Desert Investment Group Glossary of Investment Terms

Glossary of Investment Terms
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Annual Return - The simple rate of return earned by an investment for each year.
Average Annual Compound Return - The annual rates of return, including reinvestment of distributions, averaged over a specified time frame.
Basis Point - Often called a 'beep', it is used to describe the differences in bond yields. One basis point is one one hundredth of a percentage point i.e. 100 basis points = 1%.
Bear Market - A declining stock market over a prolonged period, usually lasting at least six months and normally not more than 18 months. Usually caused by a strong conviction that a weak economy will produce depressed corporate profits.
Blue Chip - Usually a large capitalization, well known and actively traded common stock with a record of continuous dividend payments and other desirable investment attributes.
Bond - A certificate of debt on which the issuer (corporation or government) promises to pay the holder a specific rate of interest over the life of the bond. At maturity, the principal is repaid in full to the holder.
Book Value of a Mutual Fund - The Book Value is the sum of all purchases and distributions into the fund minus the book value of any redemptions from the fund. It can be calculated by taking the Unit Cost of those purchases or distributions multiplied by the number of units and subtracting the book cost of any redemptions.
Book Value of an Account - Total book value of all holdings.
Bull Market - A rising stock market over a prolonged period, usually lasting at least six months and normally not more than 18 months. Usually caused by a strong conviction that a strong economy will produce increased corporate profits.
Call Option - An investment product that gives you the right to purchase shares at a predetermined price for a limited period of time.
Capacity Utilization Rate - The percentage of total available industrial capacity in the economy (plant and equipment) that is being used to produce goods.
Capital Gains - A capital gain arises when an investment is sold at a higher price than originally paid. In a mutual fund, capital gains are created when the fund buys and sells securities. These gains are then distributed to unitholders at least annually. Unitholders can also earn capital gains by redeeming their units at higher prices than they originally paid.
Certificate of Deposit (CD) - An investment in which you deposit money, over a fixed period of time, and are paid a set rate of interest.
Convertible Bond - A bond that may be exchanged, usually for the common stock of the same company as stipulated by the terms of the conversion privilege.
Correction - A market correction is usually a sudden temporary decline in stock or bond prices after a period of market strength. A 10% movement on the downside that lasts no longer than six months is a normal correction.
CPI Consumer Price Index - Used to measure inflation. It monitors the price of a basket of goods to establish the general direction of prices in an economy.
Currency Forward Contract - An agreement for the future delivery of some amount of currency at a specified price and time. These contracts are traded over-the-counter by direct contact between a buyer and a seller.
Currency Futures Contract - An agreement between a buyer or seller and a futures exchange in which the buyer or seller agrees to take or make delivery of a specified amount of currency at a specified price at a designated time.
Currency Options Contract - A contract which gives the holder the right, but not the obligation, to buy or sell currency for a specified price for a stated period of time. These contracts are traded over-the-counter or on exchanges.
Currency Risk - This refers to the possibility that the domestic currency will appreciate relative to the foreign currency in which investments are denominated and a loss will be incurred on exchange back into the domestic currency.
Current Account - The record of all transactions with foreign nations that involve the exchange of goods and services or unilateral gifts.
Cyclical Companies - Those companies that tend to follow overall economic cycles. They report strong earnings when the overall economy is doing well and weaker earnings when the economy is in a recession.

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Deflationary - A term used to describe a situation where the general price level of goods and services is declining.
Derivatives - Derivatives are financial instruments whose value is based on the market value of an underlying asset such as stocks, bonds or a commodity. Examples of derivatives are futures contracts, options and forward contracts. Only certain "permitted derivatives" may be used by mutual funds in accordance with policies of the Canadian securities regulatory authorities.
Distributions - Payments to unitholders of income realized by the Fund. Distributions can comprise interest, dividends or capital gains. The type and frequency of the distribution is dependent on the fund. Generally, distributions comprise only the "taxable income" of the fund.
Diversification - The allocation of investment assets within an asset class, among different asset classes - such as bonds, stocks and real estate, or among geographical areas, to reduce risk.
Dividend - An amount distributed from a company's net profits to its shareholders. This amount is announced before it is paid and is distributed to shareholders of record on a per share basis.
Dow Jones Industrial Average (DJIA) - A key U.S. market indicator, the weighted average price of thirty blue chip U.S. stocks listed on the New York Stock Exchange.
Duration - A measurement of the price volatility of bonds. Bonds with a longer duration are more sensitive to interest rate changes and are therefore more volatile than bonds with short durations.
Emerging Markets - Defined as any country that the International Bank for Reconstructions and Development, otherwise known as the World Bank, has determined to have a low or middle-income economy.
Earnings Driven - At certain points in the business cycle, the market concentrates on earnings of companies as opposed to overall market conditions or interest rate factors. At this stage, companies that exhibit strong earnings potential are actively sought. (See Interest Rate Driven)
Ex-Dividend - This is the opposite of Cum Dividend. If shares are quoted ex-dividend (without dividend) you are not entitled to the declared dividend. If you buy shares quoted cum dividend ie. before the ex-dividend date, you will receive an upcoming already declared dividend.
Fiscal Drag - A term used to describe a situation where there is little government spending to encourage growth in an economy. This usually occurs as a result of high deficits that require a reduction in government spending.
Fiscal Policy - Federal government policy of directing the economy through taxation and government spending.
Fixed Income Security - A preferred stock or debt instrument that has a stipulated interest or dividend rate, e.g. a bond or GIC . This term is often used in reference to an overall investment policy, e.g., fixed income portion of a portfolio.
Fluctuation - A variation in the market price of a security.
Free Floating Currency - Not fixed or tied to any other currency. It is valued in open markets based on that country's economic and political outlook.

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GDP (Gross Domestic Product) - Measures a country's total output of goods and services.
Hedge - A term used to describe protective manoeuvering by an investment manager. It is intended to reduce the risk of a loss from a specified event; e.g., hedging a currency to protect against detrimental currency movements that would reduce the portfolio return. In a currency hedge, for example, the fund manager who held Yen-denominated stock would buy the Canadian Dollar and sell the Yen exposure (through a forward exchange contract) if he/she favoured the outlook for the Canadian Dollar against the Yen. This in effect protects or "hedges" the currency, while maintaining the Japanese stock market exposure.
IFCI (International Finance Corporation Investable Index) - A benchmark against which portfolios invested in emerging markets can be compared. "Investable" means it accounts for foreign ownership restrictions that are in place in various countries.
Inflation - Increases in the general price level of goods and services; i.e., your dollar won't buy as much as it used to. Inflation is commonly reported using the Consumer Price Index (CPI) as a measure. Inflation is one of the major risks to investors over the long term as savings may actually buy less in the future if they are not invested with inflation as a consideration.
Interest Rate Driven - Refers to a point in the business cycle when interest rates are declining and bond prices are rising. This is usually enough to inspire a stock market rally as money shifts from interest rate instruments to equity based instruments. (See Earnings Driven.)
Inverted Yield Curve - A situation where short term interest rates are higher than long term rates. Normally, lenders earn higher yields when committing money for longer periods; this is a positive yield curve. Inverted yield curves occur when surging demand for short term credit drives up short term rates. Usually a sign of increased inflation accompanied by low levels of confidence in the economy. Historically, this has preceded a recessionary period.
IPO (Initial Public Offering) - A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers.

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Leveraging - A strategy that uses borrowed monies to purchase financial assets with the objective of increasing returns.
Liquidity - The ability to sell securities at a reasonable price with relative ease in order to raise cash. This is a major and often overlooked aspect of an individual's investment strategy. Liquidity is a concern for any monies that may be required on short notice, whether for emergencies or for planned purchases.
Load - Term used in the mutual fund industry to identify the sales charge or commission on a particular fund. Common types of loads are front-end loads, or back-end loads (deferred sales charges).
Local Currency Terms - Refers to market or currency returns expressed in the denomination of that country.
Long Term Bond - A bond maturing in 10 or more years.

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Management Expense Ratio (MER) - This figure comprises the management fee plus all other expenses (excluding government taxes) that are charged directly to the mutual fund (as set out in each fund's prospectus), stated as a percentage of the Net Asset Value of the Fund.
Management Fee - The fee paid to the manager for its services. Usually paid by the mutual fund itself, the management fee is generally stated as a percentage of the Net Asset Value of the fund.
Marginal Tax Rate - The highest tax rate applied to your last dollar of income
Market Value of a Mutual Fund - Current market price per unit multiplied by the number of units.
Market Value of an Account - Total market value of all holdings.
Market Weighted - When a portfolio sector - or stock - weighting matches the weighting held by a market index, we say that the Fund is "market weighted" in that sector or stock.
Money Market Instruments - Debt instruments such as Treasury bills or corporate paper with a maturity of less than one year, that are easily converted to cash.
Morgan Stanley Capital International Index (MSCI) - Provides a list of indices measuring international performance (such as the World Index, Far East) and national performance (including Australia, Canada and US) based on the share prices of over 1600 companies. It also provides performance measurement for emerging markets and international industry groups.
Moving Averages - As the name implies, the Moving Average is the average of a given amount of data. For example, a 14 day average of closing prices is calculated by adding the last 14 closes and dividing by 14. The result is noted on a chart. The next day the same calculations are performed with the new result being connected (using a solid or dotted line) to yesterday's. And so forth. Variations of the basic Moving Average are the Weighted and Exponential moving averages. The Moving Average is probably the best known, and most versatile, indicator in the analysts tool chest. It can be used with the price of your choice (highs, closes or whatever) and can also be applied to other indicators, helping to smooth out volatility.
Mutual Fund Prospectus - A legal document which describes the investment objective of the fund, the manner in which the fund is administered and operated, the fees and other pertinent information. The prospectus should be read thoroughly before making an investment decision.
NAFTA (North American Free Trade Agreement) - An agreement between Canada, the US, and Mexico that took effect on January 1, 1994, designed to increase the scope for the free flow trade and investment among these three countries. It includes measures for the elimination of tariffs and non-tariff barriers to trade, as well as many more specific provisions concerning the conduct of trade and investment that reduce the scope for government intervention in managing trade.
NASDAQ (National Association of Security Dealers Automated Quotations) - A nationwide electronic system established by the National Association of Securities Dealers for up-to-the-minute price quotations and trading on over 5,000 over the counter shares.
NATO (North Atlantic Treaty Organization) - Members are Belgium, Canada, the Czech Republic, Denmark, France, Germany, Greece, Hungary, Iceland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Turkey, United Kingdom, United States. United Nations: The United Nations was established in 1945 by 51 countries committed to preserving peace through international cooperation and collective security. Today, nearly every nation in the world belongs to it: Membership now totals 189 countries.
Nesbitt Burns Small Cap Index - This is an equal-weighted total return index measurement. It includes 400 stocks representing the common shares of Canadian companies traded on the Toronto Stock Exchange and Montreal Exchange whose market capitalization does not exceed 0.1% of the total capitalization of the TSE 300 Index calculated at the beginning of each month.
Net Asset Value per Share (NAVPS)- The market value of the securities and assets held by the mutual fund less its current liabilities, divided by the total number of shares outstanding.
New Issue - An offering of stocks or bonds sold by a company for the first time.
No Load - A term used to describe a mutual fund that does not have a commission or sales charge.
OECD (Organization for Economic Cooperation and Development.) - An international agency which supports programs designed to facilitate trade and development.

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Portfolio - A collection of investments owned by an investor, an institution or a mutual fund.
Preferred Shares - Shares that carry a fixed dividend rate which the company is obliged to pay before it distributes dividends to common shareholders. Such shares rank ahead of common stock, and after the debenture holders, on the dissolution of a company.
Prime Rate - The interest rate charged by a chartered bank to its most creditworthy borrowers.
Private Placement - The underwriting of a security and its sale to a few buyers, usually institutional, and in larger amounts.
Put Option - An investment product that gives you the right to sell shares at a predetermined price for a limited period of time.
Real Yield - The nominal yield received minus the percentage change in the Consumer Price Index (i.e., the rate of inflation).
Recession - Two consecutive quarters with a decrease in economic output.
Record Date - This is the date, that all unitholders on a companies books are entitled to receive the dividend to be declared. If you become a unitholder after the record date, you are not entitled to the recent dividend.
Return - The income earned by an investment. This income may consist of interest, dividends or capital gains.
Rights Issues - A security which allows the owner to purchase additional units of that security directly from the company concerned.
Russell 2000 Index - An index of 2,000 of the smallest securities in the Russell 3000 Index, as measured by market capitalization.
Russell 2500 Index - An index of small to medium-small U.S. securities, composed of the bottom 500 stocks listed on the Russell 1000 Index, all securities in the Russell 2000 Index, and representing 23% of the Russell 3000 total market capitalization.
Russell 3000 Index - An index of 3,000 large U.S. securites, as determined by total market capitalization. The index represents approximately 98% of the U.S. equity market.

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Secondary Offering - The redistribution of a block of stock sometime after it has been sold by the issuing company.
Short Term Investment Horizon - An investment period of one year or less. An investor in this time frame should be most concerned about capital preservation as the monies will be required shortly.
Simple Rates of Return - The percentage change in the net asset value of a fund over a certain period of time, usually in terms of 1 month to 1 year periods.
Standard and Poors 500 (S&P 500) - A benchmark of U.S. common stock performance, it includes 500 of the largest stocks (by market value) listed in the U.S.
Tax-Loss Carry-Forward - Any losses incurred on a security transaction may be carried forward indefinitely and be used to offset any future capital gains.
Tokyo Stock Exchange Second Section Index (TS2) - Tokyo Stock Exchange Second Section Index is the smaller company index for Japan.
Toronto 100 Index (TSE 100) - An index of the top 100 companies in the Toronto 300 Index, ranked by quoted market value.
Toronto 200 Index (TSE 200) - An index of 200 of the smallest securities in the TSE 300 Index, as measured by market capitalization.
Toronto 300 Index (TSE 300) - An index of 300 Canadian stocks, in fourteen subgroups, designed to represent the Canadian equity market.
Toronto 35 Index (TSE 35) - An index of 35 liquid Canadian stocks, including stocks from most subgroups, but excluding Real Estate & Construction.
Total Return Index - Measures the performance of a stated index assuming reinvestment of all dividends and distributions over a period of time.
Treasury Bills - Short term obligations of the U.S. government. They have 13-week, 26-week, and 52-week maturities. They are purchased at a discount and mature at face value. The difference between the purchase price and maturity value (the amount of the discount) is considered interest.

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Volatility - Volatility is the relative rate at which the price or value of an investment asset tends to rise and fall. The more rapid the rate, the more volatile the investment asset.
Warrant - A certificate that allows the owner to purchase securities at a set price within a specified time frame. Warrants are usually attached to a new issue of securities as an inducement to investors to buy the new issue.
Weighted Average Market Capitalization - The figure included in Altamira's Fund Report gives the average size of companies that are held in each portfolio, expressed in millions.
Wood Gundy Small Cap Total Return Index - An index prepared by Wood Gundy, that reflects the overall stock price movements of smaller capitalized Canadian companies.

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Yield Curve - A curve on a graph that plots the interest rate (yield) of a bond on the vertical axis and the length of time until maturity on the horizontal axis. Their relationship is frequently referred to as the yield curve. Three basic types of curves exist. A normal curve is when interest yields are higher for longer term bonds and lower for shorter term bonds. A flat curve is when yields are about the same for longer term and shorter term bonds. Finally, an inverted curve is when the short term yields are higher than the yields on longer term bonds.