Glossary Terms

Glossary

Terms  Definitions
12 b-1 Fee Fee assessed by a mutual fund to cover advertising and promotion expenses. It is assessed against the net assets of the fund, so all fund shareholders pay it. A 12b-1 fund must be registered with the Securities and Exchange Commission (SEC), and the charge must be disclosed in the fund's prospectus.
30-Day Dividend Yield The 30-day dividend yield represents the average daily dividends for the 30-day period, annualized and divided by the net asset values per share at the end of the period.
30-Day SEC Standardized Yield The 30-day SEC yield represents net investment income earned by a fund over a 30-day period, expressed as an annual percentage rate based on the fund's share price at the end of the 30-day period. The formula for calculating this yield is specified by the U.S. Securities and Exchange Commission (SEC) and assumes all portfolio securities are held until maturity. The formula translates the bond fund's current portfolio income into a standardized yield for reporting and comparison purposes.
30-Day SEC Yield With Waivers 30-day SEC yield with waivers means the yield takes into account a fund’s expense reduction, and reflects an estimated yield to maturity. It should be regarded as an estimate of the fund’s rate of investment income, and it may not equal the fund’s actual income distribution rate, which reflects a fund’s past dividends paid to shareholders. The 30-day SEC yield with waivers is calculated in accordance with SEC standards.
30-Day SEC Yield Without Waivers 30-day SEC yield without waivers means the yield does not take into account a fund’s expense reduction, and reflects an estimated yield to maturity. It should be regarded as an estimate of the fund’s rate of net investment income, and it may not equal the fund’s actual income distribution rate, which reflects a fund’s past dividends paid to shareholders. The 30-day SEC yield without waivers is calculated in accordance with SEC standards.
30-Day Median Bid/Ask Spread 30-day median bid/ask spread reflects the median of the difference between the best bid and offer as of the end of each 10-second interval during each trading day of the last 30 calendar days (or since inception, if shorter).
7-day Annualized Yield A method of calculating a money fund's yield by annualizing the fund's net investment income for the last seven days of each period divided by the fund's net asset value at the end of the period.
Active Management Actively managed funds are investment strategies that are directly managed by a manager or team of managers who select securities with the intention of beating their intended market index or benchmark. 
Active Share Active share represents the portion of portfolio holdings that differ from an index.
Active Weight Active weight reflects over/under relative to an index.
After-Tax Returns The returns presented reflect the return before taxes, the return after taxes on dividends and capital gain distributions, and the return after taxes on dividends, capital gain distributions, and gains (or losses) from the redemption of shares held for 1-, 5-, and 10-year or since-inception periods as applicable. After-tax returns reflect the highest federal income tax rate but exclude state and local taxes. The after-tax returns reflect the rates applicable to ordinary and qualified dividends and capital gains effective in 2003. During periods when the fund incurs a loss, the post-liquidation after-tax return may exceed the fund's other returns because the loss generates a tax benefit that is factored into the result. An investor's actual after-tax return will likely differ from those shown and depend on his or her tax situation. Past before- and after-tax returns do not necessarily indicate future performance.
Alpha Alpha compares risk-adjusted performance relative to an index. Positive alpha means outperformance on a risk-adjusted basis.
Annual Rate of Return Annual rate of return is the annual rate of gain or loss on an investment expressed as a percentage. 
Annualized Std. Deviation This indicates the volatility of a portfolio's total returns as measured against its mean performance. Unlike alpha and beta, which are relative to a benchmark index, standard deviation is an absolute measure. In general, the higher the standard deviation, the greater the volatility or risk.
Appreciation Appreciation is an increase in the value of an investment.
Asset An asset is anything with commercial or exchange value owned by a business, institution, or individual. Examples include cash, real estate, and other investments.
Asset Allocation Asset allocation is the process of distributing money across different asset classes with the intention of maximizing portfolio returns and minimizing risk. It does not guarantee a profit or ensure againt a loss.
Asset Class Asset class is a category of investments that have a similar behavior, risk and return potential. 
Average Annual Total Return Return on an investment over a specified period, including price appreciation (or depreciation) plus any reinvested income, expressed as an average annual compound rate of return. Average Annual Total Return is always hypothetical and should not be confused with actual year-by-year results. It smoothes out all of the variations in annual performance to tell you what constant year-by-year return would have produced the investment's actual cumulative return. This gives you an idea of an investment's annual contribution to your portfolio, provided you held it for the entire period.
Back-end Load A charge an investor pays when withdrawing money from an investment. It is designed to discourage withdrawals. Back-end loads typically decline each year a shareholder remains in a fund.
Basis Point (bp) One basis point (bp) equals 1/100 of a percentage point (1 bp = 0.01%, 100 bps = 1%).
Batting Average Batting average is defined as the percentage of periods an investment has outperformed an index.
Benchmark (see Index) Benchmark refers to an unmanaged group of securities whose performance is used as a standard to measure investment performance.  You cannot invest directly in a benchmark.
Beta Beta measures the volatility of a security or portfolio relative to an index. A beta of less than one means lower volatility than the index; more than 1 means greater volatility.
Bid-to-Cover Ratio Bid-to-cover ratio is used to measure the demand for a particular security during offerings and auctions. A high ratio is an indication of strong demand and vice versa.
Bond A bond is an investment that pays a fixed rate of return through interest or dividend income. There are different types: corporate, Treasury, high-yield and municipal with varying durations and risk levels. 
Bond Rating A bond rating is an evalulation of creditworthiness for a fixed income investment. Higher-rated bonds are the most likely to fulfill obligations whereas lower-rated bonds are less likely.
Capital Gain Capital gain refers to profits gained from the sale of a capital asset that has increased in value over the holding period. 
Capital Loss Capital loss occurs when an asset is sold for less than its purchase price. 
Capitalization (Cap) or Market Cap Capitalization refers to the total equity value of a company's publicly traded shares. 
Capture Ratio Capture ratio measures the performance an investment "captured" during periods when gains over an index are achieved (up capture) or declined (down capture). A capture ratio of 100% means investment performance went up or down exactly the same amount as the index.
Carry Carry is the excess income earned from holding a higher-yielding security relative to another.
Collaterized Loan Obligations (CLOs) Collaterized loan obligations are securitized portfolios of bank loans structured into slices, or tranches, of varying credit risk.
Compound Interest Compound interest is calculated on the principal amount and the accumulated interest of previous periods, and thus can be regarded as “interest on interest.” In contrast, simple interest is a one-time calculation on the principal amount.
Correlation Correlation measures the degree to which two variables move in relation to each other. A value of 1.0 implies movement in parallel, -1.0 implies movement in opposite directions, and 0.0 implies no relationship.
Credit Default Swap A credit default swap involves regular payments from the buyer to the seller in exchange for repayment of principal value to the buyer if the issuer experiences a credit event such as default.
Credit Risk Credit risk is the that a bond issuer will default, meaning not repay principal or interest to the investor as promised. Credit risk is also known as “default risk.” 
Credit Risk Transfer (CRT) Securities Credit risk transfer (CRT) securities are a type of mortgage backed security issued by Fannie Mae or Freddie Mac but with the credit risk borne by private investors. CRTs can incur losses if enough homeowners in a pool of mortgages default on their loans.
Credit Spread Credit spread is the difference in yield between securities with similar maturity but different credit quality. Widening spreads generally indicate deteriorating creditworthiness of corporate borrowers, and narrowing indicate improving.
Current Yield Current yield represents the weighted average coupon on securities held in the portfolio as a percentage of the weighted average price.
CUSIP Number Identification number assigned to every stock, corporate bond, and municipal bond by the Committee on Uniform Securities Identifications Procedures (CUSIP), which is established by the American Bankers Association.
Deflation Deflation refers to the opposite of inflation-a general decline in the prices of goods and services. 
Depreciation Depreciation refers to a decrease in the value of an investment. 
Diversification Diversification is the practice of investing in multiple asset classes and securities with different risk characteristics in an effort to reduce the risk of owning any single investment. 
Dividend Dividends are portions of a company's profits that are returned to stockholders. 
Dividend Income The distribution of earnings to stockholders and shareholders. The per-share amount is decided by the board of directors. On individual stocks, dividends are usually paid quarterly. Mutual fund dividends are paid out of net income and may be distributed on a monthly, quarterly (March, June, September, and December) or annual basis.
Dividend Yield Dividend yield is the yield a company pays out to shareholders in the form of dividends. It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock's price.
Duration Duration measures a bond price’s sensitivity to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.
Earnings Growth Rate Earnings growth rate refers to the annualized rate of growth of earnings for a stock or stocks in a portfolio over a given forward looking or trailing period.
Enhanced Beta or Smart Beta Enhanced beta or smart beta refers to a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization-based indices.
Equity/Equities An equity is security or investment representing ownership in a corporation. It is different from a bond, which represents a loan to a borrower. The term is often used interchangeably with “stock.”
Equity Research Long/Short Relies on fundamental research to provide long and short exposure to global large-cap stocks. Long positions are established in companies the financial professional views as most attractive and short positions are established in companies viewed as least attractive.
Excess Return Excess return indicates the extent to which an investment outperformed or underperformed an index.
Expense Ratio - Gross and Net The gross expense ratio reflects fund expenses as stated in the fee table of a fund's prospectus prior to the deduction of any waiver or reimbursement. The net expense ratio reflects fund expenses after the deduction of any waiver or reimbursement. 
Ex-Dividend/Reinvestment Date The date on which a stock's price drops by the amount of a previously announced dividend. It is the day after the "record date," defined later. Stocks trading "ex dividend" have an "x" next to their name.
Factor Investing or Factor Analysis Factors or factor analysis is an investment approach that involves targeting quantifiable firm characteristics or “factors” that can explain differences in stock returns. Over the last 50 years, academic research has identified hundreds of factors that impact stock returns.
Fiscal Year Accounting period covering 12 consecutive months, 52 consecutive weeks, 13 consecutive four-week periods, or 365 consecutive days, at the end of which the books are closed and a profit or loss is determined.
Fixed Income Absolute Return Seeks consistent positive returns without constraints to particular benchmarks or fixed income asset classes.
Front End Load Sales charge applied to an investment at the time of purchase. For example: An investor who purchases $10,000 of a fund with a 4% front end load will invest only $9,600 initially.
Glide Path Glide path refers to a target date or age-based fund's asset allocation mix shifting from a focus on riskier securities to a focus on less risky securities. 
Government Securities Government securities are debt obligations issued by a government or its agencies.
Inception Date The date on which the fund commenced operations.
Income Dividends For a mutual fund, a distribution of dividends and interest earned on the fund's underlying securities.
Index (see Benchmark) An index or benchmark refers to an unmanaged group of securities whose performance is used as a standard to measure investment performance.  You cannot invest directly in an index.
Index Fund An index fund is an investment fund that seeks to parallel the performance of a particular stock market or bond market index. Index funds are often referred to as passively managed investments. 
Inflation Inflation refers to the overall general upward price movement of goods and services in an economy. Inflation is one of the major risks to investors over the long term because it erodes the purchasing power of savings.
Information Ratio Information ratio is a measurement of returns above a benchmark compared with the volatility of those returns. It is an indicator of portfolio management performance in excess of a given benchmark.
Interest/Interest Rate Interest represents the fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer. 
Intraday Value, also called Intraday Indicative Value (IIV) or Indicative Optimized Portfolio Value (IOPV) Intraday value represents a real-time estimate of an exchange-traded fund's fair value, based on the most recent prices of its underlying securities.
Inverse (or Short) Exposure Inverse (or short) exposure means the performance of an investment will move in the opposite direction of the underlying index or asset.
Investment Objective An investor's financial goal, such as long-term capital growth or current income. Investors' objectives, combined with their risk profiles, help them narrow their search for investment vehicles appropriate for their particular needs.
Investment Strategy A plan to allocate assets among investments, including stocks, bonds, commodities, and real estate, to reach a financial goal. A strategy should be based on an investor's age, tolerance for risk, amount of capital available to invest, and future needs for capital.
Level Load A sales charge that does not change over time. Although a level load will typically be lower than a front-end or back-end load, investors end up paying a higher commission if they hold the fund for many years.
Load Sales charge paid by an investor who buys shares in a load mutual fund or annuity.
Long-term Capital Gain The difference between the purchase price of a security and the price at which it was sold. For tax purposes, the profit or loss realized from the sale of securities or other capital assets held for more than 12 months. Quarterly distributions are paid at the end of each quarter (Mar, Jun, Sep, and Dec). Annual distributions are paid in December.
Macro and Absolute Return Seeks to leverage global research expertise to select investments that we believe represent the best investment ideas across all equity and fixed income asset classes.
Management Fee Management fees, whether paid as a fund expense ratio or a fee paid to an advisor, are charges levied for managing an investment.  The fee is intended to compensate the managers for their time and expertise selecting securities and managing the portfolio.
Median Market Capitalization The value of a corporation calculated by multiplying the number of outstanding shares by the current share price.
Net Assets ($M) Differences between a company's total assets and liabilities.
Net Asset Value (NAV) Net asset value represents the value of a fund's assets after deducting its liabilities from its assets on a per-share basis.
Net Zero Net zero refers to greenhouse gas production being balanced by removal from the atmosphere.
No-Load Mutual fund offered by an open-end investment company that imposes no sales charge (load) to purchase shares. Investors can buy shares directly from the fund company, rather than through a broker.
Omega Ratio Omega ratio measures the change in an option's value with respect to the percentage change in the underlying price. It gives option investors an idea of how the option price and the stock price that underlies it move together.
Operating Expenses Operating expenses are asset-based expenses paid out of a fund's or portfolio's assets as a percentage of the value, and can include the investment advisory fee; marketing and distribution expenses; and custodial, transfer agency, legal and accounting fees. 
Option-Adjusted Spread Option-adjusted spread measures the spread between a fixed income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option.
Passive Management Passive investments seek to match the performance of their benchmark; therefore, holdings generally are not selected or reallocated based on changes in market conditions. As a result, the investment’s performance will typically differ from the performance of actively managed investments.
Pay Date Date on which a declared dividend is scheduled to be paid.
Premium/Discount Premium/discount indicates whether a security is currently trading above (at a premium to) or below (at a discount to) its net asset value.
Price-to-Book (P/B) Ratio Relationship between the market price of a stock and company's book value per share. Book value refers to the value at which an asset is carried on the balance sheet. Price-to-book can be used as a guide to determine whether a stock is currently overpriced or underpriced.
Price-to-Earnings (P/E) Ratio Price-to-earnings ratio measures share price compared to earnings per share for a stock or stocks in a portfolio.
Price-to-Earnings (P/E) Ratio - Current Fiscal Year P/E is a valuation measure calculated by dividing the price of a stock by its reported earnings per share from the latest fiscal year. The ratio is a measure of how much investors are willing to pay for the company's earnings. The higher the P/E, the more investors are paying for a company's current earnings.
Price-to-Earnings (P/E) Ratio - Next Fiscal Year P/E is a valuation measure calculated by dividing the price of a stock by its estimated earnings for the next fiscal year. The ratio is a measure of how much investors are willing to pay for the company's future earnings. The higher the P/E, the more investors are paying for the company's expected earnings growth in the next fiscal year.
Price-to-Earnings Ratio (P/E) - 12 Months Forward P/E is a valuation measure calculated by dividing the price of a stock by the analysts' forecast of the next 12 months expected earnings. The ratio is a measure of how much investors are willing to pay for the company's future earnings. The higher the P/E, the more investors are paying for a company's earnings growth in the next 12 months.
Price-to-Cash Flow (P/CF) Ratio Price-to-cash flow ratio measures the current price of a company's stock relative to the amount of cash generated by the company.
Projected Earnings Growth Rate Projected earnings growth rate (IBES) is a company's expected earnings per share growth rate for a given period based on the forecast from the Institutional Broker's Estimate System, which is commonly referred to as IBES.
Prospectus A fund prospectus details the investment objectives and strategies of a particular fund or group of funds, as well as the fund's past performance, managers and financial information. 
Quantitative Equity Long/Short Relies on quantitative research capabilities to provide long and short exposure to small- and mid-cap U.S. stocks.
Real Rates Real rates are equal to the difference between the 10-year nominal U.S. Treasury yield and expected inflation.
Record Date The date on which stock shareholder eligibility is identified for the purposes of dividend payout.
Redemption Fee Fee charged to shareholders by a mutual fund when they sell shares within a specified period. The time limit and size of fee vary among funds. The fee is usually paid to the fund, not the fund's investment professional. Its purpose is to protect long-term investors from short-term traders.
Reinvestment Price The price per share at which a mutual fund's dividends and/or capital gains are invested. This reduced price reflects the distribution of dividends and/or capital gains and is commonly referred to as the "ex-dividend" price.
Repurchase Agreements Repurchase (repo) agreements are short-term loans collateralized by U.S. government securities.
Return on Invested Capital Return on invested capital is a measure of how effectively a company used the money invested in its operations.
Risk-Free Rate Risk-free rate of return is a theoretical return of an investment with zero risk and the measure is used as a rate against which other returns are measured.
Risk/Reward The relationship between the degree of risk associated with an investment and its return potential. Typically, the higher the potential return of an investment, the greater the risk.
Roll down Roll down is the tendency of a fixed income security’s market price to approach its par value as it nears maturity.
R-squared (R2) R-squared measures the relationship between portfolio and index performance on a scale of 0.00 (0%) to 1.00 (100%). A higher R2 indicates more of the portfolio's performance is explained by market movements and vice versa.
Sales Charge Sales charge is the amount that investors pay when they buy (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission.
Sector Value added from sector weighting versus the benchmark.
Sector Weightings Calculations for equity funds, based on the securities in the fund's portfolio on a certain date. For domestic equity funds, sector weightings show the percentage of the fund's net assets invested in each of the 10 major industry classifications. Morningstar uses the following sectors: utilities, energy, financials, industrial cyclicals, consumer durables, consumer staples, services, retail, health, and technology.
Security A security is an instrument of investment such as a stock, bond or fund.
Selection Value added from security selection within the sector or indicated.
Sharpe Ratio Sharpe ratio measures risk-adjusted performance using excess returns versus the "risk-free" rate and the volatility of those returns. A higher ratio means better return per unit of risk.
Short-term Capital Gain The difference between the purchase price of a security and the price at which it was sold, assuming the difference is positive and the investment gained in value. For tax purposes, the profit realized from the sale of securities or other capital assets held 12 months or less. Quarterly distributions are paid at the end of each quarter (March, June, September, and December). Annual distributions are paid in December.
Sortino Ratio Sortino ratio measures risk-adjusted performance using excess returns versus the "risk-free" rate and the volatility of negative returns ("bad" volatility). A higher ratio means better return per unit of "bad" risk.
Standard Deviation Standard deviation measures historical volatility. Higher standard deviation implies greater volatility.
Style Premia Selects the various instruments across asset classes that include currencies, equity index, futures, and bond or interest rate futures based on whether the instruments exhibit positive characteristics or factors.
Systematic Risk Systematic risk is the risk inherent to the entire market or entire market segment.
Term Premia Term premia refers to the risk premia that investors require to hold a long-term bond to maturity.
Ticker Symbol Letters that identify a security for trading purposes on the consolidated tape.
Total Return Return on an investment over a specified period, including price appreciation (or depreciation) plus any reinvested income.
Total Return Swaps A total return swap involves paying a floating interest rate in exchange for payments based on the return of a reference asset, such as a corporate bond.
Tracking Error Tracking error is the divergence between the price behavior of an investment and an index.
Turnover Turnover is a measure of portfolio trading activity. Higher turnover may indicate higher transaction costs and vice versa.
Turnover Rate A percentage of holdings a fund buys and sells during a year.
Volatility Volatility measures risk using the dispersion of returns for a given investment.
Volatility Relative Value Primarily uses equity index call and put options to take advantage of the relative attractiveness of the volatility premium.
Weighted Average Life The dollar-weighted average maturity of a portfolio's securities without taking into account interest rate reset dates for certain adjustable-rate securities. It is a measure that reflects how a fund may react in periods when credit spreads are widening or liquidity conditions are tightening. In general, the longer the fund's average life, the greater its exposure to interest rate fluctuations. Money funds must maintain a weighted average life of less than 120 days.
Weighted Average Maturity The weighted average maturity is a measure of a fund's interest rate sensitivity. In general, the longer the average maturity, the greater the fund's sensitivity to interest rate changes. The weighted average maturity may take into account the interest rate readjustment dates for certain securities. Money funds must maintain a weighted average maturity of less than 60 days.
Weighted Average Takes into consideration the amount held of each security in relation to the total amount.
Yield to Maturity Yield to maturity is the total return anticipated on a bond held to maturity assuming all the securities are held to maturity.
Yield to worst (YTW) Yield to worst is a measure of the lowest possible yield on a bond whose contract includes provisions that would allow the issuer to redeem the securities before they mature.