Financial Glossary

Annualized Total Return is the geometric average annual return over a given time period if the annual return were compounded, and shows what an investment has earned each year over the particular period of time. This calculation converts the actual cumulative return of an investment over a period longer than one year (earned from uneven returns each year) into the an even annual return that would result in an equivalent cumulative return if compounded. This metric is synonymous with and equivalent to Compound Annual Growth Rate (CAGR).

Beta is a measure of volatility or systematic risk of a portfolio compared to the market or benchmark, and represents the slope of the line through a regression of data points denoted by the portfolios returns against the corresponding market or benchmark returns. Beta represents the relative movement or volatility of a portfolio that is expected based on the movements of the corresponding market or benchmark. A portfolio beta greater than 1.0 is indicative of greater volatility than the respective market or benchmark, and a portfolio beta less than 1.0 is indicative of less volatility than the respective market or benchmark.

Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment since its inception over a period longer than one year. CAGR measures the rate of return that an investment would need to have every year in order to grow from its beginning balance to its ending balance, over a given time interval. This metric gives an annualized rate of return, which is useful for comparing the performance of different investments over time. This metric is synonymous with and equivalent to Annualized Total Return.

Dividend Yield is a ratio showing the amount that a company pays in dividends compared to its stock price. For an investment portfolio, it represents the amount dividend income earned compared to the portfolio value.

Dividend Growth Rate is the annualized percentage increase in a company or portfolio’s dividend over a specific period of time.

Equity Style Box is a visual representation of the key investment characteristics of stocks and stock funds. The box, created by Morningstar, is a matrix that categorizes equity investments into 9 categories based on two key characteristics: market capitalization and equity style. The vertical axis is represented by market capitalization categories: Large Cap, Mid Cap, Small Cap. The horizontal axis is represented by equity style categories: Value, Blend, or Growth. The percentage of an equity portfolio or fund allocated to each of the 9 categories is then displayed in each box, with the sum totaling 100%. Investors can use the box to determine if the allocation exposure to each category is appropriate for their investment goals, objectives, and risk tolerance.

GICS Sector is an industry classification taxonomy developed by MSCI and Standard & Poor’s for use by the global financial community. The Global Industry Classification Standard structure consists of 11 sectors into which all major public companies are categorized based on its principal business activity.

MAR Ratio is a measurement of returns adjusted for risk, and is calculated by dividing the Compound Annual Growth Rate (CAGR) of an investment or portfolio by its Maximum Drawdown. The higher the ratio, the greater the risk-adjusted returns.

Maximum Drawdown is a metric that measures the largest percentage decline in the value of a portfolio, from peak to trough, before a new peak is achieved. Max Drawdown is an indicator of downside risk of a portfolio over a given time period.

Net Expense Ratio represents the percentage of an investment that goes toward certain operating and management fees on an annual basis, net of waivers or reimbursements of fees, to cover fund expenses including but not limited to: management fees, administrative fees, marketing costs, recordkeeping fees, compliance costs, legal fees, audit and accounting fees, and shareholder service fees. Expense ratios are typically applicable to investment funds such as Mutual Funds or Exchange Traded Funds (ETFs).

Recovery Time measures the time, typically in number of months (mos.), for an investment or portfolio to recover from its largest decline and return to its previous peak value.

Sharpe Ratio is a measure of risk-adjusted relative returns for a given portfolio and is often used to compare the return of a given portfolio with its risk. Sharpe ratio represents the average return earned by a portfolio in excess of the risk-free rate per unit of volatility.

Standard Deviation measures how much a portfolio’s return has moved above or below its average (mean) return over specific time period. Standard deviation is often used as a representative measurement of volatility of an investment’s returns. Higher standard deviation represents higher volatility and risk, while lower standard deviation represents lower volatility and risk.

Upside / Downside Capture Ratios are metrics that measure how well a strategy performs relative to a benchmark or index during market upturns and downturns. The ratio indicates whether an investment outperformed (gained more or lost less than) a benchmark during periods of market strength or weakness, and if so, by how much. The Upside Capture Ratio is calculated by dividing an investment or portfolio’s geometric mean returns during up-markets by its benchmark’s geometric mean returns during up-markets, with up-markets being represented by periods (typically monthly returns) of positive returns for the benchmark. A value over 100 indicates that an investment has outperformed its benchmark during periods of positive returns for the benchmark. The Downside Capture Ratio is calculated by dividing an investment or portfolio’s geometric mean returns during down-markets by its benchmark’s geometric mean returns during down-markets, with down-markets being represented by periods (typically monthly returns) of negative returns for the benchmark. A value less than 100 indicates that an investment has lost less than its benchmark during periods of negative returns for the benchmark.