Alpha: A measure of the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the fund performed better than its beta would predict. In contrast, a negative alpha indicates the fund’s underperformance, given the expectations established by the fund’s beta. All MPT statistics (alpha, beta, and R-squared) are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.
Asset-Backed Security: An asset-backed security is a security whose value and income payments are derived from and collateralized (or "backed") by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually. Pooling the assets into financial instruments allows them to be sold to general investors, a process called securitization, and allows the risk of investing in the underlying assets to be diversified because each security will represent a fraction of the total value of the diverse pool of underlying assets.
The Barclays Capital Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market. The index tracks general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds rated Baa3/BBB- or higher by at least two of the ratings agencies: Moody's, S&P, Fitch.
Basis Point (BPS): A unit equal to 1/100th of 1%. 1% = 100 basis points (bps).
Beta is a measure of market-related risk. Less than one means the portfolio is less volatile than the index, while greater than one indicates more volatility than the index.
A bond credit rating assesses the financial ability of a debt issuer to make timely payments of principal and interest. Ratings of AAA (the highest), AA, A, and BBB are investment-grade quality. Ratings of BB, B, CCC, CC, C and D (the lowest) are considered below investment grade, speculative grade, or junk bonds.
Build America Bonds (BAB) are taxable bonds issued by state and local governments. The U.S. Treasury then provides these entities with a direct federal subsidy for a portion of the borrowing costs.
Carry Trade - A strategy in which an investor sells a certain financial instrument with a relatively low interest rate and uses the funds to purchase a different financial instrument yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.
Collateralized Debt Obligation (CDO): An investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.
Compound Annual Growth Rate (CAGR) – The year-over-year growth rate of an investment over a specified period of time. It describes the rate at which an investment would have grown if it grew at a steady rate.
Consumer Price Index (“CPI”) measures prices of a fixed basket of goods bought by a typical consumer, including food, transportation, shelter, utilities, clothing, medical care, entertainment and other items. The CPI, published by the Bureau of Labor Statistics in the Department of Labor, is based at 100 in 1982 and is released monthly. It is widely used as a cost-of-living benchmark to adjust Social Security payments and other payment schedules, union contracts and tax brackets. Also known as the cost-of-living index.
Deleveraging - A process undertaken by a company in an attempt to reduce its financial leverage by decreasing the amount of debt that it has.
Dividend yield is ratio that shows how much a company pays out in dividends each year relative to its share price.
Dubai Financial Market General Index (DFM) is a capitalization weighted price index comprising stocks of listed companies, whose primary listings debuted on DFM on or after January 1st, 2004.
Duration is a bond’s sensitivity to interest rates.
Earnings per Share (EPS): The total earnings divided by the number of shares outstanding.
EBITDA: An indicator of a company’s financial performance with is calculated as follows: EBITDA=Revenues-Expenses(excluding interest, tax, depreciation and amortization).
The EURO STOXX 600: With a fixed number of 600 components, the STOXX Europe 600 Index represents large-, mid- and small-capitalization companies across 18 countries of the European region: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
Expense Ratio: The percentage of assets paid for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund’s NAV. Sales charges are not included in the expense ratio.
The Fed Funds Rate is the interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight.
General Obligation Bond: A municipal bond backed by the credit and “taxing power” of the issuing jurisdiction rather than the revenue from a given project.
Lipper General Municipal Debt Funds Index is an unmanaged index considered representatiove of general municipal debt funds tracked by Lipper.
Loan to Deposit Ratio – The amount of a bank’s loans divided by the amount of its deposits at any given time. The higher the ratio, the more the bank is relying on borrowed funds, which are generally more costly than most types of deposits.
NASDAQ Composite Index is a market value-weighted, technology-oriented index composed of approximately 5,000 domestic and non-US-based securities.
Net Asset Value (NAV) is the value of a mutual fund share not including a deduction of a sales charge.
Operation Twist – A monetary process where, in an attempt to lower long-term interest rates, the Fed sold short-term Treasury bonds and bought long-term Treasury bonds, which pressured the long-term bond yields downward.
Price/Book ratio (P/B ratio) is a ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
Price/Earnings ratio (P/E ratio) is a valuation ratio of a company’s current share price compared to its per-share earnings. P/E equals a company’s market value per share divided by earnings per share.
Price/Cash Flow is the measure of the market's expectations regarding a firm's future financial health. It is calculated by dividing price per share by cash flow per share.
QE2 or Quantitative Easing 2 - The second round of the Federal Reserve’s monetary policy used to stimulate the U.S. economy following the recession that began in 2007/08. QE2 was initiated in the fourth quarter of 2010 in order to jump-start the sluggish economic recovery.
REITs: A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations, and typically offer investors high yields as well as a highly liquid method of investing in real estate.
Return on Equity is a measure of a corporation's profitability. The ROE is useful in comparing the profitability of a company to other firms in the same industry.
Revenue Bond – A bond on which the debt service is payable solely from the revenue generated from the operation of the project being financed or a category of facilities, or from other non-tax sources.
Riskless (or risk-free) interest rate – The theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest that an investor would expect from an absolutely risk-free investment over a given period of time. Though a truly risk-free asset exists only in theory, in practice most professionals and academics use short-dated government bonds, such as a three-month U.S. Treasury bill.
Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership.
S&P 500 Index is an unmanaged broad measure of the U.S. stock market.
The S&P California AMT-Free Municipal Bond Index is designed to measure the performance of the investment-grade tax-exempt California municipal bond market.
The S&P New York AMT-Free Municipal Bond Index is designed to measure the performance of the investment-grade tax-exempt New York municipal bond market.
SEC Yield is computed in accordance with SEC standards measuring the net investment income per share over a specified 30-day period expressed as a percentage of the maximum offering price of the Fund’s shares at the end of the period.
Sharpe Ratio: A risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the fund’s historical risk-adjusted performance. The Geometric Sharpe ration is calculated for the past three-year period by dividing a fund’s annualized excess returns by its annualized standard deviation.
Sovereign debt usually refers to government debt that has been issued in a foreign currency.
Standard Deviation: A statistical measurement of dispersion about an average which, for a mutual fund, depicts how widely the returns varied over a certain period of time. Investors use the standard deviation of historical performance to try to predict the range of returns that are most likely for a given fund. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility.
Tender Option Bond Programs allow investors to leverage their assets by borrowing at short-term rates and investing in higher yielding longer-term bonds.
TIPS – Treasury Inflation Protected Securities: TIPS are either a U.S. Treasury note or bond that offers protection from the effects of inflation. Using the Consumer Price Index as a guide, the value of the principal is adjusted to reflect the effects of inflation. A fixed interest rate is paid semi-annually on the adjusted amount. At maturity, if inflation has increased the value of the principal, the investor receives the higher value. If deflation has decreased the value, the investor receives the original face amount of the security.
Treasury bill is a debt obligation of the US government backed by the “full faith and credit” of the government. Bills are short-term instruments with maturities of no more than one year. Treasury bills function like zero-coupon bonds. Investors buy bills at a discount from the par, or face value and then receive the full amount when the bill matures.
Treasury bond is a debt obligation backed by the “full faith and credit” of the US government. Treasury Bonds cover terms of more than ten years and are currently issued only in maturities of 30 years. Interest is paid semi-annually.
Treasury note is a debt obligation of the US government backed by the “full faith and credit” of the government. Notes are intermediate to long term investments typically issued in maturities of two, five and ten years. Interest is paid semi-annually.
U.S. Treasury securities, such as bills, notes and bonds, are negotiable debt obligations of the U.S. government. These debt obligations are backed by the “full faith and credit” of the government and issued at various schedules and maturities. Income from Treasury securities is exempt from state and local, but not federal, taxes.
Yield Curve – A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The greater the slope of the yield curve, the greater the gap between short- and long-term rates.
Yield-on-cost refers to the yield earned on the original cost of an investment and is defined as the yield earned in the period divided by the original cost of the investment. This measure differs from the traditional yield measure, which divides the yield by the current price. In a market where a security has risen in price and the dividend yield has remained consistent or increased, the yield-on-cost will tend to be higher than the current yield.
Yield to maturity is the rate of return anticipated on a bond if it is held until maturity date.
