Glossary

Differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark.

Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell. The opposite of active management is called passive management, better known as "indexing".

Alpha is a measure of performance that compares the realized return with the return that should have been earned for the amount of risk borne by the investor. It represents a measure of the manager's performance. For example, it's insufficient for an investor to consider the success or failure of a mutual fund merely by looking at its returns. The more relevant question is this: was the manager's performance sufficient to justify the risk taken to get said return?

A positive alpha indicates the portfolio manager performed better than was expected based on the risk the manager took with the fund. A negative alpha means that the manager actually did worse than he or she should have given the required return of the portfolio.

The spread, or interest rate difference, between a government security and a non-government security that are the same in every respect except quality rating.

The event in which companies will be unable to make the required payments on their debt obligations. To mitigate the impact of default risk, lenders often charge rates of return that correspond to the debtor's level of default risk. The higher the risk, the higher the required return, and vice versa

Mixing a wide variety of investments within a portfolio. The rationale contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

A measure of the sensitivity of the price of a fixed interest instrument to a change in interest rates.  Expressed in years.

A managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating more consistent positive returns.

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security.

The length of time that an investor expects to hold a security or portfolio. It is used to determine the investor's requirements and objectives, which is then used to aid in portfolio construction.

The degree to which an asset can be bought or sold in the market without affecting its price. A high level of trading activity characterizes liquidity. Liquid assets are assets that can be easily bought or sold. The ability to convert an asset to cash quickly.

An asset class consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange.

Typically long term in nature – e.g. roads, bridges, ports and rail systems.

A method of hedging a portfolio of stocks against the market risk by using options and/or futures.

Land plus anything permanently fixed to it, including buildings, sheds and other items attached to the structure. Although, media often refers to the "real estate market" from the perspective of residential living, real estate can be grouped into three broad categories based on its use: residential, commercial and industrial. Examples of real estate include undeveloped land, houses, condominiums, townhomes, office buildings, retail store buildings and factories.

How much risk is involved in producing a return. i.e. risk/return.