A

Absolute return approach
Aims to achieve a specific return target, without reference to an external benchmark.

Absolute spread
The difference in spread between two bonds.

Accommodative monetary policy
A central bank policy that seeks to stimulate economic growth by increasing access to credit through low or reduced interest rates.

Accretive
A business decision that enhances a corporation's profitability or potential profitability.

Accrual accounting
An approach to accounting that records revenues and expenses at the time they are incurred.

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

Active share
A measure of active management that conveys, in percentage terms, the degree to which a portfolio is different from its benchmark.

Activist central bankers
Refers to the interventionist central bank practice of using conventional and unconventional monetary policy tools to influence the direction of the economy.

Agency MBS
A mortgage-backed security issued by a government agency or affiliated body.

All-cap strategy
An investment strategy that invests across the entire market capitalization spectrum. Market capitalization refers to the total value of a company's outstanding shares.

Alpha
An investment return that exceeds the return of the benchmark.

Alternative investment
An investment in unconventional asset classes or strategies.

Annualized return
The average amount earned by an investment each year over a specific time period (assumes compounding of annual returns).

Asset-backed security (ABS)
A security backed by assets, such as loans or a company’s receivables.

Asymmetric risk profile
Refers to a case where the level of risk is disproportionately higher than the anticipated reward.


B

Balance sheet reduction
Refers to the U.S. Federal Reserve’s intention to sell off assets it purchased in the wake of the financial crisis of 2008 to stabilize the financial system and economy.

Balance sheet risk
The risk that balance sheet weakness (e.g. high levels of debt) may cause a company to underperform.

Balance sheet runoff
A type of central bank balance sheet reduction. The central bank lets the bonds it holds mature and does not reinvest the principal repayment.

Balance sheet sensitive bank
A bank that generates the majority of its earnings through loans, or fees on services that don’t require capital, such as wholesaling bonds.

Band of +/- 15%
Refers to the ability of the portfolio management team to increase or decrease the allocation to each of the portfolio sleeves by 15%.

Bank loans
See Senior loans, below.

Barbell strategy
Most commonly refers to a fixed-income investment strategy where 50% of the portfolio is allocated to long-term bonds and 50% to short-term bonds. The term can also refer to any strategy where 50% of the portfolio is in lower-risk securities and 50% is in higher-risk securities.

Base case
The outcome viewed as most likely by the portfolio manager.

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

Bear market
A market decline of 20% or more over two months.

Benchmark agnostic
An approach to asset allocation that is not tied to benchmark weightings.

Beta
Measures the extent to which a stock or portfolio’s volatility reflects that of the overall market.

Black-Litterman Model
Combines elements of the capital asset pricing model and mean-variance optimization theory.

Bond ladder
A portfolio of bonds with staggered maturity dates, designed to provide a consistent income stream.

Bolt-on acquisition
The acquisition of a company that enhances the acquiring company's business.

Bond proxy
A stock with stable, relatively predictable returns, and that offers steady dividend payments. Bond proxies are interest rate sensitive, meaning they tend to underperform in a rising interest rate environment.

Bond spread
The yield difference between two types of bond, typically expressed in percentage points or basis points.

Bond yield
The interest earned on a fixed-income security.

Book value
A company's net asset value.

Bottom-up investing
The process of analyzing and selecting securities based on their fundamental characteristics.

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.

Business to consumer (B2C) companies
Companies that sell products or services directly to consumers.

Buy side
The part of the financial industry involved in purchasing securities. Mutual funds, pension funds and hedge funds are part of the industry's buy side.


C

Call option
The purchaser of a call option has the right, but not the obligation, to buy a security at a specified price from the person who sold the option. These investors agree on the terms of the option, including the price and time period during which the option is valid.

Call protection
Prevents the issuer of a callable security from calling it back for a specified time.

Canadian Dollar Offered Rate
The benchmark rate for bankers' acceptances with a maturity of one year or less.

Capital expenditure
Refers to money a company spends to grow its business.

Capital flows
Refers to the movement of investment dollars in and out of markets.

Capital gain
The profit that results from selling a stock whose price has gone up from the time it was purchased.

Capitalized
A well-capitalized bank or other financial institution has a healthy level of capital on hand relative to its leverage level.

Capital Market Line
Graphically illustrates the attractiveness of asset classes, compared across the capital markets.

Capital ratio
Refers to the amount of capital a financial institution has on hand relative to its lending and debt activity.

Capital structure
Refers to how a company finances its operations; in other words, how debt and equity are allocated on the balance sheet.

Carry
Typically refers to the net benefit of holding an asset.

Cash accounting
An approach to accounting that records payments in the period they are received and expenses in the period they are paid.

Cash drag
Refers to the negative impact on performance of holding uninvested cash in a portfolio.

Climate risk
The risk that companies that contribute to climate change do not have financially sustainable business models over the long term.

Closet indexing
The practice of building a portfolio that follows the benchmark index very closely, while claiming to be an active manager.

Collateralized debt obligation
A securitized pool of income-generating assets, such mortgages. The asset pool serves as collateral for security holders.

Collateralized loan obligation (CLO)
A collection or ‘bundle’ of corporate loans that are offered as an income-generating security. Payments on these loans are the source of the income investors receive.

Command economy
An economic system in which central planning by the government, rather than market forces, determines outcomes.

Commercial mortgage-backed securities (CMBS)
Securities backed by mortgages on commercial properties.

Commission-based (advisor) compensation
An arrangement in which a financial advisor is compensated indirectly, through commissions paid by the mutual fund company, rather than directly by the investor.

Compounding
The increase in future return potential that can result from reinvesting current returns.

Concentrated portfolio
A portfolio that consists of a relatively small number of securities selected after very thorough and rigorous analysis.

Constructive on credit
Refers to a positive outlook for credit investments.

Contagion
Refers to the spread of adverse market conditions from one part of the world to another.

Contrarian
An investment approach that goes against the grain of broad investor sentiment. This typically involves buying high-quality companies undergoing a temporary setback.

Contingent convertible bond (CoCo)
A fixed-income instrument that can, under predefined conditions, be converted into equity.

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

Consumer Price Index (CPI)
The predominant measure of inflation, calculated by tracking the price movements of a basket of consumer goods and services.

Core aggregate strategy
A conventional approach to fixed income that tends to make static allocations to various fixed-income sectors and asset classes.

Core PCE inflation
Refers to price inflation for personal consumption expenditures (PCE), excluding food and energy.

Corporate bond
A fixed-income offering from a company.

Correlation
A measure of how two investments perform in relation to each another. A high positive correlation means the two investments perform very similar to each other (when one goes up, the other goes up to a similar degree, and vice versa), while a high negative correlation means they perform very differently (when one goes up, the other goes down to a similar degree, and vice versa).

Country-specific risk
Economic or market risk factors that are specific to a particular country.

Coupon
The coupon rate is the stated interest rate on a fixed-income security, expressed as a percentage of the security's face value.

Covenant
Refers to the terms of issue of a fixed or floating rate security.

Covered call strategy
Involves writing call options on securities an investor already owns. Typically, an investor will use this strategy when he or she believes those securities are unlikely to rise meaningfully during the period in which the option is valid.

Credit asset coverage
Refers to the extent to which a company’s assets, if sold, would cover its debts.

Credit card receivables
An investment in the anticipated future credit card sales of a business at a discount.

Credit cycle
A credit cycle has two phases: expansion and contraction of access to credit. During an expansion, borrowers have easy access to credit, as interest rates are typically lower and borrowers face less stringent qualifications. During a contraction, it is more difficult for borrowers to access credit as interest rates are typically higher and lending requirements are more strict.

Credit default
Refers to the failure of a company to meet its financial obligations to bondholders.

Credit quality
Refers to the degree to which a borrower can be expected to meet its debt repayment obligations.

Credit rating
Issuer credit quality is assigned a rating by rating agencies such as Standard & Poor’s and Moody’s, usually taking the form of a series of letters (e.g., A, BBB, BBB-, BB+).

Credit ratio
Expresses a company’s debt as a percentage of income.

Credit risk
The risk that an issuer is unable to pay the interest or principal on bonds it issues or loans it takes on.

Credit spread
See Spread, below.

Cumulative performance
The total amount an investment has gained or lost over a period of time.

Currency risk
The risk that an investment’s performance will be reduced by changes in currency exchange rates. This risk is present any time you invest outside of your domestic currency.

Current account
An important metric that measures a country’s balance of trade. When a country’s imports exceed its exports, it has a current account deficit. When a country’s exports exceed its imports, it has a current account surplus.

Cycle-sensitive earnings
Refers to companies whose earnings tend to go up and down in tandem with the business cycle.

Cyclical inflation
A temporary inflationary trend that is linked to a specific stage of the economic cycle or seasonal pattern.

Cyclical sectors
Sectors whose performance is impacted by economic expansions and contractions.

Cyclicals
Securities whose prices are impacted by economic expansions and contractions.


D

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

Decarbonization
Refers to the reduction of a portfolio’s carbon emissions profile.

Default
When a bond issuer fails to make interest or principal payments.

Deferred sales charge (DSC)
A purchase arrangement for mutual fund investments in which the mutual fund company covers the cost of an upfront sales commission that is paid to the investment dealer and advisor. The mutual fund company also pays the advisor and the advisor’s firm a trailing commission for the range of services they provide the investor on an ongoing basis. The investor does not pay this commission directly; the fund’s published performance is net of fees and already includes these costs. Early redemption fees apply if investor exits the fund before a specified period (usually seven years). The invested amount is subject to fees charged by the mutual fund company, which include investment management fees.

Defensive
An investment posture designed to protect against an event or conditions that could have an adverse impact on an asset class or market.

Defensive stock
A stock whose movements are not generally linked to the ups and downs of the business cycle. The opposite of a cyclical stock.

Depressed earnings
Refers to a drop in a company’s earnings.

Deleveraging
Paying off debt or reducing leverage in a business or investment portfolio.

Derivative
A financial instrument whose value and performance is dependent on the value and performance of an underlying security.

Dim-sum bond
A renminbi-denominated bond issued in Hong Kong.

Discount margin
The excess return provided by a floating rate bond relative to a fixed-rate bond.

Discounted cash flow
A metric that shows the present value of expected future cash flows.

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

Dispersion
Refers to the amount of variance in returns between the highest- and lowest-performing investments or asset classes.

Disruption
An emerging trend that challenges the prospects or even the viability of traditional industries or sectors.

Divestment
Refers to the elimination of investments in companies with specific characteristics.

Dividend
A payment to shareholders that can be made in cash or stock. Dividends receive preferential tax treatment compared to interest earnings.

Dividend yield
A financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Dividend yield is represented as a percentage and can be calculated by dividing the dollar value of dividends paid in a given year per share of stock by the dollar value of one share of stock.

Dot plot
Represents the long-term interest rate projections of members of the U.S. Federal Reserve Federal Open Market Committee.

Down capture
The amount of downside a mutual fund experiences relative to a benchmark.

Downside
The actual or potential drop in an investment's price.

Downside protection
Measures a portfolio manager takes to minimize loss in the portfolio if markets fall.

Downside risk
The possibility that an investment will lose value.

Drawdown
Refers to a decline in value of a market or security.

Duration
Measures the sensitivity of fixed-income securities to changes in interest rates. A higher duration means an investment is more sensitive to interest rate volatility. When interest rates fall (rise) a higher duration means a greater increase (decrease) in the price of the security.

Dynamic asset allocation
An approach that adjusts the portfolio’s asset allocation in response to or in anticipation of changing market conditions.


E

EAFE
The acronym for countries in Europe, Australasia and the Far East.

Earnings
A company's profits or net income.

Earnings per share (EPS)
A company's profits per share of common stock outstanding.

EBITDA
A company's earnings before interest, taxes, depreciation, and amortization.

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

Efficient frontier
Refers to theoretically optimal investment portfolios that generate the highest returns per unit of risk.

Efficient market/asset class
A market or asset class is said to be efficient when all publicly available information on the securities within that market or asset class is reflected in the prices of those securities.

Emerging market debt
A debt security issued by an emerging market government or company.

Emerging market debt universe
The entirety of fixed-income opportunities in emerging markets.

Environmental, social and governance (ESG)
Some portfolio managers will only invest in companies with progressive environmental, social and corporate governance policies.

Event risk
The risk that an unexpected economic or other event will negatively impact a company’s financial positon.

Excess capacity
Refers to a condition in which overall demand in an economy is below the level required to fully utilize that economy's total productive capacity.

Excess returns
Returns beyond those of a benchmark.

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.

External (government/sovereign) debt
The total amount owed by a country to foreign creditors.


F

Fed fund futures
Federal Fund Futures prices illustrate the market's views on the probability of changes to U.S. monetary policy. Market participants use these prices as an indication of the likelihood of interest rate changes by the U.S. Federal Reserve.

Fed funds rate
Refers to the interest rate set by the U.S. Federal Reserve.

Fee-based (advisor) compensation
An arrangement in which a financial advisor is compensated directly by the investor.

First lien floating rate bonds
Bonds with floating coupons that are reset every three months, maintain the first lien position in the capital structure and are secured by company assets.

Fiscal deficit
Refers to a condition in which a government’s expenditures over a given period exceed its revenues.

Fiscal policy
Measures a government takes to influence the direction of the economy (e.g., tax rate increases or decreases, government spending increases or decreases).

Fiscal stimulus
A government action or policy designed to stimulate economic activity.

Fixed-rate reset preferred share
A type of preferred share that pays a fixed dividend until its reset date.

Fixed-to-floating interest rate swap
A derivative that is used to manage the impact of fluctuating interest rates. Two parties agree to exchange interest rate cash flows, one with a fixed interest rate and the other with a floating rate.

Fixed-to-floating interest rate swap
A derivative that is used to manage the impact of fluctuating interest rates. Two parties agree to exchange interest rate cash flows, one with a fixed interest rate and the other with a floating rate.

Flattening yield curve
When short- and long-term bonds are offering similar yields and the benefit of holding longer-term bonds is diminished.

Flight to quality
The tendency for investors to gravitate towards safe assets (e.g. developed country government bonds) during times of market uncertainty or high volatility.

Floating rate note
A debt security with a flexible interest rate. The interest rate moves with a designated benchmark or reference interest rate.

Floating rate preferred shares
A preferred share that pays a dividend that varies in tandem with a reference rate.

Forced sale (of stock)
A requirement, permitted under certain contractual conditions, that a minority shareholder sells his or her stock either to majority shareholders or the company.

Forex hedge
A way to minimize currency risk by participating in derivative contracts with parties who have the opposite currency risk.

Forward earnings
A company’s projected or expected earnings.

Forward P/E ratio
The P/E ratio is an important stock valuation metric that measures the price of a company’s shares relative to per-share earnings. The forward P/E ratio is calculated using forecasted earnings instead of historical (trailing) earnings.

Fragility-based monetary policy
Monetary policy that is driven by an effort to stabilize a fragile banking system and/or economy.

Fragmented market
A sector or industry in which there is no dominant company or group of companies. Market share is dispersed across a number of small, medium-sized or larger businesses.

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

Free cash flow yield
A ratio that measures free cash flow per share against market price per share.

Front-end load
A purchase arrangement for mutual fund investments in which the investor pays a negotiated, upfront sales charge to the advisor (a percentage of amount invested in the mutual fund). The mutual fund company pays the advisor and the advisor’s firm a trailing commission for the range of services they provide the investor on an ongoing basis. The investor does not pay this commission directly; the fund’s published performance is net of fees and already includes these costs. The invested amount is subject to fees charged by the mutual fund company, which include investment management fees.

Full capacity (economic)
An economy that is performing at the limit of its current capabilities.

Fundamentals
Refers to the characteristics of a company (or economy) that are analyzed when valuing its worth (or strength).


G

Geopolitical risk
The risk that a major political event (e.g. war, contentious election or referendum) may have a significant, adverse impact on financial markets.

Gig economy
An increasingly common tendency for employers to seek short-term or contract employees.

Global shocks
A major financial or other event that has a significant negative impact on global financial markets.

Global super trend
An investment theme that is expected to be a key driver of capital markets over the long term.

Global unconstrained fixed-income strategy
An approach that has the flexibility to invest in any fixed-income asset class in any region of the world.

Green bonds
Green bonds are securities whose proceeds are used exclusively to fund projects that contribute to environmental sustainability. These bonds are issued by governments and corporations to fund initiatives such as clean transportation, renewable energy and energy efficiency.

Gross domestic product (GDP)
The total dollar value of all goods and services a country produces over a specific time period.

Growth at a reasonable price (GARP)
An investment style that combines elements of value investing and growth investing. A GARP investor is looking for undervalued companies on a strong growth trajectory.

Growth investing
An investment strategy focused on finding stocks with high earnings growth potential. Growth investors typically seek above-average capital gains.

Growth stock
A stock that is expected to have above-average earnings growth. Growth stocks typically do not pay a dividend, but instead reinvest earnings to fuel growth of the company.


H

Handle
Refers to the whole number in a percentage range. For example, a 3% handle refers to values between 3.0% and 3.99%.

Hard currency debt
Bonds issued by emerging market governments that are denominated in a liquid developed market currency, most commonly the U.S. dollar.

Headwind
Unfavourable conditions for investment markets.

Hedging (currency)
A strategy some portfolio managers use when investing in foreign securities. The goal is to fully or partially negate the impact of exchange rate fluctuations on investment performance. An unhedged approach is often used when the portfolio manager believes exchange rate fluctuations will benefit investment performance or be neutral over time.

Hedging (volatility)
A strategy that attempts to reduce the volatility of one asset class held in the portfolio through exposure to other, uncorrelated or negatively correlated asset classes.

Hedge fund of funds
An investment fund whose holdings consist of hedge funds.

High-beta stock
A stock with a volatility profile that closely reflects that of the broader market.

High-yield bond
A fixed-income security with higher risk and higher yield than investment grade bonds. High-yield bonds are rated below BBB (S&P) or Baa (Moody's).

House view
Refers to a company-wide perspective on how to invest and/or the outlook for markets.


I

ICE BofAML Option-Adjusted Spread (OAS)
The calculated spread in yield between a computed OAS index of all bonds in a given rating category and a spot Treasury curve.

ICE BofAML US High Yield Master II Index
Tracks the performance of U.S. dollar-denominated below investment grade rated corporate debt publicly issued in the U.S. domestic market.

Idiosyncratic risk
A risk factor that is specific to a particular company, sector, market or region.

Illiquid
A security that is not readily tradeable.

Income statement
A statement of a company’s performance over a specified period.

Inefficient
A market or asset that is mispriced due to a relative lack of investor attention or interest.

Inflationary policies
Fiscal or monetary strategies used by governments or central banks to promote economic expansion, which typically causes higher inflation.

Initial public offering
The process of transitioning a company from privately held to publicly traded.

Institutional investors
Large investors, such as pension funds, banks, mutual funds, foundations and endowments.

Interest coverage ratio
Shows a company’s capacity to make interest payments on the debt it has issued.

Interest rate risk
The risk that an investment's value will change due to a change in the absolute level of interest rates.

Interest rate sensitive
The degree to which the price of a security fluctuates with interest rate fluctuations.

Interest rate swap
A derivative that is used to manage the impact of fluctuating interest rates.

Intermediate credit
A debt instrument with a maturity period between five and 10 years.

Intrinsic value
The market price that reflects a company's true worth.

Investment grade
A high-quality debt security with a low risk of default. Ratings for investment grade instruments are BBB and above.

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.

ISM Manufacturing Index
Gauges the strength of the manufacturing sector through a variety of factors, including employment and production data.

Issuer
A corporation or government that offers bonds or equity for sale in the public markets.


L

Large-capitalization stock
A company with a market capitalization of more than $5 billion.

Leading indicator
A metric used to forecast the direction of the economy.

Leverage
The amount of debt a firm has on its balance sheet.

Leverage ratios
Financial metrics that help analysts determine whether a company is able to pay its debts.

LIBOR rate
LIBOR or ICE LIBOR (Intercontinental Exchange London Interbank Offered Rate) is considered a standard rate around the world for short-term loans between institutions.

Liquid alternatives
Alternative investments, such as private equity or real estate, typically lack liquidity, i.e., invested capital is not readily redeemable. Liquid alternatives provide more liquid access to alternative asset classes and strategies.

Liquidity
A liquid security is one that is readily available for purchase (for buyers) and easily sold (for sellers) on the open market.

Listed private equity
A listed security that provides exposure to private equity investments.

Local currency debt
Bonds issued by emerging market governments that are denominated in the issuing country's currency.

Loose monetary policy
A central bank policy characterized by low or falling interest rates with the aim of stimulating economic activity.

Long credit
A debt instrument with a maturity of 10 years or longer.

Long investing
The conventional approach to investing, which aims to earn positive returns from securities that appreciate in value.

Long-only investing
An approach to investing that aims to earn positive returns solely from securities that appreciate in value.

Long/short investing
An investment approach that incorporates both long and short positions.

Low-beta stock
A stock with a volatility profile that is dissimilar to that of the broader market.

Low load
A purchase arrangement for mutual fund investments in which the mutual fund company covers the cost of an upfront sales commission that is paid to the investment dealer and advisor. The mutual fund company also pays the advisor and the advisor’s firm a trailing commission for the range of services they provide the investor on an ongoing basis. The investor does not pay this commission directly; the fund’s published performance is net of fees and already includes these costs. Early redemption fees apply if investor exits the fund before a specified period (usually three years). The invested amount is subject to fees charged by the mutual fund company, which include investment management fees.

Low volatility
A low-volatility investment generally has less severe upward and downward fluctuations (measured in standard deviations) than the benchmark index.


M

Mandate
The investment strategy of a mutual fund.

Market capitalization
The total value of a company’s outstanding shares. Can also refer to the total value of a market relative to other markets.

Market neutral strategy
An approach to investing that incorporates both long and short positions in an attempt to have little, if any, net exposure to broad market fluctuations.

Margin
Refers to a company's profits.

Margin of safety
When purchasing an investment that is significantly below its intrinsic value, there is less room for an investment to fall.

Market cycle
A full market cycle includes a peak, downturn, trough and rise to another peak.

Market risk
The risk associated with investing in a broad market, as opposed to a specific security.

Mean reversion
The tendency for prices or economic data points to return to a historical average.

Mid-capitalization stock
A company with a market capitalization value between $2 billion and $5 billion.

Mispricing
Refers to a case where a security is trading below intrinsic (fair) value.

Model
A software-based system of evaluating securities.

Momentum
An approach that invests in securities exhibiting an upward price trajectory.

Monetary policy
The steps taken by a country's central bank to influence the direction of the economy.

Monetary policy normalization
An effort by central banks to return interest rates to their normalized level.

Monetary tightening
A central bank policy that seeks to dampen inflationary pressures by reducing access to credit through higher interest rates.

Mortgage-backed security (MBS)
A security backed by mortgages on residential properties.

Multi-asset investing
Investing in multiple asset classes.

Multi-credit
An approach that invests in multiple types of credit instrument.

Multiple
A ratio that measures a company's financial health and indicates how much investors are willing to pay for a security.

Multiple compression
A reduction in a company's multiple.


N

National Financial Conditions Index (NFCI)
The NFCI measures risk, liquidity and leverage in the U.S. financial system. A zero value for the NFCI indicates that the financial system is operating at average levels of risk, liquidity and leverage. Positive values indicate tighter-than-average financial conditions, while negative values indicate looser-than-average conditions.

Net asset value (NAV)
The per-unit value of a mutual fund, calculated by taking the market price of the fund’s combined holdings, subtracting any liabilities, and then dividing the total by the number of units outstanding.

Neutral monetary policy
A central bank policy that is neither stimulative nor contractionary.

Nominal yield
The stated interest rate or coupon rate on a bond.

Normalized interest rates
The long-term level for interest rates assuming a healthy economy and targeted levels of inflation. The ‘normal’ level for interest rates is currently viewed by many economists and analysts as significantly lower than in the past.

Normal yield curve
A normal yield curve represents market conditions in which long-term debt instruments have higher yields than short-term debt instruments.


O

Oligopolistic industry
An industry that is dominated by a very small number of companies.

Operating income
Refers to earnings before interest and taxes.

Operating leverage
Expresses, in percentage terms, the fixed costs of a company relative to its total costs.

Option
A financial instrument that allows investors to enter into an agreement where one person has the right to buy (sell) a security at a specified price and the other person is obligated to sell (buy). These investors agree on the terms of the option, including the price and time period during which the option is valid. Some options can be exercised within a specific time period (American options), while others are exercised only on a particular date (European options).

Options overlay
A strategy used to manage portfolio risk and/or generate yield through options.

Organic growth
Growth resulting from increased productivity and sales, rather than, e.g., through acquisition of a competitor.

Original equipment manufacturer (OEM)
A manufacturer of goods that are marketed and sold by another company, or components of goods (e.g., auto parts, computer hard drives) that are used in the manufacturing process of another company.

Outcome-focused strategy
An approach to investing that seeks to achieve a specific positive return target, rather than outperform a reference benchmark (which in some cases can mean a negative return).

Outperform
A security, sector or market that generates a higher return than its stated benchmark.

Overnight interest rate
The interest rate at which banks lend each other one-day funds.

Overweight
An overweight position means an investor or investment fund manager is allocating more to an asset class, sector, geographic region or other category than the benchmark weighting.


P

Par value
The face-value of a debt instrument.

Par-weighted default rate
Expresses in percentage terms the number of issuers that default on their bonds.

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

P/E ratio
An important stock valuation metric that measures the price of a company’s shares relative to per-share earnings.

Policy rate
The interest rate set by a country’s central bank.

Price dislocation
Refers to a case where a security is trading below intrinsic (fair) value.

Price-to-book ratio
An important stock valuation metric that measures the price of a company’s shares relative to its book value.

Price-to-cash flow ratio
An important stock valuation metric that measures the price of a company’s shares relative to its free cash flows.

Preferred stock
A type of share ownership in a corporation. Preferred stock dividends are typically paid out before common share dividends. Preferred shareholders are also paid before common shareholders in the event of bankruptcy. Unlike common shares, preferred shares do not generally come with voting rights.

Preservation of capital
Refers to the steps a portfolio manager takes to prevent loss of capital in a portfolio.

Primary market
The primary market is where securities are initially issued; the issuer works with an investment bank to determine the details (including initial price) of the offering.

Private equity
An investment in privately held assets, as opposed to publicly traded securities.

Procyclical
Stocks whose prices move in tandem with the business cycle.

Productivity basket
A basket of investments in companies that sell technology-based productivity-enhancing solutions to other businesses.

Purchasing Managers' Index (PMI)
A key indicator of manufacturing sector strength.

Put option
The purchaser of a put option has the right, but not the obligation, to sell a security at a specified price to the person who sold the option. These investors agree on the terms of the option, including the price and time period during which the option is valid. Typically, investors purchase put options as insurance against the possibility that the stock market could fall. A purchaser of put options who exercises the options in a down market is usually selling securities to the put option seller for a price that exceeds the current market price of the securities being sold.

Put writing
Put writing is a strategy whereby an investor sells a put option contract to another investor. The buyer of the put option pays the seller a specific amount, known as the option premium, in exchange for the right to sell the put writer securities at a specified price within a predetermined timeframe.


Q

Quantitative easing
An unconventional monetary policy tool used by central banks that involves purchasing securities from the open market in an effort to lower interest rates and stimulate the economy.

Quantitative investing
An approach to investing that incorporates sophisticated algorithms and computer modelling to help identify investments that meet a predefined set of criteria.


R

Range bound
Refers to a leveling off of a security or market's price.

Rate reset preferred share
A preferred share whose dividend rate resets at regular intervals, typically every five years. On the reset date, the investor has the option of locking in the new rate or converting to a floating rate preferred share.

Real assets
Hard assets such as real estate and commodities.

Real estate investment trust (REIT)
A security -- often traded on an exchange like a stock -- that provides exposure to real estate assets.

Real interest rates
The rate of interest an investor receives after accounting for inflation.

Real yield
Total yield to the investor after inflation is factored in.

Reflation
Refers to government policies aimed at minimizing deflation and increasing economic output, and with it, inflation. Can also refer to an uptick in inflation following a period of low inflation or deflation.

Relative value
Determining the relative value of a bond involves rating the bond’s valuation relative to the sector benchmark and other issuers in the same sector.

Refinancing (repricing) risk
In a senior loan arrangement, borrowers have the ability to refinance at any time without penalty, which is what they tend to do when they see that investors are flush with cash.

Reinvestment risk
The risk that the proceeds from an investment (principal and interest) will be reinvested, or refinanced, at a lower rate.

Rerate
To change the rating of a security.

Reset rate
A new dividend rate for a preferred share that differs from the original or previous dividend rate.

Residual income
The amount of net income that exceeds the cost of capital.

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

Retention rate
Refers to the rate at which a company retains customers.

Return on shareholder equity
The amount of profit generated per dollar of shareholder equity.

Risk-adjusted return
The amount of return generated by an investment per unit of risk.

Risk assets
Usually a reference to equities and other asset classes with a similar or greater level of risk.

Risk dial score
A proprietary risk measure used by the PineBridge Investments global multi-asset team. A score of 5 represents a bearish assessment of markets; a score of 1 represents a bullish assessment.

Risk-off market
Market conditions in which higher-risk assets tend to perform poorly.

Risk-on market
Market conditions in which higher-risk assets tend to perform well.

Risk premium
The expected excess return from investing beyond risk-free assets.

Rolling period
Refers to a sequence of consecutive months or years. For example, a five-year rolling period is a sequence of five-year periods.

R-squared
Explains how much variability of one factor can be caused by its relationship to another factor.


S

Safe assets
Low-risk (and generally low-return) assets that investors tend to gravitate towards during periods of market stress.

Seasonality
A pattern whereby fluctuations (e.g., in prices or performance) occur with a measure of regularity during the same periods in a given calendar year.

Sector rotation
An investment strategy that attempts to anticipate which sectors are likely to outperform as the business cycle progresses.

Secular
Refers to a long-term trend.

Secular growth
Refers to a long-term growth trend.

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

Sell side
The financial industry’s sell side is made up of a variety of market participants that include investment banks and securities dealers.

Semi-log
A semi-log axis is used to present a large amount of data in a limited amount of space.

Senior debt
Senior debt is a liability that must be paid first in the event of bankruptcy.

Senior loans
In a senior loan arrangement, the lender has first claim on the borrower's assets in the event of bankruptcy. These loans have floating rates that are reset at regular intervals.

Shareholder buyback
Refers to a company purchasing stock it issued from current shareholders.

Shareholder engagement
Refers to the practice of using one's influence as a shareholder to encourage companies to meet a higher standard of social and environmental responsibility.

Sharpe ratio
A widely used measure of risk-adjusted returns.

Shiller CAPE ratio
A widely used stock valuation metric that is calculated by taking the price of a stock and dividing it by the company’s average inflation-adjusted earnings over the previous 10 years.

Short credit
A debt instrument with a maturity of five years or less.

Short position
See Short selling, below.

Short rates
Refers to short-term interest rates.

Short selling
An investment strategy that aims to generate positive returns from falling stock prices. In a short-selling arrangement that unfolds as intended, the investor borrows shares of a stock from a broker and immediately sells them into the open market; after the price falls, the investor purchases the same number of shares in the open market and returns them to the broker. The investor’s profit is the difference between the proceeds of the sale of the shares and the amount paid to later purchase them, less borrowing and transaction costs. Investors can achieve the same exposure provided by shorting through the use of certain types of derivatives; in this case, it is not necessary to borrow, sell and purchase physical securities.

Sleeve
A segment of a mutual fund portfolio.

Smart beta
An investment approach that builds a fund around a specific factor such as volatility or price momentum.

Small-capitalization stock
A company with a market capitalization of $300 million to $2 billion.

Socially responsible investing (SRI)
The practice of investing with a view to both social/environmental responsibility and financial gain.

Soft price
Refers to a price of a security that is either steady or falling slowly.

Sortino ratio
Used to measure an investment’s return for a given level of downside volatility.

Sovereign bonds
Bonds issued by a government.

Sovereign wealth fund
An investment fund owned by a government.

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.

Spread compression
A narrowing of bond or other fixed-income spreads.

Standard deviation
A measure of historical volatility and the most common measure of risk in the investment industry. In general, the higher the standard deviation, the higher the risk associated with an investment.

Strategic asset allocation
The long-term, baseline or neutral asset mix for an investment portfolio.

Strip bond
A bond whose principal and coupon are sold separately.

Style box
A category defined by a specific investment style, such as value investing or growth investing.

Style drift
When a portfolio manager deviates from his or her stated approach to investing.

Subordination
Refers to assets below a specific asset in a company’s capital structure.

Surprise risk
The risk of an unanticipated adverse impact on a portfolio.

Systematic investing
A model-driven, quantitative approach to security selection.


T

Tactical asset allocation
An approach that makes asset allocation shifts based on immediate-term market events.

Tail risk
Refers to the probability that an investment will move more than three standard deviations from the mean.

Tailwind
Refers to a favourable condition for particular investments or the market as a whole.

Target return approach
An approach to investing that seeks a specific return across a full market cycle.

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

Technical correction
Refers to a marked decrease in asset prices that follows an extended period of price increases.

Technical factors
Refers to price and trading volume data, among other metrics, which are used to forecast the performance of securities or markets.

Technical selling
Selling securities based on technical analysis.

Tenor
The maturity period for a fixed-income instrument.

Top-down investing
An approach to investing that bases asset allocation decisions fully or partly on macroeconomic analysis and analysis of the broader markets.

Top-down risk
Refers to macroeconomic risk factors.

Total return
An investment return that includes any interest, capital gains, dividends and distributions.

Trailing earnings
A company’s actual recorded earnings.

Tranche
A portion or ‘slice’ of a debt offering. Higher (senior) tranches generally offer less risk and lower returns, while lower tranches offer potential for greater income but with elevated levels of risk.

Treasury Inflation Protected Securities (TIPS)
A U.S. government-backed treasury bill that protects the investor from inflation because the par value of the bill is adjusted in step with inflation.

Treasury notes
Debt instruments issued by the U.S. government with fixed interest rates and maturities that range from one to 10 years.

Turnover
Refers to the frequency of security trading in a portfolio.


U

Uncompensated risk
A risk for which there is no potential reward.

Unconstrained
An approach to investing that is not constrained by benchmark or other asset class weighting requirements.

Uncorrelated
Refers to securities or portfolios that do not move in tandem with other securities or portfolios.

Underperform
A security, fund, sector or market that generates a lower return than its stated benchmark or point of comparison.

Underweight
Allocating less to an asset class, sector, geographic region or other category than the benchmark weighting.

Universe
Refers to the totality of offerings within a particular asset class or market.

Up capture
The amount of upside a mutual fund experiences relative to a benchmark.

Upside
The profit generated by an investment.


V

Valuation
A measurement of how much an investment is worth. It is determined by analyzing a variety of factors, including financial statements and industry statistics.

Value investing
An investment strategy that seeks to identify and purchase securities that are trading below their true (intrinsic) value. The goal is to sell the securities for a profit when their market prices reflect intrinsic value.

Value stock
A stock that is trading at a price that is below the company's true or intrinsic value.

VIX
Also known as the “fear gauge,” the VIX is a commonly referenced measure of equity market volatility.


W

Weighting
The size of a security, sector or market relative to other constituents in the benchmark.

Western Canadian Select
The main benchmark for Canadian crude oil.

West Texas Intermediate
A key benchmark for crude oil prices.


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.

Yield to maturity
The yield an investor will receive from a bond, assuming the bond is held until the maturity date.


Z

Zero-coupon bond
See Strip bond, above.

Zero lower bound
When interest rates are at or near 0%, central banks have little or no ability to lower interest rates further in a bid to stimulate economic growth.


Other

130/30 strategy
An approach to investing whereby the equivalent of 130% of fund assets are invested in long positions, and the equivalent of 30% of fund assets are invested in short positions.

2-5 spread
The yield difference between a country’s 2-year and 5-year government bond.

2-10 spread
The yield difference between a country's 2-year and 10-year government bond.

10-year rate
Refers to the yield on the U.S. 10-year government bond.