Glossary

a | b | c | d | e | f | h | i | l | m | n | o | r | s | t | u | w | y |

A

Alpha: The additional return earned by a fund or portfolio, in excess of a particular benchmark. Historical alpha measures excess returns over time.
Annual Yield: The percentage of return or income, expressed in terms of dividends or interest, that an investment yields each year.
Asset Allocation: Investing in each of the major asset classes (primarily stocks and bonds) in proportion to the investor's objectives, time horizon and basic risk tolerance level.
Average Yield: The market value weighted average Yield to Maturity of a portfolio of bonds.

b

Basis Point: A unit of measure, equal to 1/100th of 1%, or .01%. Example: 15 basis points = 15/100 of 1% or .15%.
Benchmark: An index that serves as a standard against which the performance of a fund or portfolio is measured. For example, a stock fund may be compared with the Standard & Poor's 500 Index to assess how it performs over time.
Beta: A measure of risk, expressed as the volatility of a stock, fund or portfolio relative to the market. The greater the beta, the greater the volatility.
Bid/ask spread: The bid is the highest price a buyer is willing to pay for and the ask is the lowest price at which a seller is prepared to sell a security. Together they form the quotation for the sale or purchase.
Bond: Debt obligation of a government or corporate issuer, usually paying semi-annual interest and featuring a guarantee of repayment of principal in full at maturity.

c

Capital gains tax: Federal tax payable on capital appreciation when securities are sold.
Commission: The fee charged by a broker to buy or sell stock on behalf of a client.
Common shares - stock, and equities: Investment securities that represent proportionate ownership in a company, usually publicly listed.
Core/Satellite Investing: Investment strategy based on using ETFs as the "core" of an investor's portfolio in combination with other more specialized investment options, such as other mutual funds or individual stocks (the "satellites").
Corporate Bonds: Debt instrument issued by a private corporation, rather than by a government agency or municipality.
Coupon: The periodic interest payment made to bondholders during the life of the bond.
Current Yield: Amount of coupon income to be received on an annual basis, divided by the market price of the bond.

d

Default: Failure to pay principal or interest on due date.
Distributions: The regular payment of dividends and other income and capital gains from fund investments.
Dividend: A distribution to preferred or common stockholders.
Duration: Measures the price sensitivity of a fixed income asset or a portfolio to interest rate changes by factoring in a bond’s yield, maturity, and any call or put features. Generally, a three-year duration portfolio will rise (fall) 3% if rates fall (rise) 1%.

e

Ex-Date: The date that determines who should receive the next distribution payment. In the case of fixed income iShares ETFs, a buyer transacting on or after the ex-date will not receive distribution payments.
Exchange-traded funds (ETFs): In Canada, open-ended mutual fund trusts, units of which are listed and traded on major stock exchanges just like individual stocks.

f

Financial Advisor: A person employed by an investment dealer to advise and trade security transactions on behalf of their clientele. Financial advisors must be licensed by their respective provincial securities commission and self-regulatory organization, meet educational requirements and abide by industry rules and regulations.
Fixed income securities: Investments such as bonds or money market instruments, which pay a fixed yield (coupon or interest rate) and feature a guarantee of repayment of principal at maturity.
Free-Float: Free-float refers to the amount of a company's shares outstanding that are available for purchase on the open market at any point in time.
Futures contract: A legally binding agreement to buy or sell a commodity, financial instrument or other interest on a designated exchange at a specific price on a designated future date.

h

Hedging: Various techniques used to offset investment risk.

i

Index Fund: Usually sponsored by banks, index funds hold all the stocks in a particular index and permit investors to purchase individual units with a small dollar minimum investment. Unlike ETFs, index funds are priced only once daily and have relatively high MERs.
Index or underlying index: A group of securities (usually stocks, but can be bonds) maintained by an index provider (such as S&P) used as a performance benchmark for a particular market (e.g. S&P/TSX 60 Index, which contains 60 of the largest companies by market capitalization traded on the TSX). The index level or current value of the index is tracked continuously during the trading day.
Index stocks: Individual stocks that comprise a particular index (e.g. 60 companies diversified by industry sector and other criteria comprise the S&P/TSX 60 Index).
Indexing: Investment style which seeks to replicate recognized index benchmarks in both equity and bond markets.

l

Large-cap stocks: The largest companies as measured by market capitalization. Usually domestic or multinational industry leaders; also often the most liquid (heavily traded) stocks (e.g. the S&P/TSX 60 Index).
Leverage: The use of borrowing to seek a larger rate of return on an investment, or the use of margin accounts or securities that require payment of only a fraction of the underlying security's value. For example: Assume an investor buys a stock at $10 with a $5 investment and borrows the rest. If the share price goes to $11, the $1 gain translates into a return of 10% on the stock itself ($1/$10), but a 20% return on the investor's equity ($1/$5).

m

Management Expense Ratio (MER): A measure of the cost to unitholders of operating a fund as a percentage of average total assets.
Margin (loan): The amount a broker will lend a client to purchase stock.
Market capitalization: Weighting technique used to determine the holdings of an index. With a market-cap index, the weight or representation of each constituent company in the index is proportional to the total market value of its outstanding common shares. This in turn determines the number of shares an index fund will hold of each constituent index stock.
Maturity: For bonds, refers to the term (time period) before the bond matures. Maturities are short-term (1-3 years), mid-term (5-15 years) or long-term (over 15 years).
Mid-cap stocks: The mid-sized companies, as selected by an index provider, that represent the second tier of stocks by market capitalization and comprise up-and-coming market leaders in their respective industry groups (e.g. the S&P/TSX MidCap Index.)
Mutual fund: An actively managed pooled investment fund sponsored by an investment company or financial institution covering a wide range of Canadian and international asset classes.

n

Net asset value (NAV): The assets, less any liabilities, of a fund.

o

Option: An agreement which conveys to the holder the right to buy (receive) or sell (deliver) a specific security at a pre-determined price and within a stated period of time.

r

Record Date: The date determining who will be paid principal, interest and prepayment on a security.
Return: Dividend and/or interest income plus any capital gains accruing to an investor.

s

S&P: Standard & Poor's, a division of The McGraw-Hill Companies, Inc. Standard & Poor's maintains a range of leading U.S., Canadian and international indexes and is responsible for selecting the securities in each index, setting the weighting of each security in the index and disseminating index data.
Short sale: The sale of a security which the seller does not own in the belief that it will fall in value. Short-selling requires securities lending and various forms of financial obligation on the part of the short seller.
Spread: The gap between bid and ask prices of a security.

t

Ticker symbol: The trading symbol assigned by an exchange to a particular security.
Tracking Error: Tracking Error measures the performance of a fund against its benchmark index. Like other index funds, iShares ETFs are designed to match the returns of their benchmark indices. However, all index funds may experience differences between the fund's return and the index return. This is because an index is a theoretical portfolio and its performance is calculated regardless of frictions and costs that exist in the real world. The difference between the historical performance of the fund and its benchmark is called performance difference. To evaluate the future risk of performance difference some analysts consider the Tracking Error, a measure of how consistently the fund returns have matched its benchmark historically. Mathematically Tracking Error is typically expressed as the standard deviation of performance differences over time.
TSX: The Toronto Stock Exchange. Normal trading hours: 9:30 a.m. to 4:00 p.m. on regular business days.

u

Undistributed net income, undistributed net earnings: Profits retained by a fund that have yet to be distributed to unitholders.

w

Weighted Average Coupon: The mean of the coupon rate of the underlying bonds in a portfolio.
Weighted Average Maturity: The mean of the remaining term to maturity of the underlying bonds in a portfolio.

y

Yield: The return on a security or portfolio, in terms of cash payments. A percentage obtained by dividing the current dollar income by the current market price of the security.
Yield Curve: A graph that shows the comparative yields of securities in a particular class, such as Treasury securities. The yield curve is normally upward-sloping, with long-term rates higher than short-term rates. When the yield curve is inverted, short-term rates are higher than long-term rates.