality of the bond to […] - Core and Satellite
Core and satellite investing is a portfolio construction strategy that involves building a passive core portfolio of lower-cost, index-based securities. The manager then utilizes more aggressive or active strategies that are intended to add alpha or enhance overall portfolio performance. - Corporate Bond
A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company’s physical assets may be used as collateral for bonds. Corporate bonds are considered higher risk than government bonds. As a result, interest rates are almost always higher, even for top-flight credit quality companies. Corporate bonds are issued in blocks of $1,000 in par value, and almost all have a standard coupon payment structure. Corporate bonds may also have call provisions to […] - CPA
A designation given by the American Institute of Certified Public Accountants to those who pass an exam and meet work experience requirements. For the most part, the accounting industry is self-regulated. The CPA is a designation meant to help ensure that professional standards for the industry are enforced. Other countries have certifications equivalent to the CPA. For example, in Canada, accountants similar to the CPA are called Chartered Accountants (CA). (Source: Investopedia) WP Glossary Term UsageProfessional Expertise - Creation Unit
A set of shares or securities that makes up one unit of a fund held by the trust that underlies an exchange-traded fund (ETF). One creation unit is the denomination of underlying assets that can be redeemed for a certain number of ETF shares. Creation units can vary in size; with most containing between 25,000 and 600,000 ETF shares each. The use of creation units in the construction of ETF shares is critical because they allow for the representation of the underlying assets – the ETF shares, which represent a tiny chunk of a creation share – to be traded […] - Credit Risk
The risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Investors are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation. Credit risk is closely tied to the potential return of an investment, the most notable being that the yields on bonds correlate strongly to their perceived credit risk. The higher the perceived credit risk, […] - Cryptocurrency
A type of digital or virtual money that exists solely in electronic form. Encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. (Source: Investopedia) - Cryptocurrency ETF
A cryptocurrency ETF works, in theory, like any other ETF. While most ETFs track an index or a basket of assets, a cryptocurrency ETF would track one or more digital tokens. Like other ETFs, digital token ETFs would trade like common stocks on an exchange, and they would be subject to changes in price throughout the day as investors buy and sell. In order for a cryptocurrency ETF to work properly, it will need to own the underlying assets that it tracks; the ETF would have to own a commensurate stake of digital tokens. The ownership of these tokens would […] - CUSIP (Committee on Uniform Security Identification Procedures)
CUSIP (Committee on Uniform Security Identification Procedures) is a 9-character alphanumeric code which identifies a North American financial security for the purposes of facilitating clearing and settlement of trades. (Source: Wikipedia) - Custodian
A custodian is a financial institution that holds customers’ securities for safekeeping in order to minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form. Since they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms. Registered Investment Advisers are prohibited by the Adviser’s Act from taking custody of client securities (unless exceptions apply or if they abide by certain requirements). As such, client assets managed by advisers are […]
- DB Plan (see Defined Benefit Plan)
- DC Plan (See Defined Contribution Plan)
- Declaration of Trust
Declaration of Trust is a statement made by the title holder of a piece of property that the property is being held for the benefit of another person. The property is placed in a trust, with a trustee overseeing the asset. The declaration outlines who the trust is in benefit of, who can amend or revoke the trust (if it can be amended at all), who will serve as trustee and what powers the trustee holds, and information regarding what is to happen if a beneficiary wants to receive distributions. (Source: Investopedia) - Defined Benefit Plan
Defined Benefit Planis a type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provided defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay. A defined benefit plan is ‘defined’ in the sense that the benefit formula is defined and known in advance. (Source: Wikipedia)define - Defined Contribution Plan
Defined Contribution (DC) Planis an employer-sponsored retirement plan that does not promise a specific benefit amount at retirement. Instead, the employer and/or the employee contribute money to each employee’s individual account in the plan. In many cases, employees are responsible for choosing how these contributions are invested, and deciding how much to contribute from their paychecks through pretax deductions. The employer may add to your employees’ accounts, in some cases by matching a certain percentage of the employee’s contributions. The value of an employee’s account depends on how much is contributed and how well the investments perform.Examples of defined contribution […] - Direct Indexing
Direct Indexing is a process that seeks to replicate the performance of an index by directly purchasing the underlying individual securities instead of using an ETF or mutual fund in an investor’s portfolio. For example, rather than purchasing an ETF or a mutual fund that replicates an index, the investor using a direct indexing approach would simply buy all of the securities in an index. The ability to own fractional shares is typically required to participate in direct indexing. Fractional share trading allows very small dollar amounts to be invested in each security. - Directional Funds
A directional fund is a type of hedge fund that maintains some exposure to the market thereby placing less emphasis on hedging risk. Directional funds are less steady but can produce higher returns given that they assume more risk. (Source: TradersLog) - Discount to NAV
A mutual fund, closed end fund or ETF whose share price is lower than fund’s net asset value (NAV). The occurrence of significant premiums or discounts with ETFs is rare, whereas with closed end funds it’s common. (Source: ETF Guide) - Duration
Duration in simplified terms, a bond’s duration measures the effect that each 1% change in interest rates will have on the bond’s market value. Unlike the maturity date, which tells you when the issuer has promised to repay your principal, duration, which takes the bond’s interest payments into account, helps you to evaluate how volatile the bond’s price will be over time. Basically, the longer the duration — expressed in years — the more volatile the price. So a 1% change in interest rates will have less effect on the price of a bond with a duration of 2 than it […]
- Emerging Markets
Countries in the process of building market-based economies are broadly referred to as emerging markets. However, there are major differences among the countries included in this category. Some emerging-market countries, including Russia, have only recently relaxed restrictions on a free-market economy. Others, including Indonesia, have opened their markets more widely to overseas investors, and still others, including Mexico, are expanding industrial production. Their combined stock market capitalization is less than 3% of the worldwide total. (Source: Yahoo! Finance) WP Glossary Term UsageAsset Class MatrixGlobal Fixed Income Model - Emerging Markets ETF
An exchange-traded fund that focuses on the stocks of emerging market economies, such as Latin America, Asia and Eastern Europe. The underling indexes tracked by emerging market ETFs vary from one fund manager to another, but all should be passively managed and contain equities from multiple countries, unless otherwise stated. Within the broad class of emerging market ETFs, there are fund members that focus on certain market-capitalization ranges, high-dividend stocks, or funds with high allocations towards specific sectors. Emerging market securities are finding their way into more and more portfolios; many investors (especially those with longer time horizons) simply cannot […] - Emerging Markets Fund
Emerging Markets Fund is an exchange-traded or mutual fund thatinvests primarily in the securities of countries in the process of building a market-based economy. Some funds specialize in the markets of a certain region, such as Latin America or Southeast Asia. Others invest in a global cross-section of countries and regions. (Source: Yahoo! Finance) - Employee Benefit Plan
A benefit other than salary (such as health insurance or pension) granted by an employer to its employees, subject to a written plan document, the taxable status of which is governed by the federal Employee Retirement Income Security Act of 1974. (Source: Webster’s New World Law Dictionary) - Endowment
Endowment is an investment fund set up by an institution in which regular withdrawals from the invested capital are used for ongoing operations or other specified purposes. Endowment funds are often used by nonprofits, universities, hospitals and churches. They are funded by donations, which are tax deductible for donors. There are three main components to the typical endowment fund: Investment Policy: This policy dictates the types of investments the manager can make and how aggressive he or she can be in meeting return targets. Withdrawal Policy: This policy determines the amount that the institution can take from the endowment fund […] - Endowment Index
The Endowment IndexTM is an objective benchmark for investors who manage a portfolio incorporating three dimensions: global equities, global fixed income, and alternative investments. This index, comprised of investable components, is used for portfolio comparison, investment analysis, and research and benchmarking purposes. The Index is used by fiduciaries such as trustees, portfolio managers, consultants and advisors to endowments, foundations, trusts, defined benefit/defined contribution plans, pension plans and individual investors. The Endowment IndexTM has been co-created by Endowment Wealth Management, Inc. and ETF Model Solutions, LLC. - Endowment Investment Philosophy®
Endowment Investment Philosophy® is an investment strategy that builds portfolios using an asset allocation methodology pursued by major universities like Yale and Harvard because it offers the potential for superior risk-adjusted returns and lower volatility through all market cycles. This investment philosophy expands the number of asset classes and strategies used to create a portfolio by including alternative investments such as hedge funds, private equity, and real assets in addition to traditional stocks and bonds in a global framework. Endowment Investment Philosophy® is a registered trademark of Endowment Wealth Management, Inc. - Enhanced Indexing
This market strategy seeks incremental outperformance of a benchmark index without changing the profile characteristics of the index. By using leverage, options trading, or another mechanism, enhanced indexing offers the potential of outperforming a benchmark index. (Source: ETF Guide) - Equity Long Short
Long Short Equity is an investing strategy of taking long positions in stocks that are expected to appreciate and short positions in stocks that are expected to decline. A long/short equity strategy seeks to minimize market exposure, while profiting from stock gains in the long positions and price declines in the short positions. Although this may not always be the case, the strategy would be profitable on a net basis as long as the long positions generate more profit than the short positions, or the other way around. The long/short equity strategy is popular with hedge funds, many of which […] - ETF
Exchange-traded funds (ETFs) are listed on a stock exchange and trade like stock. You can use traditional stock trading techniques, such as stop orders, limit orders, margin purchases, and short sales when you buy or sell ETFs. But ETFs also resemble mutual funds in some ways. For example, you buy shares of the fund, which in turn owns a portfolio of stocks. Each ETF has a net asset value (NAV), which is determined by the total market capitalization of the stocks in the portfolio, plus dividends but minus expenses, divided by the number of shares issued by the fund. ETF […] - ETF Trading Specialist
ETF Trading Specialist is a member of an exchange who acts as the market maker to facilitate the trading of a given ETF. The specialist holds an inventory of the ETF, posts the bid and ask prices, manages limit orders and executes trades. Specialists are also responsible for managing large movements by trading out of their own inventory. If there is a large shift in demand on the buy or sell side, the specialist will step in and sell out of their inventory to meet the demand until the gap has been narrowed. (Source: Investopedia) - Event-Driven Strategy
A strategy, adopted by hedge fund managers, that attempts to take advantage of events such as mergers and restructurings that can result in the short-term mispricing of a company’s stock. An event-driven strategy focuses on exploiting the tendency of the equities of companies in a time of change to drop in price. (Source: Investopedia) - Exchange-Traded Note (ETN)
Exchange-traded notes (ETNs) are types of unsecured debt securities that track an underlying index of securities and trade on a major exchange like a stock. ETNs are similar to bonds but do not pay interest payments. Instead, the prices of ETNs fluctuate like stocks. The ETN pays investors the return received from the index they track at the maturity date, less any fees or commissions. An ETN is typically issued by financial institutions and bases its return on a market index. ETNs are a type of bond. At maturity, the ETN will pay the return of the index it tracks. […] - Exchange-Traded Product (ETP)
Exchange-traded products (ETPs) are types of securities that track underlying securities, an index, or other financial instruments. ETPs trade on exchanges similar to stocks meaning their prices can fluctuate from day-to-day and intraday. However, the prices of ETPs are derived from the underlying investments that they track. The term “ETPs” is generally used when referring to both ETFs and ETNs. - Exemptive Relief
Most ETFs are registered under the Investment Act of 1940 – often referred to as the ’40 Act – as open-end investment companies. As such, they are subject to the specific provisions of the ’40 Act as they pertain to open-end funds. However, several of the customary features of an ETF are not consistent with the requirements of the ’40 Act. Thus, a key part of the process in launching any ETF is to receive the required exemptions from these provisions of the ’40 Act. To request the exemptions, the issuer files an application for exemptive relief with the Division […]
- Fixed Income Arbitrage
An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income arbitrage strategy, the investor assumes opposing positions in the market to take advantage of small price discrepancies while limiting interest rate risk. Fixed-income arbitrage is primarily used by hedge funds and leading investment banks. The most common fixed-income arbitrage strategy is swap-spread arbitrage. This consists of taking opposing long and short positions in a swap and a Treasury bond. Such strategies provide relatively small returns and, in some cases, huge losses. That’s why these strategies are often referred to as “picking up […] - Flat
A price that is neither rising nor declining. In forex, the condition of being neither long nor short in a particular currency. Also referred to as ‘being square’. A bond that is trading without accrued interest. If a stock over the last month has been trading around $30, it can be thought of as trading flat. If you had no positions in the U.S. dollar or your long and short positions canceled each other out, you would be flat or have a flat book. A bond is trading flat if the buyer of the bond is not responsible for paying […] - Flexible Spending Account (FSA)
Some employers offer flexible spending accounts (FSA), sometimes called cafeteria plans, as part of their employee benefits package. You contribute a percentage of your pretax salary, up to the limit your plan allows, which you can use to pay for qualifying expenses. Qualifying expenses include medical costs that aren’t covered by your health insurance, childcare, care for your elderly or disabled dependents, and life insurance. (Source: Yahoo! Finance) - Floater (see Floating Rate Bond)
A bond or other type of debt whose coupon rate changes with market conditions (short-term interest rates). Also known as “floating-rate debt.” For example, a floater bond may have the coupon rate set at “T-bill rate plus 0.5%.” This type of instrument is more beneficial to the holder as interest rates are rising because it allows the holder to participate in the upward movement in rates. Conversely a floater is less advantageous to the holder when rates are decreasing because the rate at which they are receiving interest is declining. (Source: Investopedia) - Floating Rate Bond
A debt security whose interest rate is adjusted periodically to reflect changing money market rate. - Fractional Shares/Fractional Share Trading
The ability to buy or hold less than one share of a stock. Fractional shares allow smaller investors to own slivers of stocks and thus opening up the ability to invest in expensive stocks like Amazon (NASDAQ: AMZN), Berkshire Hathaway (NYSE: BRKA), Booking Holdings, Inc. -formerly Priceline (NASDAQ: BKNG), Alphabet (NASDAQ-GOOG), Chipotle (NYSE: CMG); Autozone (NYSE: AZO). Investors participating in dividend reinvestment programs often receive fractional shares. Fractional share holdings can also be used to buy partial shares of ETFs. Not all brokerage firms support trading or holding of fractional shares. - FSA (see Flexible Spending Account)
- Fund of Funds
Investment strategy that seeks to diversify risk exposure and manager style among various fund managers. Potential pitfalls include a lack of transparency and an added layer of fees. This strategy is popular with hedge fund investors looking to diversify risk among various fund groups. (Source: ETF Guide) - Futures
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets. Futures can be used either to hedge or to speculate on the […]
- GNMA (See Government National Mortgage Association)
- Government National Mortgage Association (GNMA)
A U.S. government corporation within the U.S. Department of Housing and Urban Development (HUD). Known as Ginnie May, it aims to: Ensure liquidity for government-insured mortgages, including those insured by the Federal Housing Administration (FHA), the Veterans Administration (VA) and the Rural Housing Administration (RHA). Bring investors’ capital into the market for these types of loans, so that the issuers have the means to issue more. Most of the mortgages securitized as Ginnie Mae mortgage-backed securities (MBSs) are those guaranteed by FHA, which are typically mortgages for first-time home buyers and low-income borrowers. (Source: Investopedia)
- Hedge Funds
Hedge Funds are private investment partnerships open to institutions and wealthy individual investors. These funds pursue returns through a number of alternative investment strategies. Those might include holding both long and short positions, investing in derivatives, using arbitrage, and speculating on mergers and acquisitions. Some hedge funds use leverage, which means investing borrowed money to boost returns. Because of the substantial risks associated with hedge funds, securities laws limit participation to accredited investors whose assets meet or exceed Securities and Exchange Commission (SEC) guidelines.(Source: Yahoo! Finance) WP Glossary Term UsageHedge Fund of Funds ModelEndowment Building-Block ETF Models - HFRX Hedge Fund Index
HFRX Hedge Fund Indices are the global industry standard for performance measurement across all aspects of the hedge fund industry. Hedge Fund Research, Inc. utilizes a UCITS-compliant methodology to construct the HFRX Hedge Fund Indices. The methodology is based on defined and predetermined rules and objective criteria to select and rebalance components to maximize representation of the Hedge Fund Universe. (Source: Hedge Fund Research, Inc.) WP Glossary Term UsageHedge Fund of Funds Model - High Yield
Description of investments with high rates of return. Generally, a high yield bond will be ranked very low by a rating agency, because these are bonds which have a relatively high chance of default, and therefore have to offer higher returns. Similarly, a stock will offer a high dividend yield in order to compensate for lower expected capital gains, for example a large company in a mature industry which is no longer growing. (Source: WebFinance, Inc.) WP Glossary Term UsageGlobal Multi-Asset Income Model - High Yield Bonds
A high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds. Based on the two main credit rating agencies, high-yield bonds carry a rating below ‘BBB’ from S&P, and below ‘Baa’ from Moody’s. Bonds with ratings at or above these levels are considered investment grade. Credit ratings can be as low as ‘D’ (currently in default), and most bonds with ‘C’ ratings or lower carry a high risk of default; to compensate for this risk, yields […]
- Indices
Plural form of index. WP Glossary Term UsagePrivate Equity ModelGlobal Equity ModelGlobal Multi-Asset Income ModelReal Asset ModelShort Duration Fixed Income ModelAsset Class MatrixGlobal Fixed Income ModelEndowment Building-Block ETF Models - Inflation Protected
Inflation Protected are types of investments that provide protection against inflation or the rise in prices of goods and services. Most hard assets are typically protected against inflation. This is because commodities tend to appreciate during times of high inflation. Certain funds are also created to protect investors from the negative effects of inflation. These funds focus on investing in securities that bring a real return, which is the return on an investment, minus the reduction in its value as a result of inflation. These funds also invest in bonds backed by the federal government. The funds’ principal is adjusted […] - Infrastructure
Infrastructure is the basic physical systems of a business or nation. Transportation, communication, sewage, water and electric systems are all examples of infrastructure. These systems tend to be high-cost investments, however, they are vital to a country’s economic development and prosperity. Infrastructure projects may be funded publicly, privately or through public-private partnerships. Sometimes private companies will choose to invest in a country’s infrastructure development as part of a business expansion effort. For example, an energy company might build pipelines and railways in a country where it wants to refine petroleum. This investment can benefit both the company and the country. […] - Initial Public Offering
When a company reaches a certain stage in its growth, it may decide to issue stock, or go public, with an initial public offering (IPO). The goal may be to raise capital, to provide liquidity for the existing shareholders, or a number of other reasons. Any company planning an IPO must register its offering with the Securities and Exchange Commission (SEC). In most cases, the company works with an investment bank, which underwrites the offering. That means buying all the shares at a set price and reselling them to the public with the expectation of making a profit. (Source: Yahoo! […] - Insider Buying
Insider Buying is the purchase of shares of stock in a corporation by someone who is employed by the company. Insider buying should not be confused with insider trading. Insider trading refers to corporate insiders trading on private information, an activity that is illegal. However, insider buying is based on public information in a situation where insiders believe that their stock is undervalued. (Source: Investopedia) - Insider Trading
Transactions in corporate equity securities by corporate officers and board members who are in position to know of relevant developments and plans that have not yet made public. Those in this position must carefully adhere to special regulations when purchasing stock in their companies to avoid penalties. On the other hand, insider trading typically occurs when employees believe that the public is not valuing their stocks properly. Because insider transactions are public information, knowing that insiders are purchasing stock can signal future stock appreciation. (Source: Investopedia) - International Bond ETFs
International bond funds invest in bonds issued by foreign governments or foreign companies in a variety of markets, industries, and currencies. They allow investors to have an easy way to gain a diverse exposure to foreign securities. (Source: InvestingAnswers, Inc.) - Intraday
Another way of saying “within the day. (Source: Investopedia) WP Glossary Term UsageWhy use ETFsETFsETF Acronyms - Inverse ETF
An inverse ETF, also known as a “short ETF” or “bear ETF,” is an exchange-traded fund designed to return the exact opposite performance of a certain index or benchmark. (Source: Motley Fool) - Investment Company Act of 1940
Created in 1940 through an act of Congress, this piece of legislation clearly defines the responsibilities and limitations placed on open-end mutual funds, unit investment trusts and closed-end funds that offer investment products to the public. The Investment Company Act of 1940 grew out of the stock market crash of 1929 as an attempt to stabilize financial markets. It is enforced and regulated by the Securities and Exchange Commission. This act clearly sets out the limits regarding filings, service charges, financial disclosure and the fiduciary duties of fund companies. This act applies to companies that primarily invest or trade in […] - Investment Fund
A supply of capital belonging to numerous investors that is used to collectively purchase securities while each investor retains ownership and control of his or her own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange traded funds, money market funds and hedge funds. Individual investors do not make decisions about how a fund’s assets should be invested. They simply choose which fund to invest in based on its goals, risk, fees and […] - Investment Grade
A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such as Standard & Poor’s, use different designations consisting of upper- and lower-case letters ‘A’ and ‘B’ to identify a bond’s credit quality rating. ‘AAA’ and ‘AA’ (high credit quality) and ‘A’ and ‘BBB’ (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations (‘BB’, ‘B’, ‘CCC’, etc.) are considered low credit quality, and are commonly referred to as “junk bonds”. Investors should note that government bonds, or Treasuries, are not subject to credit quality ratings. […] - IPO (see Initial Public Offering)
- Large Cap
A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term “large market capitalization”. Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its stock price per share. Large cap companies are the big Kahunas of the financial world. Examples include Wal-Mart, Microsoft and General Electric. Keep in mind that the dollar amounts used for the classifications “large cap”, mid cap”, or “small cap” are only approximations that change over time. Among market participants, their exact definitions […] - Leveraged ETF
The main objective of leveraged ETFs is to deliver magnified performance of a particular stock, bond or commodity index. Most leveraged ETFs attempt to duplicate daily index returns by two or three times. Short leveraged ETFs aim for daily index returns that move in the opposite direction, but with magnified performance of two or three times. (Source: ETF Guide) - Limit Order
A limit order sets the maximum you will pay for a security or the minimum you are willing to accept on a particular transaction. For example, if you place a limit order to buy a certain stock at $25 a share when its current market price is $28, your broker will not buy the stock until its share price reaches $25. Similarly, if you give a limit order to sell at $25 when the stock is trading at $20, the order will be filled only if the price rises to $25. A limit order differs from a market order, which […] - Listed
Being included and traded on a given exchange. Most exchanges have specific requirements which companies must meet in order to be listed and continue to stay listed. Companies are frequently being added to a given exchange, such as the Nasdaq. And occasionally companies that have not fulfilled all necessary listing requirements become delisted for a period of time until they again meet the requirements. Generally, companies prefer to be listed on the major exchanges, such as the NYSE and Nasdaq, since they provide the most liquidity and visibility for a company’s stock. (Source: Investopedia) WP Glossary Term UsagePrivate Equity Model - Long (Long Position)
The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. In the context of options, the buying of an options contract. Opposite of “short” (or short position). For example, an owner of shares in McDonald’s Corp. is said to be “long McDonald’s” or “has a long position in McDonald’s.” For example, buying a call (or put) options contract from an options writer entitles you the right, not the obligation to buy (or sell) a specific commodity or asset for a specified amount at a specified date. (Source: Investopia) […]
- Managed Futures
An alternative investment strategy in which professional portfolio managers use futures contracts as part of their overall investment strategy. Managed futures provide portfolio diversification among various types of investment styles and asset classes to help mitigate portfolio risk in a way that is not possible in direct equity investments. Professional money managers, known as commodity trading advisors, typically monitor managed futures accounts. These accounts can have various weights in stocks and derivative investments. A diversified managed futures account will generally have exposure to a number of markets such as commodities, energy, agriculture and currency. Introducing futures into a portfolio reduces […] - Market Maker
A broker-dealer who is prepared to buy or sell a specific security — such as a bond or at least one round lot of a stock — at a publicly quoted price, is called a market maker in that security. Other brokers buy or sell specific securities through market makers, who may maintain inventories of those securities. There is often more than one market maker in a particular security, and they bid against each other, helping to keep the marketplace liquid. The Stock Market and the corporate and municipal bond markets are market maker markets. In contrast, on the floor […] - Master Limited Partnerships
A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP’s cash flow, whereas the general partner is the party responsible for managing the MLP’s affairs and receives compensation that is linked to the performance of the venture. One of the most crucial criteria that must be met in order for a partnership to be legally classified as an MLP is that the partnership must derive most (~90%) […] - MBA
WP Glossary Term UsageProfessional Expertise - Mega Cap
The biggest companies in the investment universe, as measured by market capitalization. While there is no exact definition of the term, mega cap generally refers to companies with a market cap exceeding $100 billion. Mega caps are usually household names with strong brand recognition and global operations, such as Exxon Mobil, Apple, Microsoft, Nestle and IBM. The ranks of the mega caps were traditionally dominated by companies from the U.S., Europe and Japan. However, the steady rise of the biggest emerging nations in the new Millennium, has resulted in increasing representation from companies in nations such as China. As of […] - Merger Arbitrage
A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless profit. A merger arbitrageur looks at the risk that the merger deal will not close on time, or at all. Because of this slight uncertainty, the target company’s stock will typically sell at a discount to the price that the combined company will have when the merger is closed. This discrepancy is the arbitrageur’s profit. A regular portfolio manager may focus only on the profitability of the merged entity. In contrast, merger arbitrageurs care only about the probability of […] - Micro Cap
A publicly traded company in the United States that has a market capitalization between approximately $50 million and $300 million. Micro-cap companies have greater market capitalization than nano caps, and less than small, mid, large and mega-cap corporations. Companies with larger market capitalization do not automatically have stock prices that are higher than those companies with smaller market capitalizations. Generally, the larger the market capitalization, the less risky the investment and smaller the potential returns. The smaller the market capitalization, the riskier the investment and the greater the potential returns. Companies with less than $50 million in market capitalization are […] - Mid Cap
A company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company’s shares outstanding by its stock price. Mid cap is an abbreviation for the term “middle capitalization”. As the name implies, a mid cap company is in the middle of the pack between large cap and small cap companies. Keep in mind that classifications such as large cap, mid cap and small cap are only approximations that change over time. Also, the exact definition of these terms can vary among the various participants in the investment business. (Source: Investopedia) - MLPs (see Master Limited Partnerships)
- Model Portfolio
Model portfolios are a diversified group of ETFs, mutual funds, closed end funds, or even stocks and bonds that are grouped together and seek to achieve an investor’s goal or to provide an expected return with a corresponding amount of risk. Model portfolios can be active or passively managed. Model portfolios assist advisers and investment managers provide consistent investment allocations to various clients. Client accounts invested in model portfolios are usually done so through unified or separately managed accounts (UMA/SMA). - Momentum
The rate of acceleration of a security’s price or volume. The idea of momentum in securities is that their price is more likely to keep moving in the same direction than to change directions. In technical analysis, momentum is considered an oscillator and is used to help identify trendlines. Once a momentum trader sees acceleration in a stock’s price, earnings or revenues, the trader will often take a long or short position in the stock in the hope that its momentum will continue in either an upward or downward direction. This strategy relies on short-term movements in a stock’s price […] - Momentum Investing
A momentum investor focuses on stocks that are rising in value on increasing daily volume, and avoids stocks that are falling in price or that are perceived to be undervalued. The logic is that when a pattern of growth has been established, it will continue to gain momentum and the growth will continue. Momentum investing is essentially the opposite of contrarian investing. (Source: Yahoo! Finance) - Morgan Stanley Capital International Indexes
These indexes are computed by the investment firm Morgan Stanley’s Capital International group (MSCI).They track stocks traded in international stock markets, and are considered the benchmarks for international stock investments and mutual fund portfolios. The strong performance of the Europe and Australasia Far East Equity Index (EAFE) between 1982 and 1996 is often credited with generating increased US interest in investing overseas. The index was considered especially strong compared to the well-known Standard & Poor’s 500-stock Index (S&P 500). (Source: Yahoo! Finance) - Mortgage Backed Security
Mortgage-backed securities are created when the sponsor buys up mortgages from lenders, pools them, and packages them for sale to the public, a process known as securitization. The securities are available through publicly held corporations such as Fannie Mae and Freddie Mac or other financial institutions. Some of the securities are guaranteed by the Government National Mortgage Association, or Ginnie Mae. The money raised by selling the bonds is used to buy additional mortgages, making more money available to lend. The most common mortgage-backed securities, also known as pass-through securities, are self-amortizing, and pay interest and repay principal over the […] - MSCI (see Morgan Stanley Capital International Indexes)
- National Securities Clearing Corporation
National Securities Clearing Corporation is where virtually every mutual fund and collective fund trade is processed. By receiving an NSCC Cusip a Collective Fund is available to trade with virtually any custodian in the US. (Source: Alta Trust). - NAV (see Net Asset Value)
- Net Asset Value (NAV)
The NAV is the dollar value of one share of a fund. It’s calculated by totaling the value of all the fund’s holdings plus money waiting investment, subtracting operating expenses, and dividing by the number of outstanding shares. A fund’s NAV changes regularly, though day-to-day variations are usually small. The NAV is the price per share an open-end mutual fund pays when you redeem, or sell back, your shares. With no-load mutual funds, the NAV and the offering price, or what you pay to buy a share, are the same. With front-load funds, the offering price is the sum of […] - NSCC (see National Securities Clearing Corporation)
- OE
see” Open End Mutual Fund - Open End Mutual Fund
Open-end mutual fund (or open-end fund) is a collective investment vehicle which can issue and redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders. The price at which shares in an open-ended fund are issued or can be redeemed will vary in proportion to the net asset value of the fund, and therefore directly reflects the fund’s performance. Source: Wikipedia
- Passive
An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance. Also known as a buy-and-hold, passive investing requires good initial research, patience and a well diversified portfolio. Unlike active investors, passive investors buy a security and typically don’t actively attempt to profit from short-term price fluctuations. Passive investors instead rely on their belief that in the long term the investment will be profitable. (Source: Investopedia) - Passive Management
An index mutual fund or exchange-traded fund is passively managed when the securities in its portfolio change only when the make-up of the index it tracks is changed. For example, an ETF that tracks the Standard & Poor’s 500 Index buys and sells only when the S&P index committee announces which companies have been added to and dropped from the index. In contrast, mutual funds that are actively managed, their managers buy and sell investments in an attempt to outperform its benchmark index. Their portfolios tend to change more frequently as a result. They also tend to have higher fees. […] - Pension Protection Act of 2006
An act of legislation that makes a large number of reforms to U.S. pension plan laws and regulations. This law made several pension provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 permanent, including the increased IRA contribution limits and the increased salary deferral contribution limits to a 401(k). It also attempts to strengthen the overall pension system and reduce the reliance on the federal pension system and the Pension Benefit Guaranty Corporation. Along with making past provisions permanent, the act also attempts to strengthen the pension system. This is done through the requirement that companies with […] - Pre-IPO
When a portion of an initial public offering (IPO) is placed with private investors right before the IPO is scheduled to hit the market. Typically, these private investors in a pre-IPO placement are large private equity or hedge funds that are willing to buy a large stake in the company. The size of the investment means the price paid for shares in a pre-IPO placement is usually less than the prospective IPO price. It may seem like these private equity and hedge funds would be able to turn around and sell the shares at a higher price right away, but […] - Precious Metals
A classification of metals that are considered to be rare and/or have a high economic value. The higher relative values of these metals are driven by various factors including their rarity, uses in industrial processes and use as an investment commodity.Precious metals include, but are not limited to: gold, silver, platinum, iridium, rhodium and palladium. (Source: Investopedia) WP Glossary Term UsagePlan Sponsor Information on the Endowment Target Risk ModelsReal Asset ModelAsset Class Matrix - Preferred Dividend
A dividend that is accrued and paid on a company’s preferred shares. In the event that a company is unable to pay all dividends, claims to preferred dividends take precedence over claims to dividends that are paid on common shares. Preferred stock will typically pay much higher dividend rates than common stock of the same company. This is the main benefit of owning preferred shares. (Source: Investopedia) - Preferred Stock
Some corporations issue preferred as well as common stock. Preferred stock can be an attractive investment because it typically pays a fixed dividend on a regular schedule. The share prices also tend to be less volatile than the prices of common stock. In fact, preferred stock prices tend to move with changing interest rates in the same way that bond prices do. That’s one reason this type of stock is sometimes described as a hybrid investment because it shares some characteristics with common stock and some with fixed-income securities. What preferred stock doesn’t generally offer is the right to vote […] - Premium to NAV
A mutual fund, closed end fund or ETF whose share price is higher than fund’s net asset value (NAV). The occurrence of significant premiums or discounts with ETFs is rare, whereas with closed end funds it’s common. (Source: ETF Guide) - Private Debt
Money owed by individuals and organizations other than governments (Source: QFINANCE) WP Glossary Term UsagePrivate Equity Model - Private Equity
Private equity is an umbrella term for large amounts of money raised directly from accredited individuals and institutions and pooled in a fund that invests in a range of business ventures. The attraction is the potential for substantial long-term gains. The fund is generally set up as a limited partnership, with a private equity firm as the general partner and the investors as limited partners. Private equity firms typically charge substantial fees for participating in the partnership and tend to specialize in a particular type of investment. For example, venture capital firms may purchase private companies, fuel their growth, and […] - Put
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date. When an investor purchases a put, he or she expects the underlying asset will decline in price. The investor will then profit by either selling the put options at a profit, or by exercising the option. If an investor writes a put contract, he or she is estimating the stock […]
- QDIA (see Qualified Default Investment Alternative)
- Qualified Default Investment Alternative
The QDIA regulations provide a safe harbor for the investment of participant contributions in the absence of an affirmative investment election by the participant. (Source: Graf & Stiebel)
- R-Squared (R2)
R-squared measures the correlation of a fund’s movement in comparison to its corresponding benchmark. An R squared score of 1.00 would indicate a perfect correlation, whereas a score of 0.00 indicates no correlation. (Source: ETF Guide) - Real Estate Investment Trusts
REITs are publicly traded companies that pool investors’ capital to invest in a variety of real estate ventures, such as apartment and office buildings, shopping centers, medical facilities, industrial buildings, and hotels. After an REIT has raised its investment capital, it trades on a stock market just as a closed-end mutual fund does.There are three types of REITs: Equity REITs buy properties that produce income. Mortgage REITs invest in real estate loans. Hybrid REITs usually make both types of investments.All three are income-producing investments, and by law 90% of a REIT’s taxable income must be distributed to investors. That means […] - REIT (see Real Estate Investment Trust)
- REIT ETF
Exchange-traded funds that invest the majority of assets in equity REIT securities and related derivatives. REIT ETFs are passively managed around an index of publicly traded real estate owners; indexes may vary from provider to provider but two popular benchmarks are the MSCI U.S. REIT Index and the Dow Jones U.S. REIT Index, both of which cover about two-thirds of the aggregate value of the publicly-traded REIT market domestically. REIT ETFs are characterized by their above-average dividend yields. REIT securities have traits of both equities and fixed income securities; high dividend yields provide consistent income (REITS must pay out the […] - Risk Adjusted Returns
A concept that refines an investment’s return by measuring how much risk is involved in producing that return, which is generally expressed as a number or rating. Risk-adjusted returns are applied to individual securities and investment funds and portfolios. There are five principal risk measures: alpha, beta, r-squared, standard deviation and the Sharpe ratio. Each risk measure is unique in how it measures risk. When comparing two or more potential investments, an investor should always compare the same risk measures to each different investment in order to get a relative performance perspective. (Source: Investopedia) WP Glossary Term UsagePlan Sponsor Information […]
- SEC (see Securities and Exchange Commission)
- Sector
An industry or market sharing common characteristics. Investors use sectors to place stocks and other investments into categories like technology, health care, energy, utilities and telecommunications. Each sector has unique characteristics and a different risk profile. Dividing an economy into different like-pieces allows for more in-depth analysis of the economy as a whole. Any economy can be divided into sectors, such as the economy of a particular city, or the global economy. The oil and gas sector is an example of an economic sector. It is common for analysts to specialize in certain sectors. For example, at a large research […] - Securities
Traditionally, a security was a physical document, such as stock or bond certificate, that represented your investment in that stock or bond. But with the advent of electronic record-keeping, paper certificates have increasingly been replaced by electronic documentation. In current general usage, the term security refers to the stock, bond, or other investment product itself rather than to evidence of ownership. (Source: Yahoo! Finance) WP Glossary Term UsageWhat are ETFsPrivate Equity ModelETFsETF AcronymsPlan Sponsor Information on the Endowment Target Risk ModelsGlobal Multi-Asset Income ModelReal Asset Model - Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is an independent federal agency that oversees and regulates the securities industry in the United States and enforces securities laws. The SEC requires registration of all securities that meet the criteria it sets, and of all individuals and firms who sell those securities. It’s also a rule making body, with a mandate to turn the law into rules that the investment industry can follow. Established by Congress in 1934, the SEC sets standards for disclosure by publicly traded corporations, and works to protect investors from misleading or fraudulent practices, including insider trading. It has […] - Senior Bank Loans
A debt financing obligation issued by a bank or similar financial institution to a company or individual that holds legal claim to the borrower’s assets above all other debt obligations. The loan is considered senior to all other claims against the borrower, which means that in the event of a bankruptcy the senior bank loan is the first to be repaid, before all other interested parties receive repayment. Senior bank loans are usually secured via a lien against the assets of the borrower. At the time the loan is made, there typically tend to be no other existing liens on […] - Separately Managed Accounts (SMAs)
A SMA is a portfolio of assets under the management of a professional investment firm. One or more portfolio managers are responsible for day-to-day investment decisions, supported by a team of analysts, operations and administrative staff. SMAs differ from pooled vehicles like mutual funds in that each portfolio is unique to a single account (hence the name). In other words, if you set up a separate account with Money Manager X, then Manager X has the discretion to make decisions for this account that may be different from decisions made for other accounts. (Source: Investopedia) WP Glossary Term UsageHow to […] - Sharpe Ratio
Using the Sharpe ratio is one way to compare the relationship of risk and reward in following different investment strategies, such as emphasizing growth or value investments, or in holding different combinations of investments. To figure the ratio, the risk-free return is subtracted from the average return of an investment portfolio over a period of time, and the result is divided by the standard deviation of the return. A strategy with a higher ratio is less risky than one with a lower ratio. This type of analysis, which is done using sophisticated computer programs, is named for William P. Sharpe, […] - Sharpe Ratio
A measure of a fund’s historical returns adjusted for risk or volatility. The calculation is fund return minus the return on 3-month treasury bills divided by the fund standard deviation. (Source: ETF Guide) - Short (Short Position)
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value. In the context of options, it is the sale (also known as “writing”) of an options contract. Opposite of “long (or long position).” For example, an investor who borrows shares of stock from a broker and sells them on the open market is said to have a short position in the stock. The investor must eventually return the borrowed stock by buying it back from the open market. If the stock falls in price, the investor buys it for less than […] - Short Duration
Short Duration are bonds with shorter-dated maturities. WP Glossary Term UsageGlobal Multi-Asset Income ModelShort Duration Fixed Income ModelEndowment Building-Block ETF Models - SMA (see Separately Managed Accounts)
- Small Cap
Small cap refers to stocks with a relatively small market capitalization. The definition of small cap can vary among brokerages, but generally it is a company with a market capitalization of between $300 million and $2 billion. One of the biggest advantages of investing in small-cap stocks is the opportunity to beat institutional investors. Because mutual funds have restrictions that limit them from buying large portions of any one issuer’s outstanding shares, some mutual funds would not be able to give the small cap a meaningful position in the fund. To overcome these limitations, the fund would usually have to […] - Sovereign Bonds
A debt security issued by a national government within a given country and denominated in a foreign currency. The foreign currency used will most likely be a hard currency, and may represent significantly more risk to the bondholder. The government of a country with an unstable economy will tend to denominate its bonds in the currency of a country with a stable economy. Because of default risk, sovereign bonds tend to be offered at a discount. Brady bonds, which are issued by governments in developing countries, are a popular example of sovereign debt securities. (Source: Investopedia) WP Glossary Term UsageShort […] - Spin Off
In a spin-off, a company sets up one of its existing subsidiaries or divisions as a separate company. Shareholders of the parent company receive stock in the new company based on an evaluation established for the new entity. In addition, they continue to hold stock in the parent company. The motives for spin-offs vary. A company may want to refocus its core businesses, shedding those that it sees as unrelated. Or it may want to set up a company to capitalize on investor interest. In other cases, a corporation may face regulatory hurdles in expanding its business and spin off […] - SPIVA Scorecard
SPIVA Scorecard is a published performance report byS&P Dow Jones Indices. SPIVA is the acronym for the scorecard –S&P Indices Versus Active funds (SPIVA). Active funds are the funds that attempt to offer some sort of superior return relative to some benchmark.(Source: S&P Dow Jones Indices) WP Glossary Term UsageGlobal Equity ModelShort Duration Fixed Income ModelGlobal Fixed Income Model
- TAMP (Turnkey Asset Management Platform)
A turnkey asset management program (TAMP) offers a fee-account technology platform that financial advisers (RIAs) can use to oversee their clients’ investment accounts. Turnkey asset management programs (TAMP) free up these professionals’ time to focus on providing clients with service in their areas of expertise, which may not include asset management tasks like investment research and portfolio allocation. TAMPs also handle account administration, billing, and reporting. Essentially, TAMPs let professionals delegate asset management responsibilities to someone else who specializes in it. Mutual fund wraps, ETF wraps, separately managed accounts, unified managed accounts (UMAs), and unified managed households are five types […] - Tax Loss Harvesting
The sale of securities at a loss to for tax purposes, or to offset realized capital gains of winning securities while simultaneously reinvesting the proceeds into securities with a like-kind or highly correlated security to maintain the same or similar market exposure. - Thematic
Top-down investment approach with a focus on broader, macroeconomic themes that a fund manager can use to identify strong companies. (Source: The Financial Times) WP Glossary Term UsageGlobal Equity ModelGlobal Multi-Asset Income ModelReal Asset Model - Third-Party Strategist
The increasing popularity of ETFs has given rise to a new type of asset manager: the ETF Investment Strategist. These specialists bring deep knowledge of ETF portfolio construction and trading experience to the marketplace, and the use of their expertise is growing (Source: iShares by Blackrock website). WP Glossary Term UsageHow to use ETFsETFsWhite PapersWelcome to ETF Model Solutions®Asset Class MatrixOverview - TIPS (Treasury Inflation Protected Securities)
TIPS are U.S. government debt indexed to inflation. The principal of a TIPS either increases with inflation or decreases with deflation, as measured by the Consumer Price Index. At maturity you are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation. (Source: ETF Guide) - Transparency
Transparencyis a measure of how much information you have about the markets where you invest, the corporations whose stocks or bonds you buy, or the mutual funds or other investments you select. For example, in order to achieve maximum transparency in US markets, the Securities and Exchange Commission (SEC) requires corporations to disclose all information that might have an impact on their financial status so that investors can make fully informed decisions. Real-time trading information, increasingly available to individuals as well as institutional investors, and linked pricing systems are other steps toward complete transparency. (Source: Yahoo! Finance). WP Glossary Term […] - Trustee
A trustee is a person or institution appointed to manage assets for someone else’s benefit. For example, a trustee may be responsible for money you have transferred to a trust, or money in certain retirement accounts. Trustees are entitled to collect a fee for their work, often a percentage of the value of the amount in trust. In turn, they are responsible for managing the assets in the best interests of the beneficiary of the trust. That’s known as fiduciary responsibility. (Source: Yahoo! Finance) WP Glossary Term Usage - Turnover
Turnover or Turnover Ratio is a measure of the fund’s trading activity which is computed by taking the lesser of purchases or sales (excluding all securities with maturities of less than one year) and dividing by average monthly net assets. A turnover ratio of 100% or more does not necessarily suggest that all securities in the portfolio have been traded. In practical terms, the resulting percentage loosely represents the percentage of the portfolio’s holdings that have changed over the past year. A low turnover figure (20% to 30%) would indicate a buy-and-hold strategy. High turnover (more than 100%) would indicate […]
- UMA (see Unified Managed Account)
- Unified Managed Account
A professionally managed private investment account that is rebalanced regularly and can encompass every investment vehicle (e.g. mutual funds, stocks, bonds and exchange traded funds) in an investor’s portfolio, all in a single account. The unified managed account is an evolution of the separate account, which is similar in that it is a professionally managed account which is rebalanced often but only contains one type of investment instrument (such as mutual funds). If an investor wanted to have a well-diversified portfolio of stocks, bonds and mutual funds, he or she would need to open three separate accounts. The UMA removes […] - USOE
USOE = U.S. Open End Mutual Fund
- Venture Debt
Venture debt is a form of financing that, when utilized properly, can reduce dilution, extend a business’s runway, or accelerate its growth. All with limited cost to the company itself. In short, it offers a balance between flexibility and dilution for venture equity-backed companies that lack the assets or cash flow for traditional debt financing. Venture Debt is often structured as a term loan that amortizes over time and is complementary to equity financing. (Source: Business Insider Inc.) WP Glossary Term UsagePrivate Equity Model - Volatility
The term volatility indicates how much and how quickly the value of an investment, market, or market sector changes. For example, because the stock prices of small, newer companies tend to rise and fall more sharply over short periods of time than stock of established, blue-chip companies, small caps are described as more volatile. The volatility of a stock relative to the overall market is known as its beta, and the volatility triggered by internal factors, regardless of the market, is known as a stock’s alpha. (Source: Yahoo! Finance) WP Glossary Term UsageGlobal Equity ModelWhite PapersPlan Sponsor Information on the […]
- Weighted
A mathematical process by which figures and/or components are adjusted to reflect importance by value or proportion. A weighted average, for example, takes into account the proportional relevance of each component, instead of measuring each individual component equally. For example, the Dow Jones Industrial Average (DJIA) is a price-weighted average that compares each security based on the stock’s price relative to the sum of all the stocks’ prices. The Nasdaq, on the other hand, is a market capitalization weighted index, where each company is measured relative to its market value. Where the DJIA and Nasdaq indexes utilize weighting in their […] - Weighted Average
An average in which each quantity to be averaged is assigned a weight. These weightings determine the relative importance of each quantity on the average. Weightings are the equivalent of having that many like items with the same value involved in the average. To demonstrate, let’s take the value of letter tiles in the popular game Scrabble. Value: 10 8 5 4 3 2 1 0 Occurrences: 2 2 1 10 8 7 68 2 To average these values, do a weighted average using the number of occurrences of each value as the weight. To calculate a weighted average: Multiply […] - Wide Moat
Wide Moat is a type of sustainable competitive advantage that a business possesses that makes it difficult for rivals to wear down its market share and profit. The term is derived from the water filled moats that surrounded medieval castles. The wider the moat, the more difficult it would be for an invader to reach the castle. Businesses that possess at least one factor of Porter’s 5 forces model would possess a wide economic moat. For example, a business that holds an exclusive patent for the creation of a miracle drug would effectively keep potential competitors out of its business. […]
- Yield Curve
A graph that illustrates the relationship between the yields of bonds with the same credit quality, but with varying maturities. A positive yield curve means short term interest rates are lower versus long term rates. A negative yield curve is just the opposite, whereas a flat yield curve shows little variance in the yields of short term bonds and long term bonds. (Source: ETF Guide)
National Securities Clearing Corporation is where virtually every mutual fund and collective fund trade is processed. By receiving an NSCC Cusip a Collective Fund is available to trade with virtually any custodian in the US. (Source: Alta Trust).
