Adaptive trend following dynamically determines allocations based on a systematic assessment of the current market regime. These strategies aim to identify the most favorable time horizon and assess the probability of a trend reversal, and establish positions accordingly.
Algorithmic trading is a trading system that utilizes very advanced mathematical models for making transaction decisions in the financial markets. The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock's price. Large blocks of shares are usually purchased by dividing the large share block into smaller lots and allowing the complex algorithms to decide when the smaller blocks are to be purchased.
Algorithms are sets of rules that precisely define a sequence of operations.
Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.
Annualized Rate of Return (“AROR”) is the geometric average return for a period greater than or equal to one year, expressed on an annual basis or as a return per year.
Annualized Standard Deviation (Volatility) measures the degree of variation of monthly returns around the mean (average) return. The higher the volatility of the investment returns, the higher the annualized standard deviation will be.
Arbitrage is an investment strategy that seeks to exploit price differentials that exist as a result of market inefficiencies. Arbitrage typically involves the purchasing of a security in one market, while selling an instrument with similar performance characteristics in another market. - There is risk of loss. You can lose money by utlizing an arbitrage strategy. There is no assurance that any investment strategy will be profitable, or that they will be able to avoid losses.
Backwardated or Backwardation refers to a market configuration where futures contract prices decrease, as maturities get longer.
The Barclay BTOP50 Index® (“BTOP50”) seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The BTOP50 employs a top-down approach in selecting its constituents. The largest investible trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50. In each calendar year the selected trading advisors represent, in aggregate, no less than 50% of the investable assets of the Barclay CTA Universe. To be included in the BTOP50, the following criteria must be met:
- Program must be open for investment.
- Manager must be willing to provide daily returns.
- Program must have at least two years of trading activity.
- Program’s advisor must have at least three years of operating history.
The BTOP50’s portfolio will be equally weighted among the selected programs at the beginning of each calendar year and will be rebalanced annually.
The index does not encompass the whole universe of CTAs. The CTAs that comprise the index have submitted their information voluntarily. Investors cannot directly invest in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. Managed Futures programs in the Barclay BTOP50 Index® may be subject to leverage risk, volatility and risk of loss that may magnify with the use of leverage. Source: barclayhedge.com.
The Barclays Capital US Aggregate Bond Index® covers the USD-denominated, investment-grade, fixed-rate, taxable bond market of SEC-registered securities. The index includes bonds from the Treasury, Government-Related, Corporate, MBS (agency fixed rate and hybrid ARM pass-throughs), ABS, and CMBS sectors. The U.S. Aggregate Index is a component of the U.S. Universal Index in its entirety. The index was created in 1986, with index history backfilled to January 1, 1976. Source: barclayhedge.com.
Basis points (bps) refer to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.
Bid-Ask Spread is the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept.
Breakout is a set of trading rules that generate buy or sell signals based on current price relative to its historical high or low prices over a period of time. For example, “Buy when the price exceeds the high of the previous four calendar weeks.”
CAC 40 is used as a benchmark index for funds investing in the French stock market. It represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the exchange.
Capital Flow Analysis is an analysis that uses notional flow of funds accounts to explain supply and demand in capital markets.
Carry Method is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate.
CBOE Volatility Index "VIX" is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge."
Classic Trend-Following is a strategy that seeks profit from buying when prices are trending up and selling when prices are trending down.
Collateralized refers to an asset pledged as recourse to a lender in the event that the borrower defaults on the initial loan. Collateralization of assets gives lenders a sufficient level of reassurance against default risk, which allows loans to be issued to individuals/companies with less than optimal credit history/debt rating.
A Commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services.
A Commodity Trading Advisor (“CTA”) is a trader who may invest in more than 150 global futures markets. They seek to generate profit in both bull or bear markets, due to their ability to go long (buy) futures positions, in anticipation of rising markets, or go short (sell) futures positions, in anticipation of falling markets.
Commodity Pools are private investment structures that combines investor contributions to be used in the futures and commodities trading markets. The commodity pool, or fund, is used as a single entity to gain leverage in trading, in the hopes of maximizing profit potential. The title "commodity pool" is a legal term as set forth by the National Futures Association (NFA). Commodity pools in the United States are regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association, rather than by the Securities and Exchange Commission, which regulates other market activity.
Consumer Price Index (CPI) is one of the most frequently used statistics for identifying periods of inflation or deflation. It measures the weighted average of prices of a basket of consumer goods and services to assess price changes associated with the cost of living.
Contango refers to a market configuration in which futures contract prices increase, as maturities get longer.
Contrarian – Unlike trend-following models, which generate buy (sell) signals in the early stage of an upward (or downward) trend, contrarian models generate buy (or sell) signals at the end of the turning point of a downward (or upward) trend.
Counter-Trend Trading is a type of swing-trading strategy that assumes a current trading trend will reverse and attempts to profit form that reversal.
Correlation shows the strength of a relationship between two investments and is measured on a scale from +1 to -1, where +1 indicates perfect positive correlation (investments rise and fall together) and -1 is perfect negative correlation (investments move in opposite directions).
Coupon is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.
Credit Default Swap (CDS) is a financial derivative or contract that allows an investor to "swap" or offset one’s credit risk with that of another investor.
Credit Ratings are used by the S&P and Fitch credit agencies for long-term bonds and some other investments. They range from the highest rating of AAA (the borrower’s capacity to meet its financial commitment the obligation is extremely strong) to D (the borrower is in default). Ratings in order of quality include AAA, AA, A, BBB, BB, CCC, CC, C and D.
Crisis alpha refers to profits or gains that can be made by exploiting certain market trends during times of market turmoil.
Curve Fitting is generally used in a pejorative sense to denote a model that has been excessively manipulated in order to fit historical data. Such a model usually does not perform well in out-of-sample time periods. By contrast, a more robust model is one that is more generally applicable over different time periods and data samples.
Customized institutional mandates are portfolios that are tailored for and at the request of an institutional investor to meet their specific needs and goals.
Cyclically-Adjusted Price-to-Earnings (“CAPE”) Ratio is a valuation measure that uses real earnings per share over a 10-year period to smooth out fluctuations in corporate profits that occur over different periods of a business cycle. It was popularized by Yale University professor Robert Shiller and is also known as the Shiller P/E ratio.
DAX, also known as the Deutscher Aktien Index or the GER40, is a stock index that represents 40 of the largest and most liquid German companies that trade on the Frankfurt Exchange.
Debtor-in-possession (DIP) financing is a special kind of financing meant for companies that are in bankruptcy to facilitate the reorganization of the company by allowing it to raise capital to fund its operations as its bankruptcy case runs its course. DIP financing is unique from other financing methods in that it usually has priority over existing debt, equity, and other claims.
Debt-to-EBITDA Ratio measures the amount of income generated and available to pay down debt before covering interest, taxes, depreciation, and amortization expenses.
Derivative Contract is a financial contract which derives its value from the performance of another entity such as an asset, index, or interest rate, called the "underlying." Derivatives are one of the three main categories of financial instruments, the other two being equities (i.e. stocks) and debt (i.e. bonds and mortgages).
Directional Methods refers to a strategy used based on the belief that long or short positions are able to correctly predict the movement of trading strategies based on the direction of price movements.
Discretionary Trading is a trading approach that uses fundamental analysis of underlying economic factors.
Diversified Trend-Following is a strategy that encompasses all three horizons – short, medium, and long-term.
Diversified Spread Trading is the sale of multiple, diversified futures contracts and the purchase of other multiple, diversified offsetting futures contracts. A spread tracks the difference between a long and short position. In spread trading, risks move beyond price fluctuation to risks that involve the difference between two or more sides of a spread.
Dividend Payout (Dividend) is the percentage of earnings paid to a company’s shareholders in dividends.
Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange (NYSE) and the Nasdaq.
The Dow Jones REIT Composite Index℠ aims to represent all publicly trader real estate investment trusts (REITs) included in the Dow Jones Indices U.S. stock universe and covers approximately 100% of the total REIT market value. Periodic and ongoing reviews of the index composition, free float factors and shares outstanding are conducted based on the following rules:
- All publicly trader companies in the Dow Jones Indices U.S. stock universe that have elected to be taxed as REITs will be included in the index.
- During the quarter, a component company’s float-adjusted shares outstanding will be adjusted whenever and at the same time a change in that company is made in the Dow Jones U.S. Total Stock Market Index℠.
- A REIT that drops its REIT status and becomes taxed as a “C” corporation will be removed from the REIT Index immediately upon completion of the change of the tax status.
- If an index component enters bankruptcy proceedings, it will be removed from the index and will remain ineligible for re-inclusion until it has emerged from bankruptcy. However, the Dow Jones Index Oversight Committee may, following a review of the bankrupt company and the issue involved in the filing, decide to keep the company in the index.
- The Dow Jones Index Oversight Committee may, at its discretion, remove a company it has determined to be in extreme financial distress from any index to which it belongs. If the committee deems the removal necessary to protect the integrity of the index and the interests of investors in products linked to that index.
- REITs will be added to the Index after the close of trading on the third Friday of each month. The additions include all non-component REITs that meet inclusion standards as of the close of trading on the second Friday of that month, whether from IPOs, conversation to REIT status or new exchange listings.
Downside Volatility is a measure of risk, defined as volatility below MAR (minimum acceptance excess rate).
Drawdown – A position or portfolio is in a drawdown when it incurs a loss relative to its all-time high profit or return. For example, a portfolio that starts off at $100 today is worth $100 tomorrow, and worth $99 the day after is in a 10% drawdown, because it is down $11 from the high of $100.
Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.
Earnings Growth Rate is the percentage gain in net income over time.
EBITDA is earnings before interest, taxes, depreciation, and amortization, is a measure of a company's overall financial performance and is used as an alternative to net income in some circumstances.
Emerging managers are investment managers that are newly created and have a small asset base. They are typically specialized and run by managers that believe they can attain higher returns by being focused and nimble. The criteria are evolving for defining exactly which managers should be considered emerging. Some consider funds with less than $500 million under management to be emerging, while others place that threshold at $2 billion. Others consider a definition of emerging managers to include a component relating to minority- or women-owned firms.
Environmental, social and corporate governance (ESG) investing focuses on companies that support environmental protection, social justice and ethical management practices.
Equity Index is a stock index or stock market index is a method of measuring the value of a section of the stock market. It is computed from the prices of selected stocks.
Equity Long-Short is an investment strategy that involves buying long equities that are expected to increase in value and selling short equities that are expected to decrease in value.
Equal-Weighting Strategy is a strategy employed that gives the same weight, or importance, to each stock in a portfolio. The smallest companies are given equal weight to the largest companies in an equal-weight index fund or portfolio. This allows all of the companies to be considered on an even playing field.
EURO STOXX 50 Index is a market capitalization-weighted stock index of 50 large, blue-chip European companies operating within eurozone nations.
Exit Levels are the price levels at which positions are to be closed.
Expected Returns is an estimation of the value of an investment, including the change in price and any payments or dividends, calculated from a probability distribution curve of all possible rates of return. In general, if an asset is risky, the expected return will be the risk-free rate of return plus a certain risk premium. Also called expected value.
Exponential Smoothing is a statistical technique for detecting significant changes in data by ignoring the fluctuations irrelevant to the purpose at hand. In exponential smoothing (as opposed to in moving averages smoothing) older data is given progressively less relative weight (importance) whereas newer data is given progressively greater weight. Also called averaging, it is employed in making short-term forecasts.
Factor-based trend following aggregates markets into statistical factors using correlation information to create weighted indices of markets. Indices are then traded using traditional trend following methods.
Fair Value (FV) refers to an asset's sale price agreed upon by a willing buyer and seller, assuming both parties are knowledgeable and enter the transaction freely.
Financial Futures are futures contracts on financial instruments, such as currencies, treasury bonds, equity indices.
A Foreign Exchange is the exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."
A Forward Contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date. Unlike standard futures contracts, a forward contract can be customized to any commodity, amount and delivery date and settlement can occur on a cash or delivery basis.
A Forward Market is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery. Contracts entered into in the forward market are binding on the parties involved. Forward markets are used for trading a range of instruments including currencies and interest rates, as well as assets such as commodities and securities.
Forward Price-to-Earnings (Forward P/E) equals a stock’s current share price divided by its estimated future earnings per share. It is a version of the price-to-earnings ratio (P/E) that uses forecasted earnings for the calculation.
FTSE 100 (Financial Times-Stock Exchange 100 Share Index), also known as the Footsie, is an index that tracks the 100 largest public companies by market capitalization that trade on the London Stock Exchange.
FTSE NATREIT US Real Estate Index provides investors with a comprehensive REIT performance benchmark that spans the commercial real estate space across the US economy. Source: PerTrac Financial Solutions.
Fundamental Analysis (also known as Discretionary Analysis) is the study of basic, underlying factors that will affect the supply and demand of an investment. With respect to commodity futures, fundamental analysis may look at crop reports, weather patterns, economic reports and other fundamental data to determine whether to buy or sell the futures contract.
Futures Contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a for a price agreed upon today (the futures price or strike price) with delivery and payment occurring at a specified date, the delivery date. The contracts are negotiated at a futures exchange, which acts as an intermediary between the two parties. The party agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be "long", and the party agreeing to sell the asset in the future, the "seller" of the contract, is said to be "short". The terminology reflects the expectations of the parties - the buyer hopes or expects that the asset price is going to increase, while the seller hopes or expects that it will decrease in the near future.
Global Macro/Global Trading is a strategy that trades equity, bond, currency and commodity markets based generally on global macroeconomic developments. Within the global macro category, systematic macro strategies use mathematical or computer models to identify trends and select investments, in contrast to discretionary macro strategies, which use primarily fundamental analysis.
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
Hang Seng Index or HSI is a free-float market capitalization-weighted index of the sixty largest companies that trade on the Hong Kong Exchange (HKEx).
High Yield Bonds (also called “Junk Bonds”) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds have a higher likelihood of default so they must pay a higher yield than investment-grade bonds to compensate investors.
Hedge is to make an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
The HFRX Equity Hedge Index encompasses various equity hedge strategies, also known as long/short equity, that combine core long holdings of equities with short sales of stock, stock indices, related derivatives, or other financial instruments related to the equity markets. Net exposure of equity hedge portfolios may range anywhere from net long to net short depending on market conditions. It is constructed using robust filtering, monitoring and quantitative constituent selection process using the Hedge Fund Research database (HFR Database), an industry standard for hedge fund data.
The HRFX® Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is composed of all eligible hedge fund strategies, including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event drive, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry. Source: hedgefundresearch.com
HRFI® Macro (Total) Index: Investment Managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets. Managers employ a variety of techniques, both discretionary and systematic analysis, combinations of top down and bottom up theses, quantitative and fundamental approaches and long and short term holding periods.
ICE BofA 1-3 Year Corporate & Government Index: An unmanaged index that tracks the performance of the U.S. dollar-denominated investment-grade public debt issued in the U.S. domestic bond market that have at least one year but less than three years remaining to maturity. Investors cannot directly invest in an index.
ICE BofA 1-5 Year BB-B US Cash Pay High Yield Constrained Index contains all securities in The ICE BofA US Cash Pay High Yield Index that are rated BB1 through B3, based on an average of Moody's, S&P and Fitch, with a maturity less than five years, but caps issuer exposure at 2%.
ICE BofA Euro High Yield Index tracks the performance of Euro denominated below investment grade corporate debt publicly issued in the euro domestic or eurobond markets.
ICE BofA High Yield BB/B Constrained Index is an index that tracks the performance of BB and B rated high yield bonds.
ICE BofA US Corporate Index: An index that tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the US domestic market.
ICE BofA US High Yield Index: An index that tracks the performance of US dollar denominated below investment grade rated corporate debt publicly issued in the US domestic market. The index is further defined by sub-indexes associated with credit ratings (e.g., the CCC sub-index).
ICE BofA US Mortgage Backed Securities Index is an index that tracks the performance of US mortgage backed securities.
ICE BofA US Mortgage Backed Securities Index tracks the performance of US dollar denominated fixed rate residential mortgage pass-through securities publicly issued by US agencies in the US domestic market.
ICE Futures US Dollar Index (USDX®) is a leading benchmark for the international value of the U.S. dollar and the world’s most widely recognized, publicly trader currency Index. Source: theice.com
Idiosyncratic Risk is risk specific to an asset or a small group of assets. Idiosyncratic risk has little or no correlation with market risk, and can therefore be substantially mitigated or eliminated from a portfolio by using adequate diversification.
Inflation Breakeven Rate is a market-based measure of expected inflation that is the difference between the yield of a nominal bond and an inflation-linked bond of the same maturity.
Inflation swap is an arrangement where one party pays a fixed rate cash flow on a notional principal amount while the other party pays a floating rate linked to an inflation index, such as the Consumer Price Index (CPI).
Intermediate Trend-Following focuses on the average time period between short-term and long-term (approximately two to four months).
Internet of Things (IoT) describes physical objects (or groups of such objects) with sensors, processing ability, software, and other technologies that connect and exchange data with other devices and systems over the Internet or other communications networks.
The Investment Company Act of 1940 is a piece of legislation created by Congress in 1940. Enforced and regulated by the Securities Exchange Commission, the act clearly defines the limits regarding filings, service charges, financial disclosure and fiduciary duties of open-end mutual, exchange-traded and closed-end funds.
KBW Nasdaq Bank Index is a modified market capitalization weighted index designed to track the performance of leading banks and thrifts that are publicly traded in the U.S. The Index includes banking stocks representing large U.S. national money centers, regional banks and thrift institutions.
Kurtosis is a statistical measure used to describe the distribution of observed data around the mean.
Law of Accelerating Returns is the tendency for advances to feed on themselves, increasing the rate of further advance, and pushing well past what one might sensibly project by linear extrapolation of current progress.
Leverage is an investment strategy of using borrowed money, specifically, the use of various financial instruments or borrowed capital, to increase the potential return of an investment.
Leveraged Buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company.
Loading is the correlation a particular CTA program has to a particular principal component or factor.
Long Position refers to the buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. There is risk of loss. You can lose money by utilizing a long position. There is no assurance that any investment strategy will be profitable, or that they will be able to avoid losses.
Long-Term Momentum/Long-Term Trend-Following is a strategy that uses long-term indicators and averages, general five months or longer.
Look back indicates the amount of historical data used to generate a model signal.
Macro-Economic refers to the broad and general aspects of an economy, as the relationship between the income and investments of a country as a whole.
Macro-Economic paradigms refer to the example of pattern in macroeconomics.
Macroeconomic themes seek to identify shifts in global economic activity and to establish positions that may profit from expected market responses and adjustments. Macroeconomic analysis generally analyzes economic, political or financial dislocations to seek returns from investments across a particular, or a number of, assets and regions.
Managed Futures is an alternative investment strategy in which professional portfolio managers use futures contracts as part of their overall investment strategy. Managed futures provide portfolio diversification among various types of investment styles and asset classes to help mitigate portfolio risk in a way that may not be possible in direct equity investments. Professional money managers, known as commodity trading advisors, typically monitor managed futures accounts. These accounts can have various weights in stocks and derivative investments. A diversified managed futures account will generally have exposure to a number of markets such as commodities, energy, agriculture and currency. Introducing futures into a portfolio may help reduce risk because of the negative correlation between asset groups.
Margin-to-Equity Ratio is a minimum amount of funds that must be deposited as a performance bond by a customer with his broker and net value of an account as determined by combining the ledge balance with an unrealized gain or loss in open positions as marked to the market.
Market-Cap Weighting Strategy is a strategy that employs a stock market index weighted by the marketing capitalization if each stock in said index; larger companies account for a greater portion of the index.
Market dynamic themes recognize that each market has its own set of specific characteristics (such as investment flows, interest rate volatility, and other attributes) that may offer trading opportunities.
Market Neutral Roll Arbitrage is an investment strategy that seeks to entirely avoid risk, typically by hedging. One way to employ this methodology is through the use of a rolling futures contract, which involves the buying and selling of futures contracts with different expiration dates.
Market Risk is the risk of losses in positions arising from movements in market prices.
Maximum Drawdown describes a measure of risk (also known as Worst Historical Loss) that illustrates the largest peak-to-valley decline, based on monthly rates of return, during a given time period.
Mean Reversion Models are trading models that assume prices will eventually return to a long-term average level.
Mean Reversion Strategies – same as mean reversion models
A Moving Average is an average of prices calculated over a window (e.g., 10 days), which is then rolled forward every day by dropping the oldest observation and adding the most recent one. A moving average model is a trading model that generates a buy (sell) signal when a shorter-term moving average of historical prices crosses a longer-term moving average of historical prices from below (above).
The MSCI® EAFE® Index (Europe, Australia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the US & Canada. As of May 2009, the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
A Multi-Advisor Mutual Fund is a mutual fund (pooled investment vehicle under the Investment Company Act of 1940) that provides exposure to multiple investment strategies. It offers the potential to achieve broad diversification in one mutual fund investment.
Multi-Strategy refers to a trading approach that employs multiple strategies as opposed to adhering to one technique.
Nasdaq is a global electronic marketplace for buying and selling securitie. It originally was an acronym for "National Association of Securities Dealers Automated Quotations."
A Nearby Futures Contract is when several futures contracts are considered, the contract with the closest settlement date is called the nearby futures contract. The next (or the “next out”) futures contract is the one that settles just after the nearby futures contract. The contract farthest away in time from settlement, is, in turn, called the most distant futures contract.
Nikkei 225, short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted index composed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange.
Non-Parametric Modeling is a method commonly used in statistics to model and analyze ordinal or nominal data with small sample sizes. Unlike parametric models, non-parametric models do not require the modeler to make any assumptions about the distribution of the population, and so are sometimes referred to as a distribution-free method.
Notional Value refers to the total value of a leveraged position’s assets.
OIS is a swap derived from the overnight rate, which is generally fixed by the local central bank. The OIS allows LIBOR-based banks to borrow at a fixed rate of interest over the same period.
An Option is a contract that gives the buyer (the owner) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. The seller incurs a corresponding obligation to fulfill the transaction – that is to sell or buy – if the owner elects to "exercise" the option prior to expiration. The buyer pays a premium to the seller for this right. An option that conveys to the owner the right to buy something at a specific price is referred to as a call; an option that conveys the right of the owner to sell something at a specific price is referred to as a put. Both are commonly traded, but for clarity, the call option is more frequently discussed. - There is risk of loss. You can lose money by utilizing an option. There is no assurance that any investment strategy will be profitable, or that they will be able to avoid losses.
Option-Adjusted Spread (OAS) is the measurement of the spread of a fixed income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option.
A Physical Commodity underlies a futures contract or is traded in the physical market. It is the homogeneous commodity that is the basis for trade, such as corn, oil, gold, and sugar.
Price-to-Book Ratio (P/B Ratio) measures the market's valuation of a company relative to its book value by dividing the company's stock price per share by its book value per share (its carrying value on the balance sheet).
Price-to-Sales Ratio (P/S Ratio) is a valuation ratio that compares a company’s stock price to its revenues. It shows how much investors are willing to pay per dollar of sales for a stock.
A Quantitative Trading Strategy (also known as Systematic) employs computer-driven, mathematical models to identify when to buy or sell an instrument according to rules determined before a trade is made, generally with little or no human intervention once a mathematical formula has been entered.
Quartile is a statistical term that describes a division of observations into four defined intervals based on the values of the data and how they compare to the entire set of observations.
Pattern Recognition is defined as the categorization of input data into identifiable classes via the extraction of significant futures or attributes of the data from a background of irrelevant detail.
Personal Consumption Expenditures Price Index (PCE) measures price changes in consumer goods and services exchanged in the U.S. economy.
Price-to-earnings ratio (P/E ratio), also known as the price multiple or the earnings multiple, is a ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).
The Producer Price Index is a monthly measure of change in the prices received by domestic producers.
Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
Ratio Spread is a neutral options strategy in which an investor simultaneously holds an unequal number of long and short or written options. For instance, a common ratio is two to one, where there are twice as many short positions as long positions.
Regression Analysis is a statistical technique used to find relationships between variables for the purpose of predicting future values.
Relative-Value is a method of determining an asset's value that takes into account the value of similar assets. Calculations used to measure the relative value of stocks include the enterprise ratio and the price-to-earnings ratio.
Relative-Value Commodity Arbitrage refers to a type of strategy that seeks to exploit differing prices in the commodities markets based on the relative value of the investments or how they measure in terms of risk, liquidity, and return of one instrument relative to another.
Risk premia themes seek to exploit the time-varying nature of investment opportunities and returns that may be attributable at least in part to the preferences and actions of market participants, i.e. the relative attractiveness of assuming risk in different assets over different time horizons.
A Roll/Rolling Futures Contract/Contract Roll refers to the selling (buying) an expiring long (short) futures contract and buying (selling) a longer-dated futures contract in order to continue to maintain exposure to the underlying commodity.
Roll Yield is the ratio between the price of the contract sold and the price of the contract bought, which is:
• A gain in backwardation market (market configuration where futures contract prices decrease as maturities get longer)
• A loss in contango market (market configuration where futures contract prices increase as maturities get longer)
A Round-Turn is a completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase. A round turn counts both the buy and sale as one event. In a typical exchange volume measurement, a one-contract trade would be counted as one round turn.
R-squared (R2) is a statistical measure expressed as the percentage of a fund’s movements that can be explained by movements in a benchmark index.
Russell 1000 Growth Index measures the performance of the Russell 1000’s growth segment, which is defined to include firms whose share prices have higher price-to-book ratios and higher expected earnings growth rates.
Russell 1000 Index represents the 1,000 top companies by market capitalization in the US.
Russell 1000 Value Index measures the performance of the large-cap value segment of the US equity universe and includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
The Russell 2000 Index® consists of the smallest 2,000 securities in the Russell 3000® Index. This is the Frank Russell Company’s small capitalization index that is widely regarded in the industry as the premier measure of small capitalization stocks. The Russell 3000® Index is composed of the 3,000 largest U.S. securities, as determined by total market capitalization. Source: russell.com
S&P Europe 350 Index is an index that consists of 350 leading blue-chip companies drawn from 16 developed European markets.
S&P 500 Index (Standard & Poor's 500 Index) is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S.
S&P Dividend Aristocrat Index is a index comprised of companies in the S&P 500 index that not only consistently pays a dividend to shareholders but annually increases the size of its payout.
The S&P GSCI® Crude Oil Index, a sub index of the S&P GSCI provides investors with a reliable and publicly available benchmark for investment performance in the crude oil commodity markets. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement. The S&P GSCI is widely recognized as the leading measure of general commodity price movements and inflation in the world economy. Source: sgindex.com.
The S&P GSCI® Total Return Index is widely recognized as the leading measure of general price movements and inflation in the world economy. It provides investors with a reliable ad publicly available benchmark for investment performance in the commodity markets, and is designed to be a “tradable” index. The index is calculated primarily on a world production-weighted basis and is comprised of the principal physical commodities that are the subject of active, liquid futures markets. Source: sgindex.com.
Sector specific strategies invest in a specific sector of the economy, such as energy or utilities. They come in many different flavors and can vary substantially in market capitalization, investment objective (i.e. growth and/or income) and class of securities within the portfolio.
Sell-side refers to the part of the financial industry that is involved in the creation, promotion, and sale of stocks, bonds, foreign exchange, and other financial instruments that are made available to the “buy-side” of the financial industry.
The SGI Smart Market Neutral Commodity Index℠ was launched on July 23, 2009 by Société Générale, and aims at absolute returns taking non-directional exposures in three main commodity sectors: agriculturals, metals and energy. The methodology looks for the best contract to roll (i.e., the one that generates the most interesting roll yield), and takes into account the seasonality effect on identified underlying commodities for its rolling strategy. The roll of the SG dynamic methodology follows an optimized roll timing in order to ensure liquidity and mitigate market impact. The investment strategy is then exposed to a Volatility Targeting Mechanism to keep the volatility level at or around 6%. Source: sgindex.com.
Sharpe Ratio is a risk-adjusted measure developed by William F. Sharpe, calculated using annualized standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the fund’s historical risk-adjusted performance (assumed risk-free rate is 0%)
Short Position is a position whereby an investor sells borrowed securities in anticipation of a price decline and is required to return an equal number of shares at some point in the future.
Short squeeze is a situation that occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses.
Short-Term Excesses occur when prices temporarily move more than can be justified by models.
Short-Term, Global Macro is a global macro strategy (see above) that focuses on the short-term, (generally less than three months)
Short-Term Momentum (also known as Short-Term Trend-Following) is trend-following that focuses on the short-term (generally less than three months).
Short-Term Multi-Strategy refers to a futures trading methodology that generally holds its positions for less than three months. Trading decisions are based on multiple trading strategies that may include a trend-following methodology as well as pattern recognition, spread trading, discretionary, contrarian and/or other approaches.
Short-Term Pattern Recognition refers to the identification of price trends that occur over short periods of time, typically anywhere from a day, to a week, to months in time.
Short-Term Trend-Following is trend-following that focuses on the short-term (generally less than three months).
A Single-Advisor Mutual Fund is a mutual fund (pooled investment vehicle under the Investment Company Act of 1940) that provides investors with exposure to an individual investment strategy or trading program.
Skew describes the asymmetry from the normal distribution in a set of statistical data. Skew can come in the form of “negative skewness” or “positive skewness”, depending on whether data points are skewed to the left (negative skew) or to the right (positive skew) of the data average.
SPDR S&P 500 ETF Trust, also known as the SPY ETF, aims to track the Standard & Poor's 500 Index, which comprises 500 large-cap U.S. stocks selected by a committee based on market size, liquidity and industry.
Sortino Ratio is a ratio developed by Frank A. Sortino to differentiate between good and bad volatility in the Sharpe ratio. This differentiation of upward and downward volatility allows the calculation to provide a risk-adjusted measure of a security or fund’s performance without penalizing it for upward price changes. A minimum acceptable return of 0% has been used in the calculation.
Spot Price is the current price at which a particular security can be bought or sold at a specified time and place. A security’s spot price is regarded as the explicit value of the security at any given time in the marketplace.
Spot Yield refers to the price quoted for immediate settlement on a commodity, security, or currency that reflects market expectations of future price movements.
Spread Method is a trading strategy of simultaneously buying a particular security and selling a related security against it.
Spread Traders simultaneously purchase of one security and sell a related security. Spread trades are usually executed with options or futures contracts, but other securities are sometimes used. They are executed to yield an overall net position whose value, called the spread, depends on the difference between the prices of the securities. Spread trades are executed to attempt to profit from the widening or narrowing of the spread, rather than from movement in the prices of the securities directly. Spreads are either “bought” or “sold” depending on whether the trade will profit from the widening or narrowing of the spread.
SSE Composite, short for the Shanghai Stock Exchange Composite Index, is a stock market composite made up of all the A-shares and B-shares that trade on the Shanghai Stock Exchange (SSE).
Standard Deviation is a statistical measure (single number) that sheds light on historical volatility. A volatile investment will have a higher standard deviation, while the more stable investment will have a lower standard deviation.
A Stop-Loss is a stop order for which the specified price is below the current market price and the order is to sell.
Structured Products are designed to facilitate highly customized risk-return objectives. The U.S. Securities and Exchange Commission (SEC) Rule 434 defines structured securities as "securities whose cash flow characteristics depend upon one or more indices or that have embedded forwards or options or securities where an investor's investment return and the issuer's payment obligations are contingent on, or highly sensitive to, changes in the value of underlying assets, indices, interest rates or cash flows."
Style Drift is the divergence of a mutual fund from its stated investment style or objective. Style drift occurs as a result of intentional portfolio investing decisions by management, a change of the fund's management or, in the case of stocks, a company's growth.
A Swap is a derivative contract through which two parties exchange financial instruments. These instruments can be almost anything, but most swaps involve cash flows based on a notional principal amount that both parties agree to. Usually, the principal does not change hands.
A Systematic Trading Strategy (also known as Quantitative) employs computer-driven, mathematical models to identify when to buy or sell an instrument according to rules determined before a trade is made, generally with little or no human intervention once a mathematical formula has been entered.
Technical Analysis is based on the theory that the study of the commodities markets themselves provides a means of anticipating the external factors that affect the supply and demand of a particular commodity in order to predict future prices. Technical analysis operates on the theory that market prices at any given point in time reflect all known factors affecting supply and demand for a particular commodity. Consequently, only a detailed analysis of, among other things, actual daily, weekly and monthly price fluctuations, volume variations and changes in open interest are of predictive value when determining the future course of price movements.
Time-Valuation refers to something that changes over time.
Total Cumulative Return is the return or yield on an investment or portfolio over a given period of time, expressed in non-annualized terms.
Tracking Error is a measure of how closely a portfolio follows the index to which it is benchmarked. The best measure is the root mean-square of the difference between the portfolio and index returns.
A Trade Signal is a sign, usually based on technical indicators, that it is a good time to buy or sell a particular security. Trade signals come in a variety of forms, including bull or bear pennants, rectangles, triangles and wedges, as well as head-and-shoulders chart patterns. Trade signals may also bring attention to abnormal volumes, options activity and short interest.
Trailing Stop is a stop-loss order set at a percentage level below the market price, for a long position. The trailing stop price is adjusted as the price fluctuates.
Trend Anticipation is the act of investors choosing investments that have performed well within another portfolio in anticipation that the trend will continue.
A Trend-Following Strategy seeks to capitalize on momentum or price trends across global asset classes by taking either long or short positions as a trend is underway. Price trends are created when investors are slow to act on new information or sell prematurely and hold on to losing investments to long. Price trends continue when investors continue to buy an investment that is going up in price or sell an investment that is going down in price.
Trend-Plus is a strategy that is primarily trend-following but tends to use enhancements not generally used by pure trend-followers. Examples of these enhancements might include other models such as non-trend, mean-reversion, etc., or involve modifications of traditional trend-following techniques and models.
Turtle Trading/Traders is a nickname given to a group of traders who were a part of a 1983 experiment run by two famous commodity traders, Richard Dennis and Bill Eckhardt. The goal of the study was to prove whether being a great trader was a genetic predisposition or whether it could be taught.
UCITS stands for “Undertakings for Collective Investments in Transferable Securities”. UCITS provides a single European regulatory framework for an investment vehicle which means it is possible to market the vehicle across the EU without worrying which country it is domiciled in. Designed to enhance the single market while maintaining high levels of investor protection, UCITS funds provide investors with some assurance that certain regulatory and investor protection requirements have been met.
A Unit Investment Trust (UIT) is an exchange-traded mutual fund offering a fixed (unmanaged) portfolio of securities having a definite life. A UIT is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and is classified as an investment company. UITs are assembled by a sponsor and sold through financial advisors to investors. A UIT portfolio may contain one of several different types of securities. The two main types are stock (equity) trusts and bond (fixed income) trusts. Unlike a mutual fund, a UIT is created for a specific length of time and is a fixed portfolio, meaning that the UIT’s securities will not be sold or new ones bought, except in certain limited situations.
Value themes seek to identify and take positions on the basis of discrepancies identified between prevailing market prices of assets and their long-term intrinsic values. An asset’s intrinsic value refers to the perception of the asset’s true value based upon fundamental analysis of underlying factors and their relative evolvement over time.
VIX Index is a forward-looking measure of equity market volatility. Since its introduction, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility
Volatility is a measure of fluctuation in the value of an asset or investment. Lower volatility improves the stability and lowers the risk of an investment portfolio.
Volatility Expansion Methodology is a set of trading rules that generate buy or sell signals if there is a change in some measure of market volatility such as an increase in the daily trading range (high to low), or if the opening price gaps sharply up (or down) sharply.
Wilshire U.S. Large-Cap Growth Index is an unmanaged market capitalization-weighted index of growth-oriented stocks of the largest U.S. domiciled companies that are included in the Index. Growth-oriented stocks tend to have higher price-to-book ratios and higher forecasted growth values
Wilshire U.S. Large-Cap Value Index (FTW5000) is a broad-based market capitalization-weighted index that seeks to capture 100% of the United States investible market
Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. It is considered a long-term bond yield but is expressed as an annual rate.
Yield-to-Worst (YTW) is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting. It is a type of yield that is referenced when a bond has provisions that would allow the issuer to close it out before it matures.
This information is educational in nature and does not constitute investment advice. These views are subject to change at any time based on market and other conditions and no forecasts can be guaranteed. These views may not be relied upon as investment advice or as an indication of any investment or trading intent. This content should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by AXS Investments or any third-party. You are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. AXS Investments does not provide tax or legal advice and the information herein should not be considered as such. AXS Investments disclaims any liability arising out of your use of the information contained herein. You should consult your legal or tax professional regarding your specific situation. All investing is subject to risk, including the possible loss of the money you invest. Alternative investments may not be suitable for all investors.