Absolute
return
Absolute return refers to the rate of return earned
without reference to any other standard.
Active management
Active management is any investment process that
is driven by an interpretive process rather than
a mimicking process. Active management may be
based upon a disciplined evaluation of fundamental
statistics, trends, computer models or any other
rational or irrational process. Active management
does not necessarily imply the active trading
of securities. The decision to hold onto a security
in one's portfolio can be considered an action.
Actuarial assumptions
A group of reasonable assumptions about future
inflation, rates of return, salary growth, probable
death rates and probable disability. As a liability
of the fund year by year in the future.
Actuary
A professional qualified to calculate the required
contributions to balance the asset and liability
aspects of a pension fund. Enrolled actuaries
are allowed to practice law in tax courts.
After-tax return
The return from an investment after the effects
of taxes have been taken into account.
Aggressive growth
fund
A mutual fund whose primary investment objective
is substantial capital gain.
Alpha
Alpha is the risk adjusted rate of return. It
measures the rate of return earned after a market
return adjusted by the risk level of the portfolio
is subtracted. Mathematically, alpha is the 'y'
intercept calculated using a linear regression
of a series of rates of return.
Annualized rate of
return
The annualized rate of return is the average (technically
geometric average) return that if earned over
the period covered would produce the same total
compound rate of return that the actual set of
fluctuating returns produced.
Annuity
An insurance-based contract that provides future
payments at regular intervals in exchange for
current premiums. Annuity contracts are usually
purchased from banks, credit unions, brokerage
firms, or insurance companies.
Arbitrage
Arbitrage is the process of purchasing a security
and simultaneously selling a like (or identical)
security short in order to capture the difference
in price which may exist because of a short term
discrepancy in the pricing of one or the other.
In its purest sense, this is a riskless transaction.
As an example, one could buy shares in Intel
in New York for $66 and sell shares at the same
time in Tokyo for $66.125. In doing so, the
arbitrageur would pocket the 12-1/2 cents per
share.
Asset
Anything owned that has monetary value.
Asset allocation
The process of repositioning assets within a
portfolio to maximize return for a given level
of risk. This process is usually done using
the historical performance of the asset classes
within sophisticated mathematical models.
