Glossary of investment banking terms

all financial terms glossary and banking finance terminology
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Dr.DavidWllker,United States,Professional
Published Date:11-07-2017
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online report consulting group Glossary of Investment Terms glossary of terms actively managed investment expectations established by the fund’s The basis point is commonly used for Relies on the expertise of a portfolio Beta. The accuracy of Alpha is therefore calculating changes in interest rates, manager to choose the investment’s dependent on the accuracy of Beta. Many equity indexes and the yield of a fixed- holdings in an attempt to outperform investors see Alpha as a measurement of income security. a predetermined benchmark over the the value added or subtracted by a fund benchmark A standard against which course of a full market cycle. manager. the performance of a security, mutual aggressive portfolio Tends to alternative investments fund or investment manager can be encompass (1) relatively higher levels of Generally refer to a diverse set of measured. exposure to equities and to investments investment strategies that fall outside beta Measures an investment’s outside the investor’s home country and of the traditional purchase and sale volatility relative to its benchmark. An currency; and (2) relatively lower, or in of stocks and bonds. Some familiar investment with a Beta higher than some cases zero, levels of exposure to examples of alternative investments 1.0 has historically been more volatile cash, to fixed income and investments include hedge funds, private equity and than the benchmark. Conversely, an inside the investor’s home country, and real estate. The appeal of alternatives lies investment with a Beta lower than 1.0 has to currency. These risk profiles may in their potential to provide attractive historically been less volatile than the generally be expected to exhibit higher risk-adjusted returns and additional benchmark. See also volatility. price volatility as measured by the diversification when compared to bond A long-term debt security standard deviations of annual returns traditional asset classes. representing a contractual agreement from the portfolio and generally seek to asset allocation How a portfolio by a company or government to repay generate a somewhat lower proportion of is divided among different types on borrowed money by a specified time at a its returns from income as compared with investments, such as stocks, bonds and specified interest rate. capital gains. cash. capital appreciation Increase in alpha Measures the difference balanced portfolio A portfolio the price of an investment; also commonly between a fund’s actual returns and containing several different investment referred to as the investment’s growth. its expected performance, given its types. Most balanced portfolios are capital gain/loss (realized/ level of risk as measured by Beta. A invested in stocks, bonds and money The profit (loss) that unrealized) positive alpha risk indicates the fund has market instruments. results from a change in the price of an performed better than its Beta would basis point A unit that is equal to asset. A realized gain (loss) occurs when predict. A negative Alpha indicates 1/100th of 1%, and is used to denote an investment security is sold as a price the fund’s underperformance given the the change in a financial instrument. above (below) its report / glossary of investment terms capital preservation An Markets; (ii) have fewer government- perceived as “more risky” because investment objective in which imposed barriers to foreign they may not be as politically and/ protecting the investor’s initial investment; and (iii) have more strict or economically stable as countries investment from loss is the primary regulatory environments. Investing in the Developed Markets. Countries goal. in these countries is perceived in the Emerging Markets category conservative portfolio Tends as “less risky” because they are include Brazil, Chile, Mexico and to encompass (1) relatively lower, or generally considered more politically Taiwan, among others. in some cases zero levels of exposure and/or economically stable than erisa The Employee Retirement to equities and to investments outside countries in the Emerging Markets. Income Security Act. Passed in the investor’s home country and Countries in the Developed Markets 1974, ERISA established the legal currency; and (2) relatively higher category include the United States, standards by which retirement plans levels of exposure to cash, to fixed Canada, Japan and Germany, among are required to be managed. income and investments inside the others. equity The ownership interest of investor’s home country, and to diversification The process of common and preferred stockholders currency. These risk profiles may investing in a number of different in a company. See also stock. generally be expected to exhibit types of investments to reduce the exchange-traded fund More lower price volatility as measured risk of poor performance by any commonly known as ETFs, exchange- by the standard deviations of one type of investment having a big traded funds are investment vehicles annual returns from the portfolio impact on overall portfolio results. designed to replicate the daily and generally seek to generate a Diversification does not ensure movement of a particular market somewhat greater proportion of its against loss. index or other benchmark. Like returns from income as compared dividend Cash payment made by stocks, ETFs are listed and traded with capital gains. a company to stockholders. throughout the day on a public consumer price index (cpi) dividend yield Total amount of exchange or equity market. Though A measure of inflation. The CPI cash dividends received annually on a some recent ETFs have actively is equal to the sum of prices of a share of stock divided by the price of managed components, virtually all number of goods purchases by the stock. exchange-traded funds are passively consumers and weighted by the dollar-weighted return A managed. proportion each represents in a method of calculating a portfolio expected return The return typical consumer’s budget. return that looks at the total dollar investors anticipate they will receive credit quality A measure of values at the beginning and at the on an investment over some future the likelihood that a company will be end of an investment, including any period. The expected return often able to make interest and principal additions or withdrawals of funds, as differs from the investors’ realized or payments on its bonds or other well as the income and capital gains actual return. debt securities. Standard & Poor’s or losses. expense ratio Measures a fund’s Corporation and Moody’s Investors economic sectors Types of annual expenses as a percentage Service rate the credit quality of industries represented by the stocks of the fund’s net assets. Expenses publicly traded debt securities. held by the fund. The percentage include all management and Bonds with the highest credit quality of the fund’s equity securities administrative fees, but exclude ratings are known as “investment representing each economic sector brokerage costs such as commissions. grade,” and bonds with poor is compared to the percentage fiduciary A person or group credit quality ratings are known as of securities held in the fund’s vested with legal power and “speculative,” “high yield” or “junk” benchmark. responsibilities that are to be used bonds. emerging markets While not for the benefit of another person or current income Cash interest strictly defined, includes countries group. regularly received on fixed income that (i) possess a per capita Gross fixed income investments investments and cash dividends Domestic Product substantially Debt securities, such as bonds and regularly received on stocks. below the average for Developed money market instruments, with developed markets While not Markets; (ii) have substantially specified interest and principal strictly defined, includes countries greater government-imposed barriers payment dates and amounts. Can that (i) possess a per capita Gross to foreign investment; and (iii) may also include preferred stock. Domestic Product substantially have lax regulatory environments. gross-of-fee performance A higher than the average for Emerging Investing in these countries is measure of investment performance consulting group morgan stanley 2online report / glossary of investment terms that does not include the impact of significant impact on the price of that nominal return The return on fees. investment. an investment, not adjusted for the growth stocks Stocks of loss harvesting Selling effect of inflation. companies whose earnings are securities at a loss to offset a capital passively managed expected to grow rapidly. gains tax liability. Designed to mimic investment investment grade Fixed manager tenure Indicates the holdings of a benchmark in order income investments receiving high the number of years the current to match the benchmark’s returns credit quality ratings. Bonds are portfolio manager has been managing before expenses, not exceed them. considered investment grade if a portfolio or fund. When more than p/e ratio (price/earning they have a BBB or better rating by one portfolio manager manages a Determined by dividing the ratio) Standard & Poor’s Corporation or portfolio or fund, the average tenure stock price by earnings per share. a Baa or better rating by Moody’s of the managers is listed. P/E ratios can be interpreted as how Investors Service. See also credit market capitalization The much an investor is willing to pay for quality. market value of a company. It equals one year’s earnings. investment manager The the current stock price of a company performance The change in individual or firm responsible for the multiplied by the total number of value of an investment or portfolio day-to-day decisions involving an outstanding shares. over a specific period of time. The investment portfolio. The manager market cycle Generally overall performance of an investment decides which stocks or bonds to regarded as a time period of 5 to 10 includes any income and realized buy or sell and when. Investment years. and unrealized capital gains and/or managers must be registered with the market timing An attempt to losses. Securities and Exchange Commission sell investments before they decrease portfolio The combined and/or with the state there they do in value and buying them when they securities held by an investor. business. are about to increase in value—in portfolio characteristics investment objective The other words, to “buy low” and “sell Important information about the goal of an investment strategy high.” Investors who attempt to time fund. Included are the name of followed by an investor or investment the markets will move their money the fund manager and the number manager. Investment objectives among stocks, bonds, cash or other of year’s the manager has been can be designed to generate long- investment instruments based on overseeing the fund’s investments. term growth, current income or a their expectations of short-term price Portfolio characteristics also provide combination of both. changes in the capital markets. a breakdown of the fund’s assets in investment policy statement money market The market the three major asset classes: stocks, A summary of an individual’s or in which short-term, highly liquid, bonds and cash. institution’s investment objectives low-risk assets such as Treasury bills, principal The amount of money that serves as a guide for many bank certificates of deposit (CDs), borrowed by a company in issuing a investment decisions. corporate commercial paper and bond or other fixed income security. investment style Refers to a banker’s acceptances are traded. For many fixed income securities, fund manager’s general discipline mutual fund An investment it represents the amount that must and philosophy that is employed company that invests in different be repaid by the borrower upon during the investment decision- types of securities, such as stocks or maturity. making process. Among the most bonds, on behalf of individuals who real return The return on recognized equity investment styles have similar investment goals (i.e., an investment minus the effects of are growth, value and core. the fund’s shareholders). A mutual inflation. investment sub-style Further fund generally adheres to a distinct representative holdings sub-divisions that can help investors investment objective and investment Indicate representative stocks that understand the investment approach policies. The assets are managed by a comprise significant percentages of of a particular manager and the professional portfolio manager hired the fund’s investments. possible performance and portfolio by the fund, and investors participate risk The possibility that the characteristics associated by owning shares of the fund rather actual return on an investment will with that approach. than the fund’s underlying securities. be different from the expected return. liquidity The ease with which net-of-fee performance A Typically, expect high potential an investment may be bought or measure of investment performance returns for taking on greater risk. sold quickly without having a that includes the impact of fees. However, not investing aggressively consulting group morgan stanley 3online report / glossary of investment terms enough may lead to short fall. market, standard deviation measures tracking error Represents s&p 500 index A representative the absolute volatility. the Standard Deviation of the sample of the 500 leading companies stock A type of security that Excess Return. This provides a in leading industries of the U.S. signifies ownership in a corporation historical measure of the variability economy. Although the S&P 500 and represents a claim on part of the of the fund’s returns relative to focuses on the large-cap segment of corporation’s assets and earnings. its benchmark. A fund with a low the market, with over 80% coverage There are two main types of stock: Tracking Error would have quarterly of U.S. equities, it is also an ideal common and preferred. Common Excess returns that have exhibited proxy for the total market. The Index stock usually entitles the owner to very low volatility. is calculated using a baseweighted vote at shareholders’ meetings and treasury bills A short-term aggregate methodology, meaning the to receive dividends. Preferred stock debt obligation backed by the US level of the Index reflects the total generally does not have voting rights, government with a maturity of market value of all component stocks but has a higher claim on assets and less than one year. Also called relative to a particular bas period. earnings than the common shares. T-bills, Treasury bills are sold in Total market value is determined by strategic asset allocation denominations of 1,000 up to a multiplying the price of its stock by A portfolio strategy that involves maximum purchase of 5 million and the number of shares outstanding. setting target allocations for various commonly have maturities of one securities and exchange asset classes, and periodically month (four weeks), three months (13 A federal rebalancing the portfolio back to weeks) or six months (26 weeks). commission (sec) government agency, which was the original allocations when they treasury bonds U.S. Treasury created by the Securities and deviate significantly from the initial obligations that mature in more than Exchange Act of 1934, that regulates settings due to differing returns from ten years. the securities industry and various assets. In strategic asset treasury notes U.S. Treasury administers federal securities laws. allocation, the target allocations obligations that mature in two to ten separately managed account depend on a number of factors – such years. Often referred to as an SMA, a as the investor’s risk tolerance, time unified managed account separately managed account typically horizon and investment objectives – A professionally managed private consists of a customized portfolio and may change over time as these investment account that is rebalanced of stocks, bonds or other assets parameters change. regularly and can encompass every managed on the investor’s behalf by tax management Utilizing tax- investment vehicle (e.g. mutual funds, a professional portfolio manager. loss harvesting and other techniques stocks, bonds and exchange traded Because the investor directly owns to attempt to minimize tax liabilities funds) in an investor’s portfolio, all in all the underlying securities in a at the portfolio level. a single account. separately managed account, this tactical asset allocation An value stocks Stocks that are type of investment potentially offers active management portfolio strategy trading at a discounted price relative the opportunity to manage the timing that rebalances the percentage of to the company’s perceived worth, of future tax liabilities, as well as assets held in various categories in earnings or cash flow. other services tailored specifically to order to take advantage of market volatility Fluctuations in the the investor’s needs. pricing anomalies or strong market value of a security or investment sharpe ratio Measures a sectors. portfolio. Volatility is viewed as a portfolio’s rate of return based on the time horizon The amount measurement of an investment’s risk. risk it assumed and is often referred of time until the allotted money is wash sale A transaction where to as its risk-adjusted performance. needed. This can typically be one, an investor sells a losing security Using Standard Deviation and returns five, or even ten years. to claim a capital loss, only to in excess of the returns of T-bills, it time-weighted return A repurchase it again for a bargain. determines reward per unit of risk. measure of the compound rate of standard deviation Measures growth in a portfolio. the volatility associated with a given total return Indicates the investment. The statistic measures short- and long-term investment the annualized quarterly variation in returns earned by the fund, along investment returns around the mean with the returns of its benchmark return. Unlike beta, which measures and/or index. volatility relative to the aggregate consulting group morgan stanley 4online report / glossary of investment terms The S&P 500 Index is widely regarded as the best single gauge of the U.S. be incomplete or condensed. All opinions included in this report constitute equities market, this world-renowned index includes a representative sample the Firm’s judgment as of the date of this report and are subject to change of 500 leading companies in leading industries of the U.S. economy. Al- without notice. This report is for informational purposes only and is not in- though the S&P 500 focuses on the large-cap segment of the market, with tended as an offer or solicitation with respect to the purchase or sale of any over 80% coverage of U.S. equities, it is also an ideal proxy for the total security. market. Past performance is not a guarantee of future results. The Lipper Large Cap Core Fund Average includes the 30 largest large- Investing in the market entails the risk of market volaility. The value of all cap core funds tracked by Lipper Inc. Lipper averages are equally weighted types of investments may increase or decrease over varying time periods. total returns of all the active funds available in the category. The average Diversification does not assure a profit or protect against loss. includes net reinvested dividends. © 2014 Morgan Stanley Smith Barney LLC, member SIPC. Consulting Although the statements of fact and data in this report have been ob-Group is a business of Morgan Stanley Smith Barney LLC. tained from, and are based upon, sources that the Firm believes to be re- liable, we do not guarantee their accuracy, and any such information may 2014-PS-138 2/14 consulting group morgan stanley 5

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