Disclaimer for charts: Investors cannot invest directly in an index. Past performance is no guarantee of future results. Strategies striving to mirror an index will have different returns due to tracking error, management fees and trading expenses. STIR Research is intended for a professional audience for informational purposes only and is not a recommendation to buy or sell any security, nor is it intended as specific advice for any individual investor’s portfolio. STIR is NOT a registered investment advisor or broker-dealer. STIR provides experienced independent quantitative research.

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Index of Definitions

 

If Wall Street was indeed a one-way street, a “Bull Market” street, everyone would be wealthy and there would be no need for STIR’s specialized focus on quantitative analysis and risk management. The reality of the history of the financial market is that every Bull Market comes to an end; there is a trade-off between risk and return. Oversized gains are inevitably followed by oversize declines. While the overall trend is upward, market declines can seriously erode wealth and your ability to achieve your goals. The truth is that Wall Street experiences three types of markets: Bear, Bull, and Neutral. With STIR Research we have covered all market environments.

 

No matter which way the market is heading, STIR Research can help!

 

 

Aggregate Bond Index (AGG)

Barclays U.S. Aggregate Bond Index, which measures the performance of the total U.S. investment-grade bond market. The underlying index includes investment-grade U.S. Treasury bonds, government-related bonds, corporate bonds, mortgage-backed pass-through securities, commercial mortgage-backed securities and asset-backed securities that are publicly offered for sale in the United States.

All Country World Index (ACWI)

MSCI ACWI captures large and mid cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. With 2,446 constituents, the index covers approximately 85% of the global investable equity opportunity set.

 

All Country World Index ex U.S. (ACWX)

The MSCI ACWI EX USA INDEX is an equity benchmark designed to capture international stock performance. It is cap weighted and aims to capture 85% of the total market capitalization. Component firms are adjusted for float and must meet objective criteria for inclusion in the index.

 

Alpha

Alpha statistically measures investment skill. It is the extraordinary return that an actively managed portfolio achieves versus a market or passive benchmark on a risk-adjusted basis. Alpha can be derived by using past performance or by estimating it based on a current basket of securities relative to the basket of securities representing the market benchmark.

 

Annualized Return

The average yearly performance of the fund; for any period less than one year, the total return for the fund is used.

 

Asset Classes

A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments). Commonly, equity asset classes are also broken into investment styles like Large Growth, Large Value, Midcap Growth, Midcap Value, Small Growth and Small Value and often referred to as asset classes or styles.

 

Bear Market

Dominated by an atmosphere of generally falling prices, Bear Markets often see many individual stocks hit new 52-week lows. Typically a Bear Market is considered a decline of more than 20% in the broader-based indicators.

 

Beta

Beta is a standardized measure of covariance. A statistical measurement of the correlation between the performance of a stock, fund or portfolio, and the performance of the standard benchmark. A low beta implies lower risk and a higher beta implies higher risk than the benchmark. As an example, if a portfolio has a beta of 1, then its decline is expected to match that of the market, while a portfolio with a beta of 0.9 should decline only 9% if the market were to decline 10%. Beta can be derived using historical return data or by estimating it using current portfolio holdings relative to the market basket of securities. Beta is used as a measure of risk.

 

Bull Market

This market environment is one of generally rising prices with the popular indices reaching new highs

 

 

Capital Preservation or Preservation of Capital

An investment strategy where the primary goal is to preserve capital and prevent loss in a portfolio. Preservation of capital is a priority if markets experience a downdraft. This strategy would necessitate investment in the safest short-term instruments, such as Treasury bills and certificates of deposit.

 

 

Cyclical Bear

Cyclical swings in the market can last from several months to a few years, and are designed to be in line with the primary trend. A cyclical bear market is a cyclical swing when the market is in a downtrend.

 

 

Cyclical Bull

Cyclical swings in the market can last from several months to a few years, and are designed to be in line with the primary trend. A cyclical bull market is a cyclical swing when the market is in an uptrend.

 

 

Efficient Frontier

The line on a risk-reward graph comprised of all efficient portfolios. A portfolio that provides the greatest expected return for a given level of risk, or equivalently, the lowest risk for a given expected return, also called optimal portfolio.

 

 

Euronext Top 100 Index

The Euronext 100 Index is a market capitalization weighted index of the 100 largest and most liquid stocks traded on the Euronext. It represents the blue chip segment of listed stocks on the Euronext.

 

 

International Investing

The strategy of selecting globally-based investment instruments as part of an investment portfolio. International investing includes such investment vehicles as mutual funds, American Depository Receipts, exchange-traded funds (ETFs) or direct investments in foreign markets. People often invest internationally for diversification, to spread the investment risk among foreign companies and markets; and for growth, to take advantage of emerging markets.

 

 

Japan Nikkei 225 Index

The Nikkei 225 Stock Average is a price weighted average of 225 top rate Japanese companies listed in the First Section of the Tokyo Stock Exchange.

 

 

Lehman Long Bond Index

This index is an un-managed index that is a widely recognized indicator of U.S. Government Bond performance. The returns reflect no deduction of fees, expenses, or taxes.

 

 

Market Cycle

The period between the two latest highs or lows of the S&P 500 or any market index, showing net performance through both an up and a down market.

 

 

Money Market

The trade in short-term, low-risk securities, such as certificated of deposit and U.S. Treasury notes.

 

 

MSCI EAFE Index

Widely used value-weighted benchmark developed by Morgan Stanley tracking foreign-traded stocks (not U.S.) consisting of an aggregate of 15 individual country indexes representing major stock markets of the world.

 

 

Persistency in Price

The tendency of a security's cost to continue moving in its present direction. A stock that has been in a strong upward or downward trend for weeks will display a high degree of price persistence. Conversely, a stock that has been trading in a choppy manner for an extended period of time will display a low degree of price persistence.

 

 

Portable Alpha

It is an investment strategy that attempts to generate alpha for a total investment strategy by combining a purely active, non-correlated overlay strategy with a low-cost portfolio that represents exposure to the market. This alpha is “portable” because its effect, positive or negative, can be separated from the performance of the benchmark.

 

 

Qualitative Analysis

Securities analysis that uses subjective judgment based on nonquantifiable information, such as management expertise, industry cycles, strength of research and development, and labor relations.

 

 

Quantitative Analysis

A business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically. Quantitative analysis can be done for a number of reasons such as measurement, performance evaluation or valuation of a financial instrument. It can also be used to predict real world events such as changes in a share price.

 

 

R-Squared

A statistical measure that describes the fraction of investment risk in portfolios that can be associated with market risk. It shows what fraction of variance of the actively managed portfolio can be explained by the market. R-squared values typically range from 80 to 100, and an R-squared of 100 means that all of the movements of a portfolio can be completely attributed to movements in the index.

 

 

Relative Strength Analysis

Relative strength measures how a fund, asset class, or a sector is performing relative to other funds, sectors, or asset classes over a period of time. The goal is to identify asset classes or funds with the greatest potential for appreciation given current market conditions. This unemotional tool separates the leaders from the laggards.

 

 

Risk Management

Risk Management is the process of assessing, managing and mitigating losses in downward markets and equally not missing the benefits and participating in advancing markets.

 

 

Russell 1000 Large-Cap Growth Index

Russell 1000 Index consists of the largest companies in the Russell 3000 Index. This index represents the universe of large capitalization stocks from which most active money managers typically select. The Large-Cap Growth measures the performance of large-cap growth stocks with the highest price to book ratios and forecasted growth within the largest 1000 U.S. companies.

 

 

Russell 1000 Large-Cap Value Index

Russell 1000 Index consists of the largest companies in the Russell 3000 Index. This index represents the universe of large capitalization stocks from which most active money managers typically select. The Large-Cap Value measures the performance of large-cap value stocks with the lowest price to book ratios and forecasted growth within the largest 1000 U.S. companies.

 

 

Russell 1000 Mid-Cap Growth Index

Russell 1000 Index consists of the largest companies in the Russell 3000 Index. This index represents the universe of large capitalization stocks from which most active money managers typically select. The Mid-Cap Growth measures the performance of the mid-cap growth sector of the U.S. equity market, those companies with the higher price to book ratios and higher forecasted growth within the largest 1000 U.S. companies.

 

 

Russell 1000 Mid-Cap Value Index

Russell 1000 Index consists of the largest companies in the Russell 3000 Index. This index represents the universe of large capitalization stocks from which most active money managers typically select. The Mid-Cap Value measures the performance of mid-cap value sector of the U.S. equity market, those companies with the lower price to book ratios and lower forecasted growth within the largest 1000 U.S. companies.

 

 

Russell 2000 Small-Cap Growth Index

Russell 2000 Index is a broad measure of stock performance for the largest U.S. small-capitalization companies. It is comprised of the smallest 2000 companies in the Russell 3000 Index representing approximately 11% of the Russell 3000 total market capitalization. The Small-Cap Growth measures the performance of the small-cap growth sector of the U.S. equity market, those companies with the highest price to book ratios and higher forecasted growth within the smallest 2000 U.S. companies of the broad market Russell 3000 Index.

 

Russell 2000 Small-Cap Value Index

Russell 2000 Index is a broad measure of stock performance for the largest U.S. small-capitalization companies. It is comprised of the smallest 2000 companies in the Russell 3000 Index representing approximately 11% of the Russell 3000 total market capitalization. The Small-Cap Value measures the performance of the small-cap value sector of the U.S. equity market, those companies with the lowest price to book ratios and lower forecasted growth within the smallest 2000 U.S. companies of the broad market Russell 3000 Index.

 

 

Rydex U.S. Government Bond Fund

This fund seeks to provide investment results that correspond to a benchmark for U.S. Government securities. The Fund’s current benchmark is 120% of the price movement of the Long Treasury Bond.

 

 

S&P 500 Index

An index intended to capture the returns of 500 widely held stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index serving as a major benchmark of U.S. equity performance.

 

 

Secular Markets

A market driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period of time. In a secular bull market, strong investor sentiment drives prices higher, as there are more net buyers than sellers. In a secular bear market, weak sentiment causes selling pressure over an extended period of time.

 

 

Standard Deviation

A measure of the variability of the performance of the fund over a period of time. The standard deviation is always calculated for a whole number of years, with a minimum of three years.

 

 

Trading Market

A Trading Market is a market with sidewise movement, where the market advances for a brief period of time, then declines, wiping out the previous gains. This is followed by another advance, retracing the previous decline, followed by another decline, and the cycle continues, with little if any, forward movement in the market.

 

 

Ultra Funds/ ETF's

A class of exchange-traded funds (ETF) or funds that employs leverage in an effort to achieve double (2X) the daily return of a set benchmark. The first ultra-fund was launched by Rydex Investments in the mid 1990’s, ultra ETFs were launched in 2006 and the class has grown to include different ETFs with underlying benchmarks ranging from broad market indexes, such as the S&P 500 and Russell 2000, to specific sectors, such as technology, healthcare and basic materials. Ultra funds/ETFs now include any fund that uses leverage, 1.5X, 2X and 3X.

 

 

U.S. Dollar Index

The U.S. dollar Index provides a general indication of the international value of the U.S. Dollar. The Index does this by averaging the exchange rates between the U.S. Dollar and six major world currencies. These 17 countries constitute the bulk of international trade with the United States and have well-developed foreign exchange markets with rates freely determined by market participants.