Definitions
Absolute Return Strategies - investment portfolios that seek to deliver positive returns in both up and down market environments.
Alpha – a measure of excess return, or value added on a risk-adjusted basis, versus the benchmark index. A positive alpha of 1.0 means the investment has outperformed its benchmark index by 1%.
Basic Alpha – at ETF PM, Basic Alpha is the name of our absolute return strategy with the least amount of position turnover and the lowest fee structure.
Beta - a measure of the volatility, or risk, of an investment versus the market as a whole. A beta of 1 suggests that an investment’s price may move in synch with the overall market.
Correlation and Correlation Coefficient – correlation measures the degree that two investments move in relation to each other. The correlation coefficient ranges between -1 and +1. Two investments that move in lockstep would have correlation coefficient of +1.
Credit Suisse/Tremont Hedge Fund Index – a combination of roughly 496 funds across 10 style-based sectors that reflect the hedge fund industry. The index is asset-weighted in order not to underweight top performers or overweight decliners. Member funds report monthly performance and audited financial statements.
Exchange-Traded Funds (ETFs) – Typically described as index funds that trade like stocks. When employed passively, ETFs may offer investors low costs and tax efficiency. Passive and diverse core ETF portfolios, and/or index funds, are strongly recommended by David Swensen in his book “Unconventional Success: A Fundamental Approach to Personal Investment.”
Drawdown – the percentage peak-to-trough decline of an investment measured on a month-end basis.
Free Core Portfolios – various diversified growth portfolios of passively managed exchange-traded funds (ETFs) designed to show investors core-multi-asset-class diversification.
Rules-Based Strategy – an investment strategy based on various pre-determined investment rules. Indexing is a passive form of rules-based investing while quantitative strategies would be an active example. Fundamental discretionary strategies differ in that they may be influenced by investor opinion and/or emotion to a greater degree.
S&P 500 Index – a passive index of common stocks that represents the U.S. stock market. The index is mainly comprised of large cap companies and reflects roughly two-thirds of the total domestic stock market value.
Sharpe Ratio – a measure of risk-adjusted performance in order to differentiate performance between portfolio management skill and excess risk. A larger Sharpe ratio indicates better risk-adjusted performance.
Standard Deviation – the dispersion of a set of data from its mean which measures the volatility or risk of an investment. The higher the volatility of the investment returns, the higher the standard deviation.
Strategic Market Return – at ETF PM, we define the strategic market return as the growth portfolio return achieved through multi-asset class diversification such as our free core portfolios.
Trend Following – an intensely active rules-based investment strategy that reacts to existing trends in the price and volatility of securities across multiple asset classes.
Value Added Monthly Index (VAMI) – a value or a chart reflecting the monthly growth of a hypothetical $1,000 in a given investment over time.
Get answers to frequently asked questions.