Interest that has accumulated on a bond between the most recent payment of interest and the current date. This is the additional amount over and above the market price that a buyer would be required to pay the seller of a bond in the event the bond is traded between interest payments.
Adjusted Cost Base (ACB)
The amount paid for an asset like a stock or bond, including all acquisition costs. It is the amount used in conjunction with the net sales proceeds to determine capital gains.
Alpha is a relative measurement used in portfolio performance analysis. Alpha measures the return that is security specific, in other words, the return that can be attributed to a particular stock or bond, as opposed to the market in general. The market has an alpha of 0. The higher the alpha, the better you would expect the stock to perform relative to the market.
American Depository Receipt (ADR)
An ADR is a receipt for the stock of a foreign company that trades in the United States. The receipt represents actual shares in the foreign company which are held in a vault of a US bank. Very often, each receipt represents multiple shares of the underlying foreign company. The receipt entitles the owner to all the capital gains and dividends that would be payable to regular share holders.
The amount of income generated from a particular security or portfolio in one year.
The actual year over year performance of a security or portfolio.
This term is used when performance is measured for a time shorter than one year and the performance number is then adjusted to reflect what the expected one year return will be. For example, if a return is calculated for a quarter and then annualized, that means that the quarterly return is then adjusted to show what the return will be for the entire year if the performance in the quarter is assumed to continue.
Asset allocation involves the decision of how much of a portfolio to put into each asset class, or security type. Ibbotson did a study of pension funds and found that more than 90% of a portfolio’s return can be attributed to the asset allocation as opposed to the individual securities selected. The primary determinants of asset allocation are risk tolerance (how the investor feels about risk), time horizon (how long the investor has before they will need to start drawing on their investments), growth requirements and whether the client may need to draw out funds (liquidity needs). Also see asset class.
Beta is a relative measure of volatility. It measures a particular stock’s volatility relative to the market in general. The beta of the market is 1. A stock with a beta of 0.5 is half as volatile as the market. A stock with a beta of 1.5 is 1.5 times as volatile as the market.
If you own a bond you are loaning money to the company or organization that issued the bond. Bonds generally pay interest income at some specified interval.
Book value/Unit cost
Book value or unit cost refers to the price that a security was bought at. It is the same concept as adjusted cost base. Book values are necessary to compute both realized and unrealized capital gains.
Capital preservation generally means to preserve the initial amount invested, regardless of the effect inflation has on the investment value.
Common stock refers to the regular shares in a corporation. When you own common stock, you own a part of the company. You participate in the profits and losses of the firm. Profits may be distributed as dividends or may reflect in the higher market value of the shares in the market, or both.
This is a statistic that measures the way two asset classes or managers returns move in relation to each other. A correlation of +1 means that the two managers or assets classes move perfectly together, a correlation of 0 means there is no relationship between the two and a correlation of -1 means they move in exactly the opposite direction.
Coupon is the rate of interest on a bond. Back in the days when physical certificates were issued to bond holders, many bonds had coupons that were physically clipped and then cashed in for money when they were due, hence the word coupon. The coupon rate on a bond is generally fixed.
The current yield of a security is a function of the income it currently pays and its market value. To calculate current yield of a security you take the income currently being paid and then divide it by the market value. This number will change frequently because the market value of securities changes frequently.
A type of account where the investment decisions are made by the portfolio manager instead of the client. This applies to separately managed accounts.
The distribution of earnings to shareholders which is most often paid as cash or stock. The amount is decided by the board of directors and is usually paid quarterly. Dividends are not guaranteed. Dividends paid on Canadian corporations are taxed at a more favorable rate than interest income.
This term comes from the Capital Asset Pricing Model. It refers to the collection of portfolios that has the maximum rate of return for every given level of risk.
Refers to ownership in a company, either public or private. Other terms that mean the same thing are common stock and stock ownership.
Growth (investment style)
This is an investment strategy that seeks to invest in companies that are growing their earnings at an above average rate. Superior growth potential often justifies a higher stock price.
Growth at a Reasonable Price (GARP)
This is an investment strategy that seeks to invest in companies with good growth prospects and low share price compared to its calculated value. GARP combines both growth and value strategies.
High yield bonds
These bonds are also referred to as junk bonds or non-investment grade bonds. These bonds have a rating of BB or less. These bonds tend to yield more because of the higher risk of default. These bonds can be issued with below investment grade ratings or be downgraded from investment grade bonds to non-investment grade bonds due to deteriorating circumstances for the issuer. These bonds can provide diversification as well as yield enhancement if used properly in a fixed income portfolio.
Individual Pension Plan (IPP)
An IPP is a retirement savings program sanctioned by CRA that is mainly for key executives, owners of corporations or those that are professionally incorporated. An IPP is a defined benefit pension plan for one person. The main advantage to an IPP is that it generally allows certain high income individuals to exceed the CRA annual maximum contribution limits.
Statistic used to measure a portfolio’s average return in excess of a benchmark portfolio. The formula is return/risk. It is a measure of how much return is added for each 1% risk added by the manager.
In the Transcend UMH program, institutional money managers refers to the third party managers that we select to manage different aspects of our customers’ portfolios.
The income paid on a bond or other fixed income security. In Canada, interest income is taxed at your marginal tax rate.
Investment grade bonds
Investment grade bonds are bonds with BB+ rating or better. These bonds are issued by companies that have a very low chance of default.
The time period used for planning and forecasting purposes or the future time at which the investor requires the invested funds.
Investment Policy Statement (IPS)
An IPS is a formal document where a client’s risk profile, time horizon, liquidity needs and financial objectives are articulated. An IPS usually also contains a recommended asset allocation and portfolio recommendations.
This term refers to the need for cash or for convertibility to cash. Someone that has high liquidity needs must to be able to access cash on a regular basis.
Market value is the current value at which a security can be either bought or sold. In statements, it is usually the closing price of the security on the last business day of the month.
This is an investment strategy that seeks to invest in companies that are becoming more attractive and sell companies that are becoming less attractive. Provisus’ investment strategy generates trade signals based upon gauges and algorithms that have been calibrated to identify price turning points or changes in the direction of a stock’s price on an absolute and relative basis in order to assess the most promising stocks.
Overlay management is the function that Provisus performs for clients in the Transcend UMH Program. We research, select and monitor the managers chosen to manage a client’s portfolio. We ensure that risk and taxes are managed at the portfolio level as well and ensure that wash trades do not occur if one manager is buying the same security that another manager is selling. Overlay also encompasses the trading of accounts to harvest losses or gains. Overlay is the third level of portfolio management.
Some securities, like bonds and preferred shares are issued at a particular value called par value. This is also the value at which they are redeemable for cash.
Portfolio optimization refers to combining assets and managers in portfolios in such a way as to reduce risk without sacrificing return. This can be accomplished by using different asset classes and manager styles, as well as correlation of returns for different managers and asset classes.
These are shares that are generally issued at par value and can have either a fixed or variable dividend. Preferred shares generally do not have voting rights but they do rank above common shareholders for payment of dividends and claim on assets of the firm.
Private Client Questionnaire (PCQ)
An information gathering document that is filled out and signed by a client. This is also referred to as a risk profile or a Know Your Client (KYC) questionnaire. The PCQ is used by the portfolio manager to create the Investment Policy Statement (IPS).
Quarterly Investment Review (QIR)
The QIR is an enhanced consolidated report put together by Provisus that shows how your account has performed relative to the appropriate benchmark, the holdings in each of your mandates as well as the activity for the quarter.
Real Estate Investment Trust (REIT)
An entity that may invest in real estate or mortgages on real estate and whose earnings are exempt from federal taxation. REITs must meet certain strict requirements in order to get around paying corporate income taxes.
Realized capital gains
A realized capital gain is a capital gain that occurs when a capital asset is sold. This is also called taxable capital gain.
This term generally refers to an investor’s ability to tolerate swings in market value of their portfolio. It takes into account a client’s attitude toward investments, as well as their overall financial situation including net worth. In general, investors with longer time horizons, higher net worth and/or a very good knowledge of investing have a higher risk tolerance than other investors.
Separately Managed Accounts (SMA)
Separately Managed Accounts are a type of fee based account where the client owns actual stocks and bonds and the account is managed by at least one third party institutional manager.
Socially Responsible Investing (SRI)
Socially Responsible Investing (SRI) involves using your power as an investor to bring about social change by investing in companies that are good corporate citizens while at the same time avoiding certain types of companies. This is also known as ethical investing.
Stock or common stock refers to ownership in a company. Usually owning the common stock of a corporation entitles the holder to vote on proxy statements and participate in the earnings of the corporation either through dividends or increased market value of the company or both.
Third party managers
These are wealth management companies that are not related to Provisus, they are completely independent from our company. We also refer to these wealth managers as institutional managers. They are the managers that we hire to manage certain aspects of our client’s portfolios.
Unified Managed Household (UMH)
Unified Managed Households are fee based investment programs that combines multiple unaffiliated investment vehicles such as Separately Managed Accounts, ETF portfolios, mutual funds, and any other asset that the client chooses to maintain, into one householded investment portfolio. Overlay portfolio management is a key feature as it allows the overlay manager to take a holistic view of an investor’s overall holdings and develop a broad asset allocation plan that facilitates higher risk adjusted returns and an optimal tax management strategy.
Unrealized capital gains
This refers to gains on positions not yet sold. These gains are also referred to as paper profits, as they are not guaranteed until the position is actually sold. In order for a gain to be crystallized or realized for tax purposes the position must physically be sold.
Value (investment style)
This is an investment strategy that invests in companies that are deemed to be undervalued compared to the market in general and/or their true underlying asset value. Value managers are often looking to buy companies that are out of favor in the market ahead of main stream recognition.
Volatility usually refers to the swings in market prices for securities. For example, a volatile stock would be one where the price movements are frequent and large, such as technology stocks. Less volatile securities like bonds may not change in market value very much from month to month.
Yield to maturity
Yield to maturity applies to interest bearing investments, such as bonds. This is a concept used to determine the rate of return an investor will receive if a bond is held to its maturity date. It takes into account the purchase price, redemption value, time to maturity, coupon rate and the time between interest payments.
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