asset
management  asset management asset
man glossary |
general asset management glossary A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Active Management - the
pursuit of investment returns in excess of a specified benchmark Active Return - return relative to a benchmark.
If a portfolio's return is 5%, and the benchmark's return
is 3%, then the portfolio's active return is 2%
Active Risk - the risk (annualized standard
deviation) of the active return Aggressive Growth – managers invest
in stocks of companies where there is expected acceleration
in growth of earnings per share Alpha - The expected excess return or the
expected residual return Arbitrage - the action of seeking a profit
where a set of assets or cash flows has different prices in
different markets Artificial Intelligence - the creation of
models that mimic thought processes Benchmark - a reference
portfolio for active management such as the S&P500 or
weighted average market indices. The goal of the active manager
is to exceed the benchmark return Beta - the sensitivity of a portfolio (or
asset) to a benchmark Breadth - the percentage of assets or stocks
advancing relative to those unchanged or declining. Also the
number of independent forecasts available per year. A stock
picker forecasting returns to 100 stocks every quarter exhibits
a breadth of 400, assuming each forecast is independent (based
on separate information) Capital Asset Pricing Model (CAPM)
- an equilibrium based asset pricing model developed independently
by Sharpe, Lintner and Mossin. The simplest version states
that assets are priced according to their relationship to
the Market Portfolio of all risky assets determined by the
securities beta Certainty Equivalent Return - the certain
(zero risk) return an investor would trade for a given (larger)
return with an associated risk. For example, a particular
investor might trade an uncertain expected 4% active return
with 6% risk, for a certain active return of 1.5%. Characteristic Portfolio - a portfolio that
efficiently represents a particular asset characteristic.
For a given characteristic, it is the minimum risk portfolio,
with portfolio characteristic equal to 1 Commodity Futures Trading Commission (CFTC)
– is an American quasi-governmental agency. Its role
is to police several areas of business including matters of
information and disclosure, fair trading practices, registration
of firms and individuals, and the protection of client funds,
record keeping and the maintenance of orderly futures and
options markets Commodity Trading Advisor (CTA) –
is a person who manages client money in the futures and options
markets for compensation or profit. CTAs are registered by
the CFTC Common Factor - an element of return that
influences many assets. According to multiple factor risk
models, the common factors determine correlations between
asset returns. Common factors include size (often measured
by market capitalization), valuation measures such as P/B
and yield, industries and risk indices Control Parameters - in a non-linear dynamic
system, the coefficient of the order parameter; the determinant
of the influence of the order parameter on the total system
Correlation – this is a measure of
how the returns from one investment is correlated to those
of another. It is very common to track the returns of hedge
funds against market indices covering their areas of focus
CUSIP - a number assigned to a security
for the purposes of information processing. For example, a
company might issue several types of equity securities (common
and preferred stocks) and several different bond issues. Each
would have a unique CUSIP number Cycles - a full orbital period Directional Hedge Funds
– these types of hedge funds undertake investment strategies
that rely to some extent on market movements in order to create
investment returns. Examples of such funds would include long/short
equity and global macro hedge funds Distressed Securities – managers invest
in the equity or debt securities of companies that are in
or facing a bankruptcy, reorganization, or other distressed
situation. The investor hopes to purchase these securities
at low, or distressed prices with the hope that these securities
will appreciate when the company emerges from the distressed
situation Dividend Discount Model - a model of asset
pricing, based on discounting the future expected dividends.
Primarily applicable to the valuation of common stocks Dividend Discount Return - the rate of return
that equates the present value of future expected dividends
with the current market price of a security Dividend Yield - the dividend per share
divided by the price per share. Also known as the yield Earnings Yield - the earnings
per share divided by the price per share. The inverse of P/E
ratio Exceptional Return - residual return plus
benchmark timing return. For a given asset with beta equal
to 1, if its residual return is 2%, and the benchmark portfolio
exceeds its consensus expected returns by 1%, then the asset's
exceptional return is 3% Excess Return - return relative to the risk
free return. If an asset return is 3% and the risk free return
is 0.5%, then the asset's excess return is 2.5% Fractal - an object in which
the parts are in some way related to the whole. That is, the
individual components are "self-similar." An example
is the branching network in a tree. While each branch, and
each successive smaller branching is different, they are qualitatively
similar to the structure of the whole tree Fractal Distribution - a probability density
function that is statistically self-similar. That is, in different
increments of time, the statistical characteristics remain
the same Fundamental Information - information relating
to the economic state of a company or economy. In market analysis,
fundamental information is related to the earnings prospects
of the firm only Funds of Funds – managers invest in
a group of single manager hedge funds or managed accounts
which may utilize a variety of investing strategies thus creating
a diversified investment vehicle for their investors Gearing – this term
means to borrow money for investment purposes. The amount
of gearing is usually stated as a multiple/percentage of the
initial amount being invested. Same as leverage Hedge Fund – as absolute
return oriented investment fund that seeks to produce investment
returns from a particular investment strategy and where the
manager is partly or mostly remunerated in the form of a performance
fee Implied Volatility - using
the Black-Scholes option-pricing model, implied volatility
is the level of the standard deviation of price changes that
equates the current option price to the other independent
variables in the formula. Often used as a measure of current
levels of market uncertainty Income – managers invest with a focus
on yield-producing instruments and current income, with capital
appreciation as a secondary focus Information Coefficient - the correlation
of forecast returns with their subsequent realizations. A
measure of active portfolio management skill or forecasting
skill. Information Ratio - the ratio of
annualized
expected residual return to residual risk. A central measurement
for active management, value added is proportional to the
square of the information ratio Leverage - this term means
to borrow money for investment purposes. The amount of leverage
is usually stated as a multiple/percentage of the initial
amount being invested. Same as gearing Limit Cycles - an attractor for non-linear
dynamic systems which has periodic cycles or orbits in phase
space Liquidity – the ease or frequency
with which an investment can be realized Managed Futures –
represents an industry comprised of professional money mangers
known as CTAs, who manage client assets using the global futures
and options markets as an investment medium Market - the portfolio of all assets. This
abstract construct is typically replaced with a more concrete
benchmark portfolio such as the S&P500 Stock Index Market Neutral-Arbitrage – managers
focus on obtaining returns with low or no correlation to the
market Market Neutral-Securities hedging –
managers invest in securities both long and short, attempting,
on average to have a very low net market exposure. Managers
generally attempt to select longs that are undervalued and
shorts that are overvalued, theorizing that market volatility
will be minimized Market Timing – managers switch among
asset classes in an attempt to time various markets Maximum Drawdown – the maximum continuous
net asset value loss by a hedge fund since its launch Modern Portfolio Theory - the blanket name
for the quantitative analysis of portfolios of risky assets
based upon expected return, or the mean expected value, and
the risk, or standard deviation of a portfolio of securities.
According to MPT, investors would require a portfolio with
the highest expected return for a given level of risk Moving Average (MA) Processes - a stationary
stochastic process, where the observed time series is the
result of the moving average of an unobserved random time
series Non-Directional Hedge Funds
– these types of hedge funds undertake investment strategies
which do not rely on general market movements to create investment
returns. Examples of such funds would include arbitrage and
equity market neutral hedge funds Normal Distribution - the well known bell
shaped curve Normal Portfolio - a benchmark portfolio
consisting of the set of all assets normally (typically) used
by the investment manager. For example, an active manager
specializing in large capitalization growth stocks might be
assigned a benchmark or normal portfolio of the S&P Growth
Index, the large capitalization growth stocks in the S&P
500 Stock Index Opportunistic – managers
employ a variety of approaches for capital appreciation and
they “opportunistically” move to asset classes
or strategies that give what they feel are the best possible
returns Passive Management - managing
a portfolio to match (not exceed and not lag) the return of
a benchmark Payout Ratio - the ratio of dividends to
earnings. The fraction of earnings paid out as dividends The Price/Earnings Ratio (P/E Ratio) - the
price of a security divided by earnings per share. Usually
the earnings per share are expected or forecasted earnings
for the coming or current fiscal year Random Walk - Brownian motion,
where the previous change in the value of a variable is unrelated
to future or past changes Regression - a data analysis technique that
optimally fits a model based on the squared differences between
data points and model fitted points. Typically, regression
chooses model coefficients to minimize the sum of these squared
differences Residual Return - return independent of
the benchmark. The residual return is the return relative
to beta times the benchmark return. To be exact, an asset's
residual return equals its excess return minus beta times
the benchmark excess return Residual Risk - the risk (annualized standard
deviation) of the residual return Risk - in Modern Portfolio Theory, risk
is measured as the standard deviation of security returns Risk Free Return - the return achievable
with absolute certainty. In the U.S. market, short maturity
treasury bills exhibit effectively risk free returns. The
risk free return is sometimes called the time premium, as
distinct from the risk premium Risk Index - a common factor typically defined
by some continuous measure, as opposed to a common industry
membership factor defined as zero or one. Risk index factors
include size, volatility, value, and momentum Risk Premium - the expected excess return
to the benchmark Rolling of Futures - as financial futures
have short-term maturities, often 3-9 months, before or at
maturity, the future must be sold and a new future (for the
same asset but with a new maturity) must be repurchased Several Strategies –
managers typically employ 2 or 3 specific, pre-determined
strategies in an effort to diversify their approaches. For
example, using “value”, “ aggressive growth”
and “special situations” strategies in tandem
to realize short-term and long-term gains Sharpe Ratio – analyses the return
above the risk free rate of return in a portfolio and is usually
taken as being the return on US Treasury Bills Short selling – this strategy is based
on finding overvalued companies and selling the shares of
those companies, even though the investor does not own these
share Single Index Model - measures portfolio
risk by measuring the sensitivity of a portfolio of securities
to changes in a market index. The measure of sensitivity is
called the "beta" of the security, or portfolio
Skill - the ability to accurately forecast
returns and is measured using the information coefficient Specific Return - the part of the excess
return not explained by common factors. The specific return
is independent of (uncorrelated with) the common factors and
the specific returns to other assets. It is also called the
idiosyncratic return Specific Risk - the risk (annualized standard
deviation) of the specific return Standard Deviation – is used as a
measure of the variability (or riskiness) of investment returns
for a fund and is calculated to describe, on average, how
widely individual data points are dispersed around the mean
of all the data points Standard Error - the standard deviation
of the error in an estimate Synthetics - another name for futures contracts.
A way to invest in - by earning the return of - a security
or index of securities without actually owning the security
or securities Systematic Return - the part of the return
dependent on the benchmark-nark return. We can break excess
returns into two components: systematic and residual. The
systematic return is the beta times the benchmark-nark excess
return Systematic Risk - the risk (annualized standard
deviation) of the systematic return Technical Information -
information related to the momentum of a particular variable.
In market analysis, technical information is information related
to market dynamics and crowd behavior only Term Structure - the value of a variable
at different time increments. The term structure of interest
rates is the yield-to-maturity for different fixed-income
securities at different maturity times. The volatility term
structure is the standard deviation of returns of varying
time horizons Value Added - is the risk
adjusted return generated by an investment strategy: the return
of the investment strategy minus the return of the benchmark Volatility - the standard deviation of security
price changes. The annualized standard deviation of return Yield - the dividend per
share divided by the price per share |
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