Glossary of Industry Terms
Alpha (α), is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Alpha is thus also often referred to as “excess return” or the “abnormal rate of return” in relation to a benchmark, when adjusted for risk.
Angel Investor: An angel investor provides initial seed money for startup businesses, usually in exchange for ownership equity in the company.
Average Annual Return (AAR): The average annual return (AAR) is a percentage used when reporting the historical return of a mutual fund. The average annual return is stated net of a fund's operating expense ratio. Additionally, it does not include sales charges, if applicable, or portfolio transaction brokerage commissions. In its simplest terms, the average annual return (AAR) measures the money made or lost by a mutual fund over a given period.
Annual Recurring Revenue (ARR): The amount of revenue that is annually recurring under contract.
Basis Point: Basis points, otherwise known as bps or "bips," are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. Likewise, a fractional basis point such as 1.5 basis points is equivalent to 0.015% or 0.00015 in decimal form.
Beta (?) is a measure of the volatility, or systematic risk, of a security, a fund, or a stock portfolio compared to the market as a whole (usually the S&P 500). Knowing how volatile a stock's price is can help an investor decide whether investing in that security is worth the risk.
- The S&P 500 has a beta of 1.0. Portfolios with betas higher than 1.0 can be interpreted as more volatile than the S&P 500. Systematic risk is inherent to the market as a whole, reflecting the impact of economic, geopolitical and economic factors. It is a risk that is largely unpredictable and largely viewed as being difficult to avoid.
Blockchain: A distributed database or ledger shared among a computer network's nodes. They are best known for their crucial role in cryptocurrency systems for maintaining a secure and decentralized record of transactions, but they are not limited to cryptocurrency uses. Blockchains can be used to make data in any industry immutable—the term used to describe the inability to be altered.
Bloomberg Agriculture Index: Formerly known as Dow Jones-UBS Agriculture Subindex (DJUBSAG), the index is a commodity group subindex of the Bloomberg CI. It is composed of futures contracts on coffee, corn, cotton, soybeans, soybean oil, soybean meal, sugar and wheat.
Burn Rate: The burn rate represents the speed at which an unprofitable company consumes its cash reserves. In the case of a startup company, it is the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. Thus, it is a measure of negative cash flow.
Business Cycle: Business cycles are a type of fluctuation found in the aggregate economic activity of a nation -- a cycle that consists of expansions occurring at about the same time in many economic activities, followed by similarly general contractions (recessions). This sequence of changes is recurrent but not periodic.
Certificate of Deposit (CD): A savings product that earns interest on a lump sum for a fixed period of time. CDs differ from savings accounts because the money must remain untouched for the entirety of their term or risk penalty fees or lost interest. CDs usually have higher interest rates than savings accounts as an incentive for lost liquidity.
Common Shares: Common stock is primarily a form of ownership in a corporation, representing a claim on part of the company's assets and earnings. If a person is a shareholder, this makes that person a “part-owner,” but this doesn't mean that the person owns the company's physical assets like chairs or computers; those are owned by the corporation itself, a distinct legal entity. Instead, shareholders own a residual claim to the company's profits and assets, which means they are entitled to what's left after all other obligations are met.
Compound Annual Growth Rate (CAGR): The compound annual growth rate (CAGR) is the rate of return (RoR) that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment’s life span.
The Consumer Confidence Indicator provides an indication of future developments of households’ consumption and saving, based upon answers regarding their expected financial situation, their sentiment about the general economic situation, unemployment and capability of savings. This business confidence indicator provides information on future developments, based upon opinion surveys on developments in production, orders and stocks of finished goods in the industry sector. It can be used to monitor output growth and to anticipate turning points in economic activity.
The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. It is the most widely used measure of inflation and is based on an index covering 93% of the U.S. population not living in remote rural areas, while a related index covering 29%% of the U.S. population who are wage earners and clerical workers. This is used for cost-of-living adjustments to federal benefits.
Debt Ceiling: The maximum amount of money that the United States can borrow cumulatively by issuing bonds.
The Deutsche Bank Liquid Commodity Index (DBLCI) was launched in February 2003. It tracks the performance of six commodities in the energy, precious metals, industrial metals and grain sectors.
Developed Market: Characteristics of developed markets may include strong economic growth, high per capita income, liquid equity and debt markets, accessibility by foreign investors, and a dependable regulatory system.
EBIT: Earnings before interest and taxes (EBIT) is a company's net income before income taxes. It is used to analyze the performance of a company's core operations without tax expenses and the costs of the capital structure influencing profit.
EBITDA: Earnings before interest, taxes, depreciation, and amortization, or EBITDA, is an alternative measure of profitability to net income that some investors utilize as a representative of a company's cash profit generated by the company's operations. EBITDA is not a metric recognized under generally accepted accounting principles (GAAP). Some public companies report EBITDA in their quarterly results. Some investors note a limitation of EBITDA is that it excludes capital costs.
Emerging Market: An emerging market economy is the economy of a developing nation that is becoming more engaged with global markets as it grows. Countries classified as emerging market economies are those with some, but not all, of the characteristics of a developed market.
Environmental, Social Governance (ESG): A framework used to assess an organization's business practices and performance on various sustainability and ethical issues. It also provides a way to measure business risks and opportunities in those areas. In capital markets, some investors use ESG criteria to evaluate companies and help determine their investment plans, a practice known as ESG investing.
Federal Funds Rate: The federal funds rate is the target interest rate range set by the Federal Open Market Committee (FOMC). This represents the target rate at which commercial banks borrow and lend their excess reserves to each other over night. The FOMC sets a target fed funds rate eight times per year and bases its decision on key economic indicators, such as inflation, economic growth and employment.
Federal Reserve (Fed): The central banking system of the United States which is run by a board of governors that oversees 12 regional Federal Reserve Banks. Its primary goals are to regulate the nation's private banks and manage the overall money supply in order to keep the inflation rate and the employment rate stable. The Federal Reserve Board is accountable to the U.S. Congress, not the president.
Fiscal Policy: Fiscal Policy Fiscal policy refers to the steps that governments take in order to influence the direction of the economy. But rather than encouraging or restricting spending by businesses and consumers, fiscal policy aims to target the total level of spending, the total composition of spending, or both in an economy.
Forward Earnings: Forward earnings are an estimate of the next period's earnings of a company, usually till the completion of the current fiscal year and sometimes to the following fiscal year or the next twelve months of earnings. Forward earnings are modeled by analysts, often with guidance from management, that will project near-term revenues, margins, tax rates, and other financial data for investors and investment analysts.
Green Washing: The process of conveying a false impression or misleading information about how a company’s products are environmentally sound.
Growth Equity: Growth stocks are companies that investors think will deliver better-than-average returns because of their future growth potential.
Initial Public Offering (IPO): Refers to the process of offering shares of a private corporation to the public in a new stock issuance for the first time. An IPO allows a company to raise equity capital from public investors.
IOPV, or Indicative Optimized Portfolio Value, is a real-time estimate of an ETF’s fair value, based on the most recent prices of its underlying securities. It is a calculation disseminated by the stock exchange that approximates the Fund’s NAV every fifteen seconds throughout the trading day.
Justice Washing: A person or company trying to deliver the impression of justice when in reality there is more noise than substance.
M2 is the U.S. Federal Reserve’s estimate of the total money supply including cash on hand, deposits in checking accounts, savings accounts and other short-term savings vehicles such as certificates of deposits. Analysts and economists monitor the money supply. If the money supply increases dramatically, it can produce inflationary pressures at a lag
M&A: Mergers and Acquisitions
Market Capitalization: Refers to the total market value of a company's outstanding shares. This is calculated by multiplying the number of outstanding shares by the current market price of one share.
30 Day Median Bid/Ask Spread is calculated by identifying the national best bid and national best offer (“NBBO”) for each fund as of the end of each 10 second interval during each trading day of the last 30 calendar days and dividing the difference between each such bid and offer by the midpoint of the NBBO. The median of those values is identified and that value is expressed as a percentage rounded to the nearest hundredth.
Market Price is the current price at which shares are bought and sold. Market returns are based upon the last trade price.
Mega-Cap: Mega cap is a designation for the largest companies in the investment universe as measured by market capitalization. While the exact thresholds change with market conditions, mega cap generally refers to companies with a market capitalization above $100 billion.
Monetary Policy: Central banks typically use monetary policy to either stimulate an economy or to check its growth. By incentivizing individuals and businesses to borrow and spend, the monetary policy aims to spur economic activity. Conversely, by restricting spending and incentivizing savings, monetary policy can act as a brake on inflation and other issues associated with an overheated economy.
Multiple of Earnings: The earnings multiple is a financial metric that frames a company's current stock price in terms of the company's earnings per share (EPS) of stock, that's simply computed as price per share/earnings per share.
NASDAQ: The Nasdaq Composite Index is a market capitalization-weighted index of more than 2,500 stocks listed on the Nasdaq stock exchange. It is a broad index that is heavily weighted toward the important technology sector. The index is composed of both domestic and international companies. The Nasdaq Composite Index is a highly-watched index and is a staple of financial markets reports. The Nasdaq Composite Index includes all equity securities listed on the Nasdaq. They include common stocks, ordinary shares, American depositary receipts (ADRs), units of real estate investment trusts (REITs), and publicly traded partnerships, as well as tracking stocks,
Net Asset Value (NAV): NAV is the dollar value of a single share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding. Calculated at the end of each business day.
The NFIB Small Business Optimism Index is an index underpinned by a monthly survey of small business owners. The NFIB Research Center has collected quarterly small business economic trends data since 1973 and monthly surveys since 1986. We believe there are predictive elements to the survey, particularly given that nearly 2/3rds of national job creation stems from small businesses.
Non-Fungible Token (NFT): Assets that have been tokenized via a blockchain. They are assigned unique identification codes and metadata that distinguish them from other tokens.
Peak: The highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall. It is at this point real GDP spending in an economy is at its highest level.
Preferred Shares: Preference shares, more commonly referred to as preferred stock, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders.
Premium/Discount indicates whether a security is currently trading above (at a premium to) or below (at a discount to) its net asset value.
Price-to-Earnings (P/E Ratio): Measures the current share price relative to a company's earnings per share. P/E ratios are used by investors and analysts to examine the relative value of a company's shares to others in the same sector or relative to the historical P/E ratio for the company. P/E ratios may be measured on a trailing (backward-looking) or a forward (projected) basis. A high P/E ratio could mean that the stock is either overvalued or it could mean that investors expect higher future growth in earnings.
Rate of Return (RoR): A rate of return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment’s initial cost. When calculating the rate of return, you are determining the percentage change from the beginning of the period until the end.
Regression-based Forecasting: A regression analysis is a method of forecasting using statistics that estimate the relationships between a dependent variable and one or more independent variables or also known as predictors or explanatory variables. In the linear regression forecast referenced, we regressed the lagged CPI (the dependent variable) against M2 and the 5-Year TIPS yield (the independent variables) for the trailing 15-year period ending 2Q23, which was then used to forecast CPI.
Research and Development (R&D): The term research and development (R&D) is used to describe a series of activities that companies undertake to innovate and introduce new products and services. R&D is often the first stage in the development process. Companies require knowledge, talent, and investment in order to further their R&D needs and goals.
Run Rate: This refers to the financial performance of a company based on using current financial information as a predictor of future performance. The run rate functions as an extrapolation of current financial performance and assumes that current conditions will continue.
The Russell 1000® Index measures the performance of the large cap segment of the U.S. equity universe. The Russell 1000 Index is a subset of the Russell 3000® Index, representing approximately 90% of the total market capitalization of that index. It includes approximately 1,000 of the largest securities based on a combination of their market capitalization and current index membership.
The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000® Index measures the performance of 3,000 large U.S. companies. The Index is market capitalization-weighted, comprised of stocks in the Russell 1000 and Russell 2000 indices and represents approximately 98% of the U.S. equity market.
30 Day SEC Yield is a standard yield calculation based on a formula developed by the Securities and Exchange Commission (SEC) for a fair comparison of a fund’s and represents displays a fund’s hypothetical annualized income as a percentage of its assets. The yield is calculated by dividing the net investment income per share earned during the 30-day period by the maximum offering price per share on the last day of the period. The yield figure reflects the dividends and interest earned during the 30-day period, after the deduction of fund expenses.
Seed Round: Seed capital rounds differ from proceeding rounds quite significantly. More than a few players are involved, as multiple funds invest an average of $200,000 to $700,000 each. In addition, there are usually a few individual angel investors who invest more than just financially in the company.
Series Funding - A, B, and C: Series A, B, and C are funding rounds that generally follow "seed funding" and "angel investing," providing outside investors the opportunity to invest cash in a growing company in exchange for equity or partial ownership. Series A, B, and C funding rounds are each separate fund-raising occurrences. The terms come from the series of stock being issued by the capital-seeking company.
Small Cap: A small-cap stock is a stock from a public company whose total market value, or market capitalization, is about $200 million to $3 billion. The precise figures vary.
Software-as-a-Service (SaaS): A licensing model in which access to software is provided on a subscription basis, where the software is located on external servers rather than on servers located in-house.
Special Purpose Acquisition Company (SPAC): A company without commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company.
Stagflation: Stagflation is an economic cycle characterized by slow growth and a high unemployment rate accompanied by inflation. Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate another.
The S&P 500® Index is the Standard & Poor's Composite Index and is widely regarded as a single gauge of large cap U.S. equities. It is market cap weighted and includes 500 leading companies, capturing approximately 80% coverage of available market capitalization.
The S&P Small Cap 600 Index is a stock market index established by Standard & Poor’s. It covers roughly the small-cap range of American stocks, using a capitalization-weighted index. To be included in the index, a stock must have a total market capitalization that ranges from $750 million to $4.6 billion.
The S&P 1500 Equal Weight Index is the equal-weight version of the S&P Composite 1500®. The S&P Composite 1500® combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600®, to cover approximately 90% of U.S. market capitalization. It is designed for investors seeking to replicate the performance of the U.S. equity market or benchmark against a representative universe of tradable stocks.
The 5 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 5 years. The 5 Year treasury yield is used as a reference point in valuing other securities, such as corporate bonds.
The 10-Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 10 years. The 10 year treasury yield is included on the longer end of the yield curve. Many analysts will use the 10 year yield as the “risk free” rate when valuing the markets or an individual security.
The 10-2 Treasury Yield Spread is the difference between the 10-year treasury rate and the 2 year treasury rate. A 10-2 treasury spread that approaches 0 signifies a "flattening" yield curve. A negative 10-2 yield spread has historically been viewed as a precursor to a recession.
Treasury Inflation-Protected Security (TIPS) is a type of Treasury bond that is indexed to inflation to protect investors from a decline in purchasing power of their money. Inflation expectations implied by the market can be deduced by comparing the yields between the U.S. Treasury and TIPS of the same maturity adjusting for certain factors.
Trough: A stage in the business cycle where activity is bottoming, or where prices are bottoming, before a rise.
Value Equity: Value stocks are companies investors think are undervalued by the market.
Venture Capital: A form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.
YC Demo Day: Y Combinator Demo Day. Y Combinator is an American technology startup accelerator. Accelerators often provide capital and expertise to entrepreneurs.
