A

Active management
Uses research and analysis to select stocks or other securities with the goal of outperforming a designated index or benchmark.


B

Basis points
One one-hundredth of one percent (0.01%).

Business cycle
The upward and downward movement of gross domestic product over time. The business cycle has four main stages: expansion, peak, contraction and trough.


C

Contractionary monetary policy
A central bank policy characterized by high or rising interest rates with the aim of reining in excessively high inflation.

Corporate bond
A fixed-income offering from a company.


D

De-risk
The process of reducing risk in an investment portfolio.

Dislocation
A discrepancy between the price of a security and its true value.


E

Exchange-traded fund (ETF)
An ETF, or exchange traded fund, is a security that trades openly on a stock exchange and represents an underlying basket of securities (frequently an index). The price of an ETF is determined by supply and demand on the stock exchange, and not (as with mutual funds) by daily net asset value.


F

Free cash flow
Refers to the cash a company generates after accounting for capital expenditures.


I

Inverted yield curve
Represents market conditions in which long-term debt instruments have lower yields than short-term debt instruments. An inverted yield curve has historically been a leading indicator of recession.


S

Security-specific risk
A risk factor that is specific to a particular security.

Spread
The yield difference between two types of fixed-income or credit instrument, typically expressed in percentage points or basis points. A tight spread means the yield difference is small, while a wide spread means the difference is comparatively large.


P

Passive management
An approach that seeks to replicate the performance of a benchmark index.


R

Rerate
To change the rating of a security.

Retained earnings
The percentage of a company’s earnings not paid out to shareholders as dividends.


T

Technical analysis
A method of analyzing securities that focuses on price and trading volume data, among other metrics, to forecast performance.

Technical selling
Selling securities based on technical analysis.


Y

Yield
The amount earned from a fixed-income security.

Yield curve
Graphically illustrates the yields and maturities of bonds of similar credit quality. A normal yield curve slopes upwards (i.e. bond yields rise as maturities lengthen). A flat yield curve indicates that yields on long- and short-maturity debt instruments are roughly the same. An inverted yield curve represents market conditions in which long-term debt instruments have lower yields than short-term debt instruments. An inverted yield curve has historically been a leading indicator of recession. The long or back end of the yield curve is the part of the curve that plots longer-dated bonds. The short or front end of the yield curve is the part of the curve that plots shorter-dated maturities.