Individual Investors

Investors' Knowledge Base

Absolute Return

These strategies pursue high returns independent from general market trends rather than relative to a market index.

Absolute Return Strategies

Strategies that seek high returns independent from general market trends rather than relative to a market index.


A measure of performance on a risk-adjusted basis.

Alternative Minimum Tax

A federal tax designed to ensure that high-income individuals pay a fair amount of income tax.

Average Credit Quality

Represents the grading of a debt security with respect to the issuer's ability to meet interest and principal requirements in a timely manner. Issues rated AAA, AA, A and BBB are considered investment grade. Higher-rated bonds generally provide lower returns and greater safety.

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Bank Loans

Loans made my large commercial banks to corporate customers, most of which are rated below-investment grade. Investment grade companies rarely borrow from banks and instead raise financing by issuing long-term debt or short-term commercial paper, options generally not available to lower-rated firms. Also called leveraged loans.

Bank loans are issued to a wide variety of companies in a broad array of industries, from consumer products, to technology, to health care. While the final maturity specified in a loan agreement may be six to eight years, the effective maturity or average life of a bank loan is typically three years, because the borrower can repay or refinance at any time, usually without penalty. Bank loans are typically rated BBB- to C in credit quality, with the bulk of the loan market in the BB to B range.


Beta is a quantitative measure of the volatility of a given portfolio relative to the overall market. Higher beta suggests higher volatility. Beta can also refer to relative volatility to a portfolio's stated benchmark.

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Call Option

An option contract that gives the buyer the right, but not the obligation, to buy the underlying security at a specified price for a certain fixed period of time. Until its expiration, the owner of the call option can exercise the right to purchase the stock from the seller of the call option, at the strike price. At, or prior to maturity, if the option is in-the-money, the call option buyer's profit potential is the difference between the security's price and the option's strike price at exercise, less the amount paid for the option.

Commodity Strategies

Strategies that seek to provide exposure to the investment returns of a diversified basket of commodities including, but not limited to oil, corn, cotton, gold, sugar, natural gas, copper and coffee.

Company- or Industry-Specific Risk

Risk that is inherent to a particular investment.

Consumer Price Index (CPI)

A measure of the average over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Convertible Arbitrage Strategies

Strategies that seek to capitalize on the complexities of the pricing of convertible bonds, which contain both fixed income and equity characteristics. They typically buy a convertible bond while simultaneously shorting the common stock of the same issuer to take advantage of the mispricing of either security.

Correlation Coefficient

A measure that determines the degree to which two variables' movements are associated. The correlation coefficient will vary from -1 to +1. A-1 indicates perfect negative correlation and +1 indicates perfect positive correlation.

Cost Basis

Purchase price, including commissions and expenses, used to determine capital gains or losses for tax purposes.


A measure of how much two random variables change together.

Covered Call

When the seller or writer of the option holds an equivalent amount of the underlying security. By selling or writing a call option, the seller receives income in the form of an option premium.

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Debt-to-Capital Ratio

A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt.

Dividend/Share Growth

On a portfolio level, this statistic measures the trailing dividends/share growth of a portfolio's holdings.

Downside Capture Ratio

A measure of a manager's ability to retain capital as the market declines. A value below 100 indicates that a manager was able to outperform in down markets.


Represents the interest rate sensitivity of a fixed income portfolio. For example, if a fund's duration is five years, a 1% increase in interest rates would result in a 5% decline in the fund's price. Similarly, a 1% decline in interest rates would result in a 5% gain in the fund's price.

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Earnings/Share Growth

Earnings/share growth is the growth rate of the earnings per share. On a portfolio level, this statistic measures the trailing earnings per share growth of a portfolio's holdings.


A sale of shares from one mutual fund and a purchase of shares into another mutual fund.

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An increase in the value of mutual fund shares. The gain is not realized until the shares are sold for a price higher than the purchase price.

Global Income Strategies

Strategies that invest in income producing alternative asset classes globally, including MLPs, REITs, Infrastructure and preferred shares.

Global Macro Strategies

Strategies that seek to profit from the movement of the prices of securities across asset classes. Strategies may utilize tactical trend-based models to allocate assets on both the long and short sides to a broad range of markets, including global interest rates, foreign exchange, global stock indices and commodities, often through the use of derivatives.

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Headline Risk

The possibility that a news story will adversely affect a stock's price. Headline risk can also impact the performance of the stock market as a whole.

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Income Distribution

Interest and dividends earned that are paid out to shareholders (after subtracting fund expenses) in the form of dividends.

Infrastructure Strategies

Strategies that seek to invest in companies designed to help society grow and develop and can include toll roads, airports, pipelines and electricity plants. Typically these companies benefit from protected revenue streams and long dated contracts that may include pricing power tied to general levels of inflation. As a result, these companies tend to be less volatile than equities over the long term and generally provide more stable and higher yields.


When the stock price is higher than the strike price at expiration, the option will be in-the-money when exercised and the seller will have to deliver the stated number of shares at the strike price.

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The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

Liquid Alternatives

A subset of alternatives that offer daily liquidity, typically through a mutual fund.

Long/Short Credit Strategies

Strategies that invest tactically (both long and short) in debt securities of domestic and foreign issuers of all maturities and credit qualities, including high yield (so-called junk bonds), bank loans, distressed debt, corporate bonds, inflation linked and emerging market debt securities.

Long/Short Equity Strategies

Strategies that use both long and short global investing. Securities that are expected to increase in value are bought while those that are expected to decrease in value are sold.

Long-Term Capital Gains

Gains on sales of a security that has been held for more than 12 months.

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Master Limited Partnership (MLP) Strategies

Strategies that seek to deliver both high yield and stable growth by investing in a portfolio of publicly traded partnerships engaged in the transportation, storage, processing, refining, marketing, exploration, production and mining of minerals and natural resources.

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Net Asset Value (NAV)

The value of a mutual fund's assets after deducting liabilities divided by the number of shares outstanding.

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When the stock price is below the strike price at expiration, the option will expire worthless and the seller will not have to deliver any stock.

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P/E Ratio – Trailing 12 Months

The P/E (price-earnings) ratio is calculated by dividing the company’s stock price by its earnings per share. The higher the P/E ratio, the more an investor pays for the company’s earnings.

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A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.

Real Estate Strategies

Strategies that concentrate investments in the real estate industry through Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs). REITs and REOCs are both types of publicly traded securities representing pools of money invested in income producing properties, including hospitals, malls, hotels, warehouses, office buildings and apartments, though their distribution patterns and resulting tax considerations differ.


A sale of mutual fund shares.


An option whereby dividend and capital gain distributions are automatically reinvested to purchase new fund shares.

Relative Return

The return that an asset achieves over a set period of time as compared to a benchmark, or another investment.

Retirement Plan

A type of investment account. Examples of such accounts include: 401(k)s, Individual Retirement Accounts (IRAs), Roth IRAs, Simplified Employee Pension (SEP) plans and SIMPLE accounts.

Return on Equity

Relates to how well the company is using the money invested in it so that it can bring a return to its investors. A high portfolio ROE indicates that the portfolio is invested in historically profitable companies.


The transfer of funds from one qualified retirement plan to another qualified retirement plan within a specified period of time; otherwise the funds are taxed as ordinary income.

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SEC Yield

A standardized calculation which 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.

Sharpe Ratio

A statistic that measures the efficiency, or excess return per unit of risk, of a manager's returns. It is calculated by taking the portfolio's annualized return, minus the annualized risk-free rate (typically the 30-Day T-Bill return), divided by the portfolio's annualized standard deviation. The greater the Sharpe Ratio, the better the portfolio's risk adjusted return.

Short-Term Capital Gains

Gains on the sale of a security in a portfolio that has been held for less than 12 months.

Standard Deviation

A measure of variability of returns around the average return for an investment. Higher standard deviation suggests greater risk.

Strike Price

Price at which an option contract can be exercised.

Systematic Risk

The risk inherent to the entire market or an entire market segment. Also known as undiversifiable risk, volatility or market risk.

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Tax-Deferred Account

Investment vehicles that shield earnings from taxes, such as 401(k) plans, 403(b) plans, and individual retirement accounts. Although mutual funds held in these accounts are not taxed currently, they are subject to state and federal taxes when withdrawn.

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Upside Capture Ratio

A measure of a manager's ability to capture rises in comparison to its benchmark. A value above 100 indicates a manager is capturing more of the market's positive movement than its benchmark.

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Wash Sale Loss

A wash sale loss occurs when mutual fund shares are redeemed or exchanged at a loss and replaced by purchasing shares or reinvesting dividends in the same fund, or very similar fund, within 30 days before or after the redemption or exchange. Tax regulations prohibit claiming a loss on the sale to prevent investors from realizing losses solely to offset capital gains. The loss is included in calculating the cost basis of the repurchased shares.

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The lowest potential yield calculated by taking into account an issue’s optionality such as prepayments or calls.

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