Investing Glossary

Common Terms

0-9

Heartland Advisors’ 10 Principles of Value Investing™ consist of the following criteria for selecting securities: (1) catalyst for recognition; (2) low price in relation to earnings; (3) low price in relation to cash flow; (4) low price in relation to book value; (5) financial soundness; (6) positive earnings dynamics; (7) sound business strategy; (8) capable management and insider ownership; (9) value of company; and (10) positive technical analysis.

A

Active management is the use of a human element, such as a single manager, co-managers, or a team of managers, to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions about what securities to buy, hold, and sell.

The allocation effect of an attribution analysis is the portion of a portfolio’s excess return that can be attributed to its managers taking different sector positions than the benchmark.

Alpha is a risk-adjusted measure of a portfolio's annual return in excess of the market return. It is a measure of a portfolio manager's contribution to performance due to security selection. A positive alpha indicates the portfolio outperformed the market on a risk-adjusted basis, and a negative alpha indicates the portfolio performed worse than the market.

An American Depository Receipt (ADR) is a negotiable certificate issued by a U.S. bank. It represents a specified number of shares, or one share, in a foreign stock traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas.

The American Stock Exchange (AMEX) is the third-largest stock exchange by trading volume in the United States.

Attribution analysis provides an in-depth analysis of a portfolio’s return relative to a benchmark.

The Axioma US Fundamental Equity Risk Model MH 3 provides factor-based portfolio risk analysis and covers over 8,800 securities (over 18,700 historically) listed on various U.S. stock exchanges, including American Depository Receipts, as of 2013. The model also covers more than 250 Exchange Traded Funds and more than 300 Enhanced Index Fund contracts, including all assets covered by the AXUS3 Fundamental and Statistical models. Market-traded, equity, and sector returns are available on a daily basis and are computed directly from market prices or extracted from the AXUS3-MH fundamental model. Core macro factor returns are estimated by means of a Dynamic Factor Model with a small number of dynamic factors distilled from eight years of 31 traditional economic time series released monthly, as well as over 100 daily time series from market data. Factors are common equity attributes that can describe a portion of portfolio performance with statistical significance.

B

The Baker Hughes Rotary Rig Count includes only those rigs that are significant consumers of oil field services and supplies. It does not include cable tool rigs, very small truck mounted rigs, or rigs that can operate without a permit. Non-rotary rigs may be included in the count based on how they are employed. To be counted as active, a rig must be on location and be drilling. A rig is considered active from the moment the well is “spudded” until it reaches target depth. Rigs that are in transit from one location to another, rigging up, or being used in other non-drilling activities are not counted as active.

A basing chart pattern is a period when a stock price has very little or no trend. The resulting price pattern is a flat line.

A basis point (bps) is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.

Bbl is an abbreviation for oilfield barrel, a volume of 42 U.S. gallons.

A bear market occurs when the price of a group of securities is falling or is expected to fall.

Beta is a measure of the sensitivity of a portfolio's rates of return against those of the market. A beta less than 1 indicates volatility less than that of the market.

The Big 4 is the designation for the dominant public accounting firms ordered by magnitude larger than the next biggest competitors in terms of employees, revenues, and numbers of Fortune 500 clients. They are the result of consolidation in the public accounting sector and include Deloitte Touche Tohmatsu, Ernst & Young, KPMG, and Pricewaterhouse Coopers.

Book value is the sum of all of a company’s assets, minus its liabilities.

The bottom-up investment approach de-emphasizes the significance of economic and market cycles. It focuses on the analysis of individual stocks, and the investor focuses his or her attention on a specific company rather than on the industry in which that company operates or on the economy as a whole.

Brent Crude is a type of petroleum classification given to oil from the North Sea and is used as a common benchmark in European oil pricing.

Brexit refers to a June 2016 referendum in which citizens of the United Kingdom voted to withdraw from the European Union.

A British Thermal Unit is a standard unit of energy. It is the amount of thermal energy necessary to raise the temperature of one pound of pure liquid water by one degree Fahrenheit.

A bull market occurs when the price of a group of securities is rising or is expected to rise.

C

CAD is the currency abbreviation for the Canadian dollar. The Canadian dollar is made up of 100 cents and is considered to be a benchmark currency, meaning many central banks across the globe keep Canadian dollars as a reserve currency.

Cash per share is calculated by dividing the free cash flow of a company by the number of shares outstanding.

A charge-off is a debt deemed uncollectible by the reporting firm. It is written off and removed from the firm's balance sheet.

The Chicago Board Options Exchange (CBOE) put/call ratio adds together all of the call and put options that are traded on all individual equities, as well as indices. The ratio attempts to gauge the prevailing level of bullishness or bearishness in the market. 

A clean balance sheet indicates a company has no significant debt during the statement period.

Closet indexing is a portfolio strategy used by some portfolio managers to achieve returns similar to those of their benchmark index, without exactly replicating the index.

Commercial and industrial loans (C&I) are made to a business or corporation to provide working capital or finance major capital expenditures. They usually are short-term and backed with some sort of collateral.

Compound annualized growth rate is a year-over-over measure of growth during a specified period of time. It is calculated by dividing the ending value by the beginning value, then raising the quotient to the power of 1 divided by the total number of years, and subtracting 1.

Corporate capital investment (capex) includes funds invested in a firm or enterprise for the purposes of furthering its business objectives. Capital investment may also refer to a firm's acquisition of capital assets or fixed assets, such as manufacturing plants and machinery, that is expected to be productive over many years.

Corporate credit spread is the difference in yield between two bonds of similar maturity but different credit quality. Widening credit spreads indicate growing concern about the ability of corporate (and other private) borrowers to service their debt. Narrowing credit spreads indicate improving private creditworthiness.

A correction is a drawdown of greater than 10%.

Correlation is a statistical measure of how two securities move in relation to one another. A measure of 1 means the securities are highly correlated and move in conjunction. A measure of 0 means the securities are not at all correlated and do not move in conjunction.

The Cushing spot price is the current price at which a barrel of West Texas Intermediate oil for delivery at the energy hub in Cushing, Oklahoma, can be bought or sold.

Cyclical spending is composed of U.S. total consumption excluding food, energy, housing, and medical.

Cyclical stocks include Basic Materials, Capital Goods, Communications, Consumer Cyclical, Energy, Financial, Health Care, Technology, and Transportation. These stocks tend to react to a variety of market conditions that can send them up or down and often relate to business cycles.

The cyclically adjusted price/earnings (CAPE) ratio of a stock is calculated by dividing the current price of the stock by its real per share earnings over a 10-year period to eliminate fluctuations in net income caused by variations in profit margins over a typical business cycle.

D

Debt-to-EBITDA approximates the time needed for a company to pay off all debt. It ignores factors of interest, taxes, depreciation, and amortization.

The debt-to-total capital ratio of a stock is calculated by dividing the company’s long-term debt by the value of its total capital.

Defensive stocks include Utilities and Consumer Staples. These companies usually don’t suffer as much in a market downturn as they relate to basic needs.

Developed markets are countries with relatively high levels of economic growth and security. Some of the most common criteria for evaluating a country’s degree of development are per capita income or gross domestic product (GDP), level of industrialization, general standard of living, and the amount of widespread infrastructure.

Discount rate has a specific meaning in the realm of the Energy sector. It is used to convert future values to present values in calculations of the value of oil and gas reserves.

Dividend growth rate is the annualized percentage of growth of a stock’s dividend during a specified period of time.

Dividend payout ratio is the percentage of dividend earnings paid to shareholders. It is calculated by dividing yearly dividend per share by earnings per share.

Dividend yield is a ratio that shows how much a company pays out in dividends each year relative to its share price.

Dollar debasement is the declining value of the U.S. dollar.

A drawdown is the peak-to-trough decline during a specific record period of an investment, fund, or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.

A durable good is a good that does not quickly wear out, or more specifically, one that yields utility over time rather than being completely consumed in one use.

E

Earnings per share is the proportion of a company’s profit allocated to each outstanding share of common stock.

Earnings yield is the reciprocal of the price-to-earnings ratio.

EBIT, or earnings before interest and taxes, is an indicator of a company’s profitability. It is calculated by subtracting expenses, excluding tax and interest, from revenue. It is used to analyze and compare profitability between companies and industries because it eliminates the effects of a company’s unique capital structure and tax rates.

EBITDA, or earnings before interest, taxes, depreciation, and amortization, measures a company’s financial performance. It is used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.

Efficient market theory is an investment theory that assumes market efficiency causes existing share prices to always incorporate and reflect all relevant information. Therefore, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

Emerging markets are progressing toward becoming advanced. This is typically demonstrated by some liquidity in local debt and equity markets, as well as the existence of some form of market exchange and regulatory body. However, emerging markets generally do not have the level of market efficiency and strict standards in accounting and securities regulation to be on par with advanced economies.

Enterprise multiple is a financial indicator used to determine the value of a company. It is calculated by dividing a company’s enterprise value by its EBITDA.

Enterprise value is the entire economic value of a company.

Enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio is a financial indicator used to determine the value of a company. It is calculated by dividing the company's enterprise value by its EBITDA.

Enterprise value-to-sales ratio is a financial indicator used to determine the value of a company, including debt. It is equal to a company’s enterprise value divided by its annual sales.

Estimated ultimate recovery (EUR) is an approximation of the quantity of oil or gas that is potentially recoverable or has already been recovered from a reserve or well and is a production method commonly used in the oil and gas industry.

Eurozone is the geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency.

The Eurozone Consumer Confidence Indicator is the arithmetic average of the balances (%) referring to the questions on the financial situation of households, general economic situation, unemployment expectations (with inverted sign), and savings—all over next 12 months.

The exchange rate, also known as the foreign-exchange rate, between two currencies is the rate at which one currency will be exchanged for another. It's also regarded as the value of one country’s currency in terms of another.

An Exchange Traded Fund (ETF) is a security that tracks an index, a commodity, or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

F

The Federal Funds Rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight.

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the board of governors, which has seven members and five reserve bank presidents.

The forward price-to-earnings ratio of a stock is calculated by dividing its current per-share price by its per-share estimated earnings for the next four quarters.

Free cash flow is the amount of cash a company has after expenses, debt services, capital expenditures, and dividends. The higher the free cash flow, the stronger the company’s balance sheet.

Free cash flow yield is a ratio for evaluating the overall return of a stock. It is calculated by dividing free cash flow per share by share price.

Funds from operations (FFO) is a figure used by real estate investment trusts (REITs) to define the cash flow from their operations. It is calculated by adding depreciation and amortization expenses to earnings, and sometimes quoted on a per share basis.

G

Government debt is a measure of all issued debt owed by the federal, state, and local governments.

Gross Domestic Product, or GDP, is the monetary value of all the finished goods and services produced in a country during a specified time period, though it typically is calculated on an annual basis.

H

Henry Hub is a natural gas pipeline located in Erath, LA. It serves as the official delivery location for futures contracts on the New York Mercantile Exchange. It is owned by Sabine Pipe Line, LLC, and has access to many of the major gas markets in the U.S. As of June 2007, the hub connected to four intrastate and nine interstate pipelines, including the Transcontinental, Acadian, and Sabine.

Households and nonprofit organizations net worth is a Federal Reserve Economic Data series that represents the outstanding balance sheet amounts of households and nonprofit organization on a quarterly basis. It is measured at the end of each period and not seasonally adjusted.

Household debt is a measure of all issued debt owed by households, nonprofit organizations, farm households, and domestic hedge funds. It includes open market paper, Treasuries, agencies, municipal bonds, corporate and foreign bonds, bank loans, other loans and advances, mortgages, and consumer credit.

I

Implied cap rate is a metric in evaluating REITs. It is net operating income divided by adjusted enterprise value.

Inflation breakeven spread identifies how a change in the inflation rate will impact an investment from one date to another. A negative number indicates the market expects prices to fall (deflation). A positive reading suggests market participants expect prices to rise (inflation).

Inflation risk is the possibility that the rate of price increases in the economy will deteriorate the returns associated with a bond.

Information ratio measures the consistency with which a manager beats a benchmark. It is calculated by dividing the annualized excess return of the managed portfolio by the annualized standard deviation of the excess return.

Insider buying is the purchase of a company’s stock by individual directors, executives, or other employees.

The interaction effect of an attribution analysis measures added value that is not attributed solely to allocation or selection decisions.

Investment grade is a rating that indicates that a municipal or corporate bond has a relatively low risk of default.

J

A Japanese government bond is a bond issued by the government of Japan. The government pays interest on the bond until the maturity date. At the maturity date, the full price of the bond is returned to the bondholder. Japanese government bonds play a key role in the financial securities market in Japan.

L

Liquefied natural gas (LNG) is natural gas that has been cooled to -161.5°C or -259°F and condensed into a transportable colorless and odorless liquid.

London Interbank Offered Rate (LIBOR) is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It serves as the first step to calculating interest rates on various loans throughout the world. LIBOR is administered by the ICE Benchmark Administration (IBA), and is based on five currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF), and serves seven different maturities: overnight, one week, and 1, 2, 3, 6 and 12 months. A total of 35 rates are posted every business day with the three-month U.S. dollar rate being the most common.

Long-only equity investing refers to the practice of purchasing positions in securities in excess of those sold.

A long-term capital gain is realized by the sale or exchange of an asset held for longer than one year. It is calculated as the difference between the purchase value and sale value. Long-term gains are assigned a lower tax rate than short-term capital gains.

The long-term debt-to-total capital ratio of a stock is calculated by dividing the company’s long-term debt by the value of its total capital.

M

The M2 Federal Reserve Money Supply is a measure of the domestic money supply that includes currency, checking account balances (including NOW accounts and credit union share draft accounts), travelers’ checks, savings and time deposits, overnight repurchase agreements, and personal balances in money market and mutual fund accounts.

A Master Limited Partnership (MLP) is a type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP’s cash flow, whereas the general partner is the party responsible for managing the MLP’s affairs and receives compensation that is linked to the performance of the venture.

Mcf is an abbreviation for 1,000 cubic feet of natural gas.

Mcfe is an abbreviation for 1,000 cubic feet equivalent. It is determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate, or natural gas liquids.

Momentum is the rate of acceleration of a security's price or volume.

N

NASDAQ is a global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy, and transparent system, and commenced operations February 8, 1971.

The net debt-to-equity ratio helps measure a company's financial leverage. It is calculated by dividing a company's total liabilities by stockholders' equity.

Net interest margin is a performance metric that examines how successful a firm’s investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments.

Net margin is the ratio of net profits to revenues for a company or business segment. It typically is expressed as a percentage. It shows how much of each dollar earned by a company is translated into profits.

The New York Mercantile Exchange (NYMEX) is the world’s largest physical commodity futures exchange. Trading is conducted through two divisions. The first is the NYMEX Division, which is home to the energy, platinum, and palladium markets. The second is the COMEX Division, where metals like gold, silver, and copper are traded, as well as the FTSE 100 index options.

The New York Stock Exchange (NYSE) is based in New York City and is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities.

The New York Stock Exchange (NYSE) Arca is a securities exchange in the U.S. on which stocks and options are traded.

Normalized earnings are earnings adjusted for cyclical ups and downs in the economy.

The normalized price-to-earnings ratio of a stock is calculated by dividing its current price by its trailing or its forward 12 months’ earnings per share. Earnings are adjusted for cyclical ups and downs in the economy.

O

Outstanding U.S. public debt represents the face amount or principal amount of marketable and non-marketable securities currently outstanding.

Ordinary dividends are a share of a company’s profits that periodically are passed on to its shareholders. They are taxed as ordinary income.

P

Passive investing is an investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance.

Passive management is a style of management associated with mutual and exchange traded funds (ETFs) where a fund's portfolio mirrors a market index.

The price-to-book ratio of a company is calculated by dividing the per-share price of its stock by the company's per-share book value.

Price-to-cash flow represents the amount an investor is willing to pay for a dollar generated from a particular company’s operations. It shows the ability of a business to generate cash and acts as a gauge of liquidity and solvency.

The price-to-cash flow ratio of a company is calculated by dividing the per-share price of its stock by its per-share operating cash.

The price-to-earnings ratio (forward) of a stock is calculated by dividing its current per-share price by its per-share estimated earnings for the next four quarters.

The price-to-earnings ratio (trailing) of a stock is calculated by dividing its current per-share price by its per-share earnings from the last four quarters.

The price-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of a company is calculated by dividing the market price of its stock by the company’s per-share EBITDA.

The price-to-sales ratio is calculated by dividing a stock’s current price by sales per share for the trailing 12-month period.

The price-to-stated-book ratio of a company is calculated by dividing the market price of its stock by the company's per-share stated book value.

The price-to-tangible book ratio of a company is calculated by dividing the market price of its stock by the company’s per-share tangible book value.

Private domestic nonfinancial debt is total credit market debt, but debt owed by non-U.S. and government sources is excluded.

Private equity is capital that is not quoted on a public exchange and consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or strengthen a balance sheet.

Private fixed/domestic investment measures the spending of private businesses, not-for-profit organizations, and households on fixed assets in the U.S. economy.

Private market value is the break-up market value of all divisions of a company if divisions were each independent and established their own market stock prices.

The put-call ratio has long been viewed as an indicator of investor sentiment in the markets. It is a ratio of the trading volume of put options to call options. Times where the number of traded call options outpaces the number of traded put options would signal a bullish sentiment, and vice versa.

Q

Quantitative easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market.

Quasi-alternative characteristics refer to attributes such as higher volatility, less liquidity, but the potential for greater return. These attributes are commonly associated with alternative investment asset types, such as hedge funds, managed fortunes, real estate, commodities, and derivatives.

R

R-squared is 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 interest rate is an interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower, and the real yield to the lender.

Real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects.

Reinvested dividends are dividends, interest, or profits from an investment used to buy more of that investment, rather than received as a cash payout.

REITs, or Real Estate Investment Trusts, are securities that sell like stocks on the major exchanges and directly invest in real estate, either through properties or mortgages.

Return on equity measures the net income after taxes a firm is able to earn as a percentage of shareholders’ equity.

Return on invested capital is a measure that quantifies how well a company is using its money to generate returns. It is calculated as net income less dividends, then divided by total capital, and expressed as a percentage.

Risk-on risk-off theory is an investment setting in which price behavior responds to, and is driven by, changes in investor risk tolerance. Risk-on risk-off refers to changes in investment activity in response to global economic patterns. During periods when risk is perceived as low, risk-on risk-off theory states that investors tend to engage in higher-risk investments. When risk is perceived as high, investors have the tendency to gravitate toward lower-risk investments.

Rolling return is the compound annualized growth rate for a series of periods as of the most recent date provided. It can be useful when examining the behavior of returns during specific time periods.

S

The selection effect of an attribution analysis is the portion of a portfolio’s excess return that can be attributed to its managers choosing different securities within a sector grouping than the benchmark.

The shale revolution refers to the boom in U.S. oil and gas production during the past several years, resulting in part from the use of new technology to tap into shale-based oil and gas deposits.

The Sharpe ratio measures the relationship of reward to risk in an investment strategy. It is calculated by subtracting the risk-free return from a portfolio’s average return, then dividing the result by the standard deviation of the portfolio’s return.

A short-term capital gain is realized by the sale or exchange of an asset held for one year or less. It is calculated as the difference between the purchase value and sale value. Short-term gains are taxed at the taxpayer’s top marginal tax rate.

Spot price is the current price at which a particular security can be bought or sold at a specified time and place. A security’s spot price is regarded as the explicit value of the security at any given time in the marketplace.

Spread income is also called margin income. It is the difference between income and cost. For a depository institution, it is the difference between the assets in which the institution invests (e.g., loans and securities) and the cost of its funds (e.g., deposits and other sources).

Standard & Poor’s AAA-Rated Credit is a forward-looking opinion about credit risk. Standard & Poor’s credit ratings express the agency’s opinion about the ability and willingness of an issuer—such as a corporation, state, or city government—to meet its financial obligations in full and on time. An "AAA" rating indicates an extremely strong capacity to meet financial commitments on the obligation.

Standard & Poor’s A-Rated Credit is a forward-looking opinion about credit risk. Standard & Poor’s credit ratings express the agency’s opinion about the ability and willingness of an issuer—such as a corporation, state, or city government—to meet its financial obligations in full and on time. An "A" rating indicates a strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.

Standard deviation is a measure of volatility of returns. It is calculating by determining the square root of the average squared deviation of the returns from the mean value of the return.

Stated book value (SBV) is the value at which an asset is carried on a balance sheet and, instead of being par value, is assigned to a corporation's stock for accounting purposes. 

T

A takeout transaction is the purchase of a company through an acquisition, merger, or other form of buyout.

Tangible book value is the sum of all of a company’s assets, minus its liabilities and intangible assets, such as goodwill.

Taper tantrum occurs when stock and bond traders buy sooner rather than later based on what they perceive as hints about upcoming Federal Reserve actions related to the potential tapering of securities.

Total credit market debt is a measure of all issued debt in the economic system. It includes the debt owed by households, corporations, farms, state and local governments, federal government, financial companies, and foreign sources. It includes open market paper, Treasuries, agencies, municipal bonds, corporate and foreign bonds, bank loans, other loans and advances, mortgages, and consumer credit.

The total debt-to-total capital ratio of a stock is calculated by dividing the short- and long-term debt obligations of the company by its total capital, which is represented by the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest, and net debt. 

Total domestic nonfinancial debt is total credit market debt, but debt owed by domestic financial companies and foreign sources is excluded.

The total effect of an attribution analysis represents the opportunity cost of a portfolio’s investment decisions relative to the overall benchmark. It is the sum of three factors: allocation effect, selection effect, and interaction effect.

The trailing price-to-earnings ratio of a stock is calculated by dividing its current per-share price by its per-share earnings from the last four quarters.

A Treasury Bill, or T-bill, is a short-term debt obligation backed by the U.S. government. It has a maturity of less than one year. T-bills are sold in denominations of $1,000, up to a maximum purchase of $5 million. They and commonly have maturities of one month, three months, or six months.

Treasury yield is the effective rate of interest paid on a debt obligation issued by the U.S. Treasury for a specified length of time.

U

Upside/downside capture is a measure of how well a manager was able to replicate or improve on phases of positive benchmark returns, as well as how poorly the manager was affected by phases of negative benchmark returns. When a fund’s benchmark rises in value, the fund’s upside capture refers to how much its rise in value exceeds the benchmark’s return. When the benchmark declines in value, a fund offers downside protection by not capturing the full decline.

U.S. capacity utilization is calculated for the manufacturing, mining, and electric and gas utilities industries. For a given industry, the utilization rate is equal to an output index divided by a capacity index. Output is measured by seasonally adjusted indexes of industrial production. The capacity indexes attempt to capture the concept of sustainable practical capacity, which is defined as the greatest level of output that a plant can maintain within the framework of a realistic work schedule, taking account of normal downtime and assuming sufficient availability of inputs to operate the machinery and equipment in place.

V

The variation average weight in an attribution analysis is the portfolio’s weighting to a particular sector minus the benchmark’s weighting to the same sector.

The variation contribution in an attribution analysis indicates how the portfolio’s return was impacted by the difference between its weighting to various sectors compared to the benchmark. It is calculated by subtracting the benchmark’s percent contribution to return from the portfolio’s percent contribution to return.

The variation total return in an attribution analysis indicates how the portfolio was impacted by the difference between its weighting to various sectors compared to the benchmark. It is calculated by subtracting the benchmark’s total return from the portfolio’s total return.

Volatility is a statistical measure of the dispersion of returns for a given security or market index, which can either be measured by using the standard deviation or variance between returns from that same security or market index.

W

Wealth effect is the premise that when the value of stock portfolios rises due to escalating stock prices, investors feel more comfortable and secure about their wealth, causing them to spend more.

Western Texas Intermediate (WTI) is a type of crude oil used as a common benchmark in U.S. oil pricing.

Y

A yield curve is a line that plots the interest rates, at a set point in time, of bonds that have equal credit quality but differing maturity dates.

A yield spread is the difference between yields on differing debt instruments. It is calculated by deducting the yield of one instrument from another.

Indices & Surveys

All indices are unmanaged. It is not possible to invest directly in an index.

The American Association of Individual Investors’ (AAII) Investment Sentiment Survey measures the percentage of individual investors who are bullish, bearish, or neutral on the stock market for the next 6 months. It is conducted through weekly polls of AAII members, with one vote accepted per member per week.

The American Iron and Steel Institute Steel Production Capacity Utilization Index is used to assess production trends. It is calculated by combining weekly estimated production of raw steel tonnage from 50% of the domestic producers and monthly production data for the remaining 50%.

The American Petroleum Institute Total US Refinery Utilization Index reports total U.S. data relating to refinery operations and the production of five major petroleum products: oxygenated, reformulated, and other finished motor gasoline; naphtha; kerosene jet fuel; distillate (by sulphur content); and residential fuel oil representing more than 80% of total refinery production.

The Association of American Railroads Intermodal US Freight Carloads Index shows carloads and intermodal (trailers and containers) traffic for U.S. Class I railroads and select U.S. non-class I railroads. Traffic is reported weekly for both originations and for traffic received from connections.

The Baker Hughes United States Natural Gas Rotary Rig Count Index (BAKEGAS) includes only those rigs that are significant consumers of oil field services and supplies. It does not include cable tool rigs, very small truck-mounted rigs, or rigs that can operate without a permit. Non-rotary rigs may be included in the count based on how they are employed. For example, coiled tubing and work-over rigs employed in drilling new wells are included in the count. To be counted as active, a rig must be on location and be drilling or “turning to the right.” A rig is considered active from the moment the well is “spudded” until it reaches target depth. Rigs that are in transit from one location to another, rigged up, or used in non-drilling activities – such as work-overs, completions, or production testing – are not counted as active. Miscellaneous rig counts represent geothermal rigs.

The Barclay’s Capital Government/Credit Bond Index includes U.S. Treasuries and corporate investment grade securities that have remaining maturities of more than one year. The index’s performance is taken from published sources and is not covered by the report of independent accountants.

The Bloomberg Dollar Index Spot Index has a base value of 100 as of 12/31/2004 and tracks the performance of the U.S. dollar against a basket of 10 leading global currencies. Each currency in the basket and their weight is determined annually based on their share of international trade and foreign exchange liquidity.

The Cass Corp. Freight Index compares levels of shipment activity on a month-to-month basis. It uses January 1990 as its base month, representing a value of 1.00. It is updated with monthly freight expenditures and shipment volumes from the entire Cass client base. Volumes represent the month in which the transactions are processed by Cass, not necessarily the month when the corresponding shipments took place. The index point for each subsequent month represents that month’s volume in relation to the January 1990 baseline. Each month’s volumes are adjusted to provide an average 21-day work month. They also are adjusted to compensate for business additions and deletions to volume figures. The adjustments help normalize the data to provide sound basis for ongoing monthly comparison.

The Chicago Board Options Exchange Market Volatility Index (CBOE VIX) is a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30-day period.

The Chicago Gas Spot Price Index (NAGANGPL) measures natural gas delivered to Chicago utilities, including Nicor, Peoples Gas Light & Coke, Northern Indiana Public Service, and major pipelines providing deliveries, including NGPL, Alliance, and ANR.

Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises (actual releases vs. Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance been beating consensus. The indices are calculated daily in a rolling three-month window. The weights of economic indicators are derived from relative high-frequency spot FX impacts of 1 standard deviation data surprises. The indices also employ a time decay function to replicate the limited memory of markets.

The Clean Medium Rate UK Continent to U.S. Atlantic Coast Tanker Rate Index measures what a consumer is willing to pay on a daily basis to move refined petroleum products on a medium range product tanker from Europe to the U.S.

The Consumer Confidence Index measures Americans’ attitudes about current and future economic conditions. It is based on a monthly survey of 5,000 households conducted for The Conference Board and is benchmarked to a base year of 100 in 1985.

The federal Consumer Price Index is used to assess price changes associated with the cost of living. It measures the weighted average of the prices of a collection of consumer goods and services, such as transportation, housing, food, and medical care. It is calculated by averaging the price change for each item in the collection, with the goods weighted according to their importance.

The CRB Commodity Index (Thomson Reuters Core Commodity CRB Index) is a commodity futures price index consisting of 19 commodities. It uses an arithmetic average with monthly rebalancing.

Datastream Global Equity Indices draw on the wealth of the Thomson Datastream database to provide a range of equity indices across 53 countries, 32 regions, and 170 sectors worldwide. They form a comprehensive, independent standard for equity research and benchmarking.

The Department of Energy Distillate Fuel Output Index measures the output of diesel fuels and fuel oils such as those used for on- and off-highway diesel engines, railroad locomotives and agricultural machinery, space heating, and electric power generation. It shows product supplied to the U.S. only by excluding exports.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and Nasdaq. It includes companies such as General Electric, Disney, Exxon, and Microsoft.

The Dow Jones U.S. Total Stock Market Index comprises all U.S. equity securities with readily available prices. It includes sub-indexes categorized by size segments based on full market capitalization rankings: Large-cap includes stocks ranked 1-750, mid-cap includes stocks ranked 501-1,000, small-cap includes stocks ranked 751-2,500, and micro-cap includes stocks ranked 2,501 and up.

Changes in the Everyday Price Index are used to assess price changes associated with the cost of living. It is a measure of the weighted average of the prices of goods and services purchased at least once a month by the average consumer, such as food and beverages, household energy products and services, other utilities, motor fuel, prescription drugs, child care fees, phone services, and personal care products. It does not include housing.

The Financial Conditions Index is a Furey Research Partners, LLC, proprietary measurement showing the level of monetary policy accommodation/restriction at a given point in time. A value above 1 indicates that financial conditions are restrictive, a value below 1 indicates financial conditions are accommodative.

The Freddie Mac US Mortgage Homeowner Commitment Index represents Freddie Mac’s National Mortgage rates. Freddie Mac National Mortgage rates are the average from 1,125 lenders that contributed data about their 30-year fixed rate mortgage with 20% down and 80% financed over the life of the loan.

The Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.00 at the close of trading on December 20, 2002. The index is calculated and maintained by the American Stock Exchange.

The Hang Seng China AH Premium Index tracks the average price difference of A-shares over H-shares for the largest and most liquid Chinese companies with both A-share and H-share listings.

The Industrial Production Index measures real output of manufacturing, mining, and electric and gas utilities. It is expressed as a percentage of real output in a bas year, currently 2007.

ISI Company Surveys are conducted weekly. They monitor over 360 companies in 29 economically sensitive industries. Key executives are asked to rate their sales relative to expectations on a 0 to 100 scale, with 0 being weak, 100 being strong, and 50 representing business growing as expected. Businesses surveyed include broadline and specialty retailers, auto dealers, homebuilders, shopping guide companies, credit card companies, banks, airlines, trucking companies, technology companies, capital goods companies, and manufacturing companies.

The ISM Manufacturing PMI (Purchasing Managers Index) is an index based on surveys of more than 300 manufacturing firms by the Institute for Supply Management (ISM). The PMI index is an indicator of the economic health of the manufacturing sector based on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment. A reading under 50 represents a contraction, while a reading at 50 represents no change.

The Japan Breakeven 5-Year Index measures the level of inflation expected by Japanese market participants. It is comprised of generic Japanese breakeven rates. It’s calculated as the nominal government bond that’s closest to the inflation-linked bonds, minus the inflation-linked bonds.

The Kansas City Fed’s Manufacturing Survey provides information on current manufacturing activity in the Tenth Federal Reserve District. The survey monitors manufacturing plants selected according to geographic distribution, industry mix, and size. Survey results reveal changes in several indicators of manufacturing activity, including production and shipments, and identify changes in prices of raw materials and finished products.

The Lipper Multi-Cap Value Index tracks the performance of the 30 largest multi-cap funds, as categorized by Lipper.

The Lipper Small-Cap Value Index tracks the performance of the 30 largest funds in the small capitalization range as categorized by Lipper.

The Liquid Natural Gas Japan Import Price Index (LNGJLNP) reflects imports from all countries to Japan and includes freight cost from the country of origin. The index updates on a two-month lag basis.

The Merrill Lynch Option Volatility Estimate Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options.

The Morgan Stanley Capital International (MSCI) All Country World Index ex USA Small-Cap Value Index is a broad measure of stock performance throughout the world, excluding U.S. companies. It is a market-capitalization-weighted index that consists of 44 country indices, 23 from developed market countries and 21 from emerging market countries.

Morgan Stanley Capital International (MSCI) EAFE Index is a market capitalization weighted index composed of companies representative of the market structure of 21 developed market countries in Europe, Australasia, and the Far East. 

The Morgan Stanley Capital International (MSCI) Europe Index is a free-float weighted equity index designed to measure the equity market performance of the developed markets in Europe. It was developed with a base value of 100 as of December 31, 1998.

The Morgan Stanley Capital International (MSCI) Japan Index is designed to measure the performance of the large- and mid-cap segments of the Japanese market. It is constructed based on the MSCI Global Investable Market Indices Methodology, targeting free-float market capitalization coverage of 85%. The index has a base year of 12/31/1987.

The Morgan Stanley Capital International (MSCI) Japan Small Cap Index is designed to measure the performance of the small-cap segment of the Japanese market. It is constructed based on the MSCI Global Investable Market Indices Methodology, targeting approximately 14% of the free-float adjusted market capitalization of the Japan equity universe.

The Morgan Stanley Capital International (MSCI) United States Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1969.

The Morgan Stanley Capital International (MSCI) USA Small Cap Index is designed to measure the performance of the small-cap segment of the U.S. equity market. It is constructed based on the MSCI Global Investable Market Indices Methodology, targeting approximately 14% of the free-float adjusted market capitalization in the U.S.

The Morgan Stanley Capital International (MSCI) World ex USA Small Cap Index captures small-cap representation across developed markets, excluding the U.S. It is constructed based on the MSCI Global Investable Market Indices Methodology, targeting approximately 14% of the free-float adjusted market capitalization in each country.

The NAHB Housing Market Index is based on a monthly survey of NAHB members. It is designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months, as well as the traffic of prospective buyers of new homes. 

The NASDAQ Composite Index is a market capitalization weighted index that measures the performance of domestic and international common stocks listed on the NASDAQ stock market, which includes more than 3,000 securities.

The Netherlands Natural Gas Spot Price Index (TTFGWTHN) is the virtual gas hub covering all high calorific entry and exit points in the Netherlands operated by Dutch TSO Gas Transport Services, a subsidiary of N.V. Nederlandse Gasunie. Energy broker pricing updates on a nears real-time basis. Gas trades on a forward month, quarter, season, or year basis.

The NFIB Small Business Optimism Index is a small business optimism index compiled from a survey conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on questions on the following: plans to increase employment, plans to make capital outlays, plans to increase inventories, expectations of the economy to improve, expectations of real sales to be higher, current inventory, current job openings, expected credit conditions, if now a good time to expand, and earnings trend.

The Nikkei Index is a price-weighted index comprised of Japan’s top 225 blue-chip companies
on the Tokyo Stock Exchange.

The Nikkei Index 400 is a capitalization weighted index of 400 companies meeting the requirements of global investment standards, such as efficient use of capital and investor-focused management perspectives. The index was jointly developed by Nikkei, Japan Exchange Group, and Tokyo Stock Exchange. The index has a base value of 10,000 as of August 30, 2013.

The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining.

The Raymond James FHA Housing Affordability Index is a proprietary index based on median existing home prices, median household income, and prevailing Federal Housing Administration mortgage rates. 

The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. It represents about 92% of the U.S. market.

The Russell 1000® Growth Index measures the performance of stocks in the Russell 1000 Index with higher price-to-book ratios and forecasted growth characteristics.

The Russell 1000® Value Index measures the performance of the stocks in the Russell 1000 Index with lower price-to-book ratios and forecasted growth characteristics.

The Russell 2000® Index includes 2,000 stocks from the Russell 3000 Index that have the smallest market capitalizations.

The Russell 2000® Growth Index measures the performance of stocks in the Russell 2000 Index that have higher price-to-book ratios and forecasted growth characteristics.

The Russell 2000® Value Index measures the performance of stocks in the Russell 2000 Index that have lower price-to-book ratios and forecasted growth characteristics.

The Russell 3000® Index seeks to be a benchmark of the entire U.S. stock market. It includes 3,000 of the largest U.S.-traded stocks, for which the underlying companies also are incorporated in the U.S.

The Russell 3000® Growth Index measures the performance of stocks in the Russell 3000 Index that have higher price-to-book ratios and forecasted growth characteristics.

The Russell 3000® Value Index measures the performance of stocks in the Russell 3000 Index that have lower price-to-book ratios and forecasted growth characteristics.

The Russell® Developed Eurozone Index measures the performance of the investable securities in developed countries in the Eurozone, is constructed to provide a comprehensive and unbiased barometer for this market segment, and is completely reconstituted annually to accurately reflect the changes in the market over time.

The Russell® Developed Small Cap Index is constructed to provide a comprehensive and unbiased barometer for the developed small-cap segment of the equity universe and is completely reconstituted annually to accurately reflect the changes in the market over time.

The Russell® Emerging Markets Small Cap Index is constructed to provide a comprehensive and unbiased barometer for the emerging small-cap segment of the equity universe and is completely reconstituted annually to accurately reflect the changes in the market over time.

The Russell Global® Emerging Markets Index measures the performance of emerging countries equity markets based on all investable equity securities. 

The Russell Global® ex-US Large Cap Index measures the large-cap segment of the global equity universe as defined by Russell, excluding companies assigned to the U.S.

The Russell Global® ex-US Small Cap Index measures the small-cap segment of the global equity universe as defined by Russell, excluding companies assigned to the U.S.

The Russell Microcap® Index is a capitalization-weighted index of 2,000 small- and micro-cap stocks. It captures the 1,000 smallest companies in the Russell 2000 Index, as well as 1,000 smaller U.S.-based listed stocks.

The Russell Midcap® Growth Index measures the performance of stocks in the Russell MidCap Index that have higher price-to-book ratios and forecasted growth characteristics.

The Russell Midcap® Value Index measures the performance of stocks in the Russell Midcap Index that have lower price-to-book ratios and forecasted growth characteristics.

The Russell Small Cap Developed Eurozone Small Cap Index offers investors access to the small-cap equity universe of developed countries across the Eurozone.

The S&P 500 Commercial Bank Sub-Industry tracks the performance of the commercial banks in the S&P 500 Financial Sector Index.

The S&P 500 Consumer Discretionary Index tracks the performance of the Consumer Discretionary sector of the stock market. It includes industries such as retail, media, leisure equipment and products, restaurants and leisure, apparel and luxury goods, hotels, household durables, textiles, automobiles, auto components and distributors, and diversified consumer services industries.

The S&P Euro Index has a base date of 12/31/1997, is a subset of the S&P Europe 350 Index, and includes all the stocks from the Eurozone countries in the S&P Europe 350 Index. The number of stocks is not fixed and remains flexible depending on the makeup of the S&P 350 Index.

The S&P 500 Financial Sector Index tracks the performance of the Financial sector of the stock market. It contains companies focused on banking, REITs, consumer finance, thrifts, mortgages, and real estate management.

The S&P GSCI Index is widely recognized as a leading measure of general price movements and inflation in the world economy. It provides investors with a reliable and publicly available benchmark for investment performance in the commodity markets.

The S&P 500 High Quality Rankings Index is designed to provide exposure to constituents of the S&P 500 that are identified as high quality stocks (stocks with Quality Rankings of A and above). The Standard & Poor’s Quality Rankings System attempts to measure the growth and stability of earnings and the dividends record within a single rank. It has been calculated for common stocks since 1956.

The S&P 500 Low Quality Rankings Index is designed to provide exposure to constituents of the S&P 500 that are identified as low quality stocks (stocks with Quality Rankings of B and below). The Standard & Poor’s Quality Rankings System attempts to measure the growth and stability of earnings and the dividends record within a single rank. It has been calculated for common stocks since 1956.

The S&P 500 Index is a widely used U.S. equity benchmark. It contains 500 U.S. stocks chosen for market size, liquidity, and industry group representation.

The S&P 500 Information Technology Sector Index tracks the performance of the Information Technology sector of the stock market. It contains companies focused on the research, development, or distribution of technologically-based goods and services.

The S&P 500 Total Return Index is calculated by Standard & Poor’s based on the price changes and reinvested dividends of the S&P 500, an index of 500 U.S. stocks chosen for market size, liquidity, and industry group representation. It is a widely used U.S. equity benchmark.

The S&P Composite 1500 Index combines three leading indices: The S&P 500, S&P MidCap 400, and S&P SmallCap 600. It accounts for around 90% of the U.S. market capitalization.

The S&P MidCap 400 Index is the most widely followed mid-cap index. It includes stocks with a total market cap ranging from around $750 million to $3 billion. Stocks are household names from all major industries.

The S&P SmallCap 600 Index covers a broad range of small-cap stocks. It covers about 3% to 4% of the total U.S. equities market.

The S&P/Case-Shiller Composite - 20 City Composite measures the value of residential real estate in 20 U.S. metropolitan areas.

The S&P Global 1200 Index is a worldwide equity index representing 29 countries grouped into seven regional markets.

The Tokyo Stock Price Index, or TOPIX, measures stock prices on the Tokyo Stock Exchange. It is a capitalization-weighted index of all companies listed in the first section of the Tokyo Stock Exchange. The first section groups all large firms on the exchange into one pool, while the second section groups all remanding smaller firms.

The TOPIX Total Return Index represents the total return of the Tokyo Stock Price Index, which is a capitalization weighted index of all companies listed on the First Section of the Tokyo Stock Exchange, is supplemented by the sub-indices of the 33 industry sectors, excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

The U.S. Architecture Billing Firms Index (ABI) is generated from a survey conducted by the AIA Economics & Market Research Group. This index serves as an economic indicator that leads non-residential construction activity by approximately 9-12 months. Survey participants are asked whether their billings increased, decreased, or stayed the same in the most recent month. A value above 50 indicates an increase in activity.

The US New Privately Owned Housing Units Started Index tracks private residential real estate activity for housing units started, with seasonally adjusted rates. It includes total one-unit, two-unit, three- and four-unit, and five- or more-unit housing according to the U.S. Commerce Department’s Bureau of the Census.

The US Nondurable Manufacturing Chemical Plant Utilization Index measures real output and is expressed as a percentage of real output in a base year, currently 2007. The production indexes are computed as Fisher indexes since 1972. The weights are based on annual estimates of value added.

Research Partners

Data Sourced from FactSet: Copyright 2017 FactSet Research Systems Inc, FactSet Fundamentals. All rights reserved.

Data Sourced from Ned Davis: © Copyright 2017 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

Lipper Mutual Fund Indices are created by equally weighting the 10 or 30 largest Nasdaq-listed funds in the corresponding Lipper investment objective grouping. The Lipper fund indices do not represent the Fund’s benchmark.

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. MSCI data may not be further redistributed or used to create indices or financial products. This material on this website is not approved or produced by MSCI.

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