Glossary of Investment Terms

Alpha: The amount of return expected from an investment from its inherent value.

Beta: A measurement of volatility where 1 is neutral; above 1 is more volatile; and less than 1 is less volatile.

Debt to Capital Ratio: A measurement of a company’s financial leverage. The debt-to-capital ratio is calculated by taking the company’s interest-bearing debt, both short- and long-term liabilities and dividing it by the total capital.

EPS Growth: The portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability.

Information Ratio: A measurement of portfolio returns beyond the returns of a benchmark, usually an index, compared to the volatility of those returns.

Median Market Cap: The midpoint of market capitalization (market price multiplied by the number of shares outstanding) of the stocks in a portfolio, where half the stocks have higher market capitalization and half have lower.

Price/Earnings (P/E) Ratio: A stock’s price divided by its earnings per share, which indicates how much investors are paying for a company’s earning power.

Price-to-Book: The price per share of a stock divided by its book value (net worth) per share. For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds.

R-squared: The percentage of a fund’s movements that result from movements in the index ranging from 0 to 100. A fund with an R2 of 100 means that 100 percent of the fund’s movement can completely be explained by movements in the fund’s external index benchmark.

Return on Equity (ROE): A measure of financial performance calculated by dividing net income by shareholders’ equity.

Sharpe Ratio: A risk-adjusted measure that measures reward per unit of risk. The higher the sharpe ratio, the better. The numerator is the difference between the Fund’s annualized return and the annualized return of the risk-free instrument (T-Bills).

Standard Deviation: A statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.

Tracking Error: The active risk of the portfolio. It determines the annualized standard deviation of the excess returns between the portfolio and the benchmark.

Upside / Downside Ratio: A market breadth indicator that shows the relationship between the volumes of advancing and declining issues on an exchange.

Weighted Avg Market Cap: Most indexes are constructed by weighting the market capitalization of each stock on the index. In such an index, larger companies account for a greater portion of the index. An example is the S&P 500 Index.